As we witness the evolution of the regulatory landscape across the MENA region, it was timely for us to investigate and lift the lid, on what is keeping the region’s legal decision-makers awake at night.
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Oman’s new commercial companies law (CCL) is now in force and repeals in full the previous law that was passed in 1974. Al Tamimi & Company’s corporate team have reviewed the CCL and note a number of progressive changes to the rules governing legal entities in Oman, including the changes that will require companies to take action over the coming months.
The key structural highlight of the CCL is that limited liability companies – the entry level incorporation vehicles that are commonly used to conduct business in Oman – can now be incorporated with a single natural person or corporate shareholder. It is pertinent to highlight that this single shareholder option is not an explicit repeal of the Foreign Capital Investment Law of Oman and the option to incorporate a legal entity with a single shareholder is likely to be available only to pure GCC companies, GCC citizens and the investment arms of the Omani Government.
A number of other key modifications have been introduced by the CCL. While many of those changes are subtle, modernising provisions, others have been designed clearly with the aim to enhance corporate governance and transparency. We have highlighted some of the key changes below along with some suggested guidance for companies to follow.
The company must now maintain a register of interests that records direct/indirect interests in transactions involving a director. Interested directors are under an obligation to notify the company of such interests within a short period following appointment.
Cash distributions that are declared for payment to shareholders can now be partly converted into equity instead of receipt of a cash dividend. This is particularly helpful for companies that wish to retain profits to fuel expansion.
The shares of joint stock companies can now be converted into global depositary receipts to enable investors outside Oman to trade the equity of companies that are listed on the Muscat Stock Market (MSM). This provision is likely to have the effect of increasing foreign direct investment and providing the ability to raise funds in a different currency.
The board of directors and auditors are now stated to be jointly liable for damage caused by them in failing to preserve the company’s available share capital. The practice undertaken by the Ministry of Commerce and Industry has now been written into the law such that if a company’s accumulated losses exceed its registered share capital by 25% or more, the board is under an obligation to turn the company around. If the differential exceeds 50%, an extraordinary general meeting must be held to determine the progress of the company.
The time period for creditors to raise objections to a reduction of capital has been reduced from 60 to 15 days, following publication of the notice in the daily press. This is a significant change and will reduce the time taken to make the reserves available that commonly arise from a reduction.
Companies have twelve months to comply with the requirements of the CCL and the regulations that flow from the CCL, once those regulations have been passed by the Ministry of Commerce and Industry and the Capital Markets Authority.
Many companies in Oman will have adopted constitutional documents a number of years ago without subsequent amendment to reflect international practice and corporate governance improvements. As a consequence of the changes introduced by the CCL, limited liability companies and joint stock companies will undoubtedly require adjustments to their articles of association and will need to implement provisions and adopt systems that deal with conflict of interests and related party transactions. Resolutions and other documents that are required to be filed with the Ministry of Commerce must now be filed within seven days. Failing to implement some of the changes may create exposure of risk of criminal and civil sanctions to the company, the authorised managers, directors and shareholders. Please speak to us to undertake a consultation of changes that may be required both to your constitutional documents and/or your current systems and procedures with regards to related party transactions and managing conflicts of interest.
Other companies may benefit from the ability to form single person companies and should consider moving ownership of the share capital from the minority to the majority shareholder, with consent from the Ministry of Commerce and Industry. As highlighted above, this option is unlikely to be available for companies that are subject to the Foreign Capital Investment Law of Oman, which continues to remain in force.