- ADGM - New Financial Free Zone for Abu Dhabi
- April 22, 2015
- Law Firm: Dentons Canada LLP - Toronto Office
- Abu Dhabi Global Market (ADGM) is the new financial free zone for Abu Dhabi and is to be located on Al Maryah Island. ADGM has recently published a first tranche of draft regulations for open consultation, which will close on 5 February 2015. ADGM is set to be launched later this year as part of the UAE's efforts to continue to diversify its economy and to establish the UAE as a global financial marketplace.
ADGM's aim is to provide a clear and fully transparent legal and regulatory framework which adheres to the highest international standards and is compatible with the world's leading financial centres.
The draft regulations which have been published set out the fundamental legal regime on the basis of which businesses will operate in ADGM. They include regulations providing for English common law to be the underlying legal framework for ADGM, subject to and supplemented by specific regulations made in ADGM. The other regulations included in this consultation comprise those relating to companies, commercial licensing, insolvency, employment and real estate. This consultation does not cover the regulation of financial services or exchanges in ADGM. Draft financial services regulations and listing rules will be consulted upon in due course.
In providing for the direct application in ADGM of English common law, as well as more than 50 English statutes relating to areas of commercial and civil law such as contract terms and damages, ADGM has moved away from the approach taken in other Gulf regional financial centres. ADGM has adopted a similar model to that utilised in other common law jurisdictions, such as Hong Kong and Singapore, which apply English common law directly, rather than by codifying it. As a result, English common law, as it stands from time to time, will govern matters such as contracts, tort, trusts, equitable remedies, unjust enrichment, damages, conflicts of laws, security and personal property. English court jurisprudence will also apply with rulings of the UK Supreme Court binding on ADGM courts. However, there will be no appeal from ADGM courts to any UK court, nor any formal link between them.
The draft ADGM Companies Regulations are based on the UK Companies Act 2006. While broadly replicating the provisions in the UK Act, the ADGM Companies Regulations contain a number of amendments and additions. This is because ADGM wishes to take the best of the UK approach but with consideration given to certain matters that have been abandoned in other jurisdictions or recommended by commentators as requiring future amendment. ADGM has also introduced the concept of a ''restricted scope company'' (RSC), which will have fewer disclosure and compliance requirements. RSCs are envisaged as being holding vehicles for professional investors for whom less regulation and a greater degree of confidentiality may be appropriate.
The draft ADGM Insolvency Regulations follow a similar approach; they are based on UK insolvency legislation and aim to encourage a rescue culture for companies in financial difficulty. So, for example, in addition to provisions for winding up on insolvency, the regulations allow for an administrator to be appointed who will be obliged to have regard to the interests of a company's creditors as a whole and also provide an option for creditor compromise, through a ''deed of company arrangement'', in order to exit an administration. This is based on an approach used in Australian companies legislation, rather than the ''company voluntary arrangement'' used in the UK.
The draft Operating Regulations provide the framework for a commercial licensing regime (with related investigation and enforcement powers) in respect of "controlled activities". These are not yet defined but are expected to include those activities which would generally be regulated in other jurisdictions, such as financial services, legal and accounting services, medical practitioners, hotels, restaurants and real estate-related activities. The details will be set out in rules made by the ADGM Board.
The draft Employment Regulations set out a codified set of provisions governing the relationship between employers and employees (applicable in place of the UAE Federal Labour Law) but do not include provisions for the enforcement of rights, which will be covered by separate employment tribunal regulations. The regulations include various employee rights but do not introduce a system requiring employers to have particular reasons for, or to follow required procedures on, dismissal and so they will not introduce UK-style unfair dismissal or redundancy regimes.
Under the draft Real Estate Regulations freehold land ownership and transfer will remain governed by Abu Dhabi laws which are applicable in the rest of the Emirate. However, the regulations will provide a common law style system for the registration and regulation of other interests in land and will recognise interests in land such as leaseholds, easements, tenancies in common, joint tenancies and life estates.
Accordingly, the first tranche of draft regulations, when implemented, will provide a basic legal regime which will be familiar to international investors who are experienced in operating in the world's major financial centres. Further drafts are awaited to cover crucial areas such as the regulation of financial services as well as a number of important details which have not yet been fleshed out in the initial drafts.