Hurdles to overcome in UAE acquisitions compared to UK acquisitions
English Law Focus
Richard Catling Partner,Corporate Commercial
Anna RobinsonSenior Knowledge Lawyer (Consultant),Corporate Commercial
For investors who are experienced with acquisitions in the UK or other common law jurisdictions, there are some surprises when dealing with acquisitions in the UAE. This article highlights a few of the hurdles that need to be dealt with in order to successfully complete a share acquisition and protect the contracting parties in a transaction where the target is in the UAE. Our lawyers at Al Tamimi have experience in advising on transactions in both the UK and the UAE and can successfully guide international investors in the differences and how best to deal with them.
In the UK, subject to the stamping process and updating the register of members, the share transfer process can be legally effected on the signing and dating of the share transfer form, meaning the date of the share transfer is entirely within the control of the parties.
The UAE is made up of the onshore jurisdictions in each Emirate and a number of freezones. The process for the legal transfer of shares varies between each onshore Emirate and each free zone.
There are two financial free zones in the UAE (the Abu Dhabi Global Market and the Dubai International Financial Centre) operating common law share transfer processes and this article will not focus on these two free zones and will instead focus on the other free zones and ‘onshore’ jurisdictions as these present the major differences to the UK system.
In order to transfer shares in the free zones and ‘onshore’ jurisdictions’ the approval of the relevant regulator is required. Whilst the process varies between the jurisdictions, in general the process requires:
obtaining an initial approval from the relevant regulator to the share transfer;
when this initial approval is granted the parties must attend either a notary public or the offices of the relevant authority of the free zone to execute the local share transfer documents in person; and
following the execution of the share transfer documents, the relevant regulator will process the application and (all being well) will issue revised constitutional documents for the target company evidencing the share transfer.
The fact that there is a prolonged process requiring third party consent differs substantially from the process in the UK and raises a number of issues:
It is not possible to ensure that completion takes place on a particular day – being unable to time completion causes issues where parties wish for completion to take place on the first or last day of a month for accounting purposes. It is not possible to time multiple completions within one jurisdiction or across multiple jurisdictions simultaneously and it is not possible to have acquisition documents providing for simultaneous exchange and completion as would be an option in the UK.
Whilst it is a remote risk, there is a possibility that the regulator will reject the share transfer application – this risk is not relevant in the UK as any regulatory consents would be satisfied as conditions to closing rather than form part of the closing process.
The impact of uncertainty around when closing will actually be achieved means that all acquisition contracts need to be drafted with certainty regarding what the parties will do should the regulator reject the application. For example termination rights, unwinding of any pre-closing steps that have been taken including other share transfers that may have already taken place in other jurisdictions or obligations on both parties to remedy any matters that may be the cause of the rejection of the application. There also needs to be certainty regarding the delivery of any completion deliverables whenever the revised constitutional documents are received and completion takes place. These steps are additional to the provisions that are ordinarily found in split exchange and completion documents in the UK as the closing/regulator approval process is carried out following the satisfaction of conditions process.
In the UK it is common for payment for the acquisition of shares to be made to a solicitor who will hold the funds pursuant to a solicitor’s undertaking to be released to the seller when completion takes place or returned to the buyer if completion does not occur. This gives both parties certainty that the funds will only be transferred to the seller when the shares have been transferred and can be returned to the buyer if completion does not take place.
The regulations applicable to solicitors in the UAE are not the same as in the UK and therefore the majority of law firms will not hold the purchase price on account for their clients and the concept of an “irrevocable solicitor’s undertaking” is not recognised. This means that parties to a transaction have to either make payments directly to each other or engage escrow agents to hold either cash or cheques for release in accordance with the required payment timings.
Following on from the issue above regarding the timing of completion being in the hands of the regulators there is often debate in the UAE as to when direct payment should be made. The options being (i) payment be made on the date the parties attend the notary/regulator to sign the share transfer documents or on completion. The first option is the time that each of the parties will have signed the share transfer documents and the process is out of their control and the sellers effectively lose their leverage as they have already signed everything required to transfer their shares. However, as shares are not legally transferred until the revised constitutional documents are issued, the buyer’s preferred position would be to only pay on the date of legal transfer; a position that is less advantageous for the sellers as they have already transferred their shares at this point and therefore if the buyer were to fail to pay the sellers would have to bring a breach of contract claim. This matter is commonly negotiated between the parties and if no agreement can be reached the remaining option is for the parties to resort to third party escrow.
Escrow arrangements can be entered into in relation to either the holding of a cheque, or preferably a manager’s cheque which is a cheque that is issued by a bank regulated by the Central Bank of the UAE confirming that the funds are available and effectively blocked for the purpose of honouring the cheque. Upon the revised constitutional documents being issued, the escrow agent will release the cheque to the seller in accordance with the terms of the escrow agreement. This arrangement is commonly referred to as a documentary escrow arrangement and is substantially cheaper than a cash escrow account as it is a service that can be provided by certain corporate service providers. However, it is only available where both the buyer and the seller have UAE bank accounts.
The alternative option is a cash escrow account where a bank is used as the escrow agent, an escrow account is set up and cash is paid into such account pending release. This is a more expensive service but is available to foreign investors without UAE bank accounts.
The same issues with escrow accounts as are applicable in the UK are applicable in the UAE: responsibility for escrow agent fees (generally more expensive in the UAE than in the UK), the terms of the escrow agreement release, such as unilateral notification or mutual, termination of the SPA and evidence of the same, objective release mechanics and extensive KYC requirements.
The uncertainty in relation to regulatory consents and timing of closing and the constraints around process for the payment of the purchase price make closing a transaction in the UAE more complicated than in the UK. Therefore, seeking legal advice as to how to overcome the hurdles or otherwise have as much contractual protection as is available against these risks is important. Having advisors who understand the issues and how they differ to what you may be used to, if you are used to operating in common law jurisdictions, is of vital importance.
For further information,please contact Richard Catling and Anna Robinson.
Published in May 2025
