The first Law Update of 2024 is here, and our first focus of the year spotlights Healthcare and Lifesciences, a sector that is undergoing significant growth and development across the MENA region.
Our focus provides an insight into some of the most important regulatory updates across the region, such as the UAE’s groundbreaking law on the use of human genome, Kuwait’s resolution on nuclear and radioactive materials, the new regulations for healthcare services in Qatar, Egypt’s healthcare regulatory framework, and the impact of the Saudi Civil Transactions Law on the healthcare and life sciences sector … and there is so much more!
Beyond the healthcare pages our lawyers share with you multi-sector insights where you will discover articles on Dubai’s DIFC regulatory framework for startups, Bahrain’s commercial agencies law, and we also shed light on Kuwaiti civil code and the advantages of setting up a joint stock company in Saudi Arabia.Read the full edition
The Securities and Commodities Authority (the “SCA”) of the United Arab Emirates (“UAE”) has recently made significant changes to its existing corporate governance rules as set out in the Chairman of the Authority’s Board of Directors’ Decision no. (3/RM) of 2020 (the “Governance Code”). The changes are enacted in SCA’s Board of Directors Decision no. (2/R.M) of 2024, published on the 15th of January 2024, with effect from the 16th of January 2024 (the “Amendment Decision”).
Set out below are the most significant changes to the UAE’s corporate governance architecture following the Amendment Decision:
The Amendment Decision mandates several changes to the Board of Directors’ provisions in the Governance Code. For example, the Amendment Decision requires a majority of the Board members to be non-executive, with at least a third of the Board members to be independent (Article 9(5) of the Governance Code previously required the majority of the Board to consist of independent non-executive members).
The Amendment Decision adds a new requirement for candidate directors to produce a criminal status certificate issued or authenticated by an official authority within the UAE, or outside the UAE if the candidate resides overseas, subject to the certificate having been duly authenticated in accordance with the procedures of the resident country. Failure to produce the certificate, amongst other things, shall deem an application for Board candidacy null and void.
The Amendment Decision also grants a period of thirty (30) days for a company’s Board to appoint a director if a Board seat becomes vacant – alternatively, the Board is obliged to invite the general assembly to elect a member.
Previously, the Governance Code defined “Related Parties” to include “the chairman, Board members, members of the senior executive management and the employees of the company, in addition to the companies to which any such persons contribute by at least 30% of its share capital, as well as the sister or affiliate companies or subsidiary companies.” The Amendment Decision extends the scope of this definition to include parent companies and major shareholders (those holding 5% or more of the share capital and/or the voting rights) in the company, amongst other additions.
The Amendment Decision has removed paragraph “Second” of Article 19, which previously allowed a Board member who is an employee of the parent company or any of its subsidiary companies to be considered independent. This provision applied in cases where any of these entities is a Government Entity or a company owned by the Government to an extent of at least 75%, or any of their subsidiary companies.
Companies that relied on the previous Government exemption are urged to assess whether the composition of their Board of Directors is impacted by such a change.
The Amendment Decision introduces a definition for “Supervisory Committee” as a decision-making committee in the dual structure governance option. This committee, comprised of non-executive Board members, is responsible for monitoring the affairs of the company’s executive committee and management.
The Amendment Decision provides an exemption from the Governance Code with respect to free zone companies and financial free zone companies. Previously, Article 3 of the Governance Code limited its exemption language to foreign companies listed on the market, otherwise applying to all public joint stock companies listed on the market. This clarifies the (non) applicability of the Governance Code to free zone companies. However, in practice, listed UAE free zone companies are most likely to comply with the Governance Code, even though it is not mandatory.
Article 8(2) of the Governance Code provides that Board Secretaries must possess a minimum qualification of a degree in law, finance, accounting, administration or other equivalent, along with at least three years of practical experience. Additionally, it is stipulated that it is preferable if Board Secretaries have no less than three years’ worth of experience in corporate governance.
The Amendment Decision relaxes the criteria for Board Secretary appointments. Now, the minimum requirement is a university degree, as well as experience and competence in Board secretarial tasks alongside their experience and competence in their role as a secretary. While the Board retains the authority to dismiss and appoint a Board Secretary, the Amendment Decision expands this by granting the Board the right to intervene in the Board Secretary’s work and/or impose penalties, provided that the SCA is notified of their decision.
Article 76 of the Governance Code provides for disclosure of an “Integrated Report” including a company’s Board report, auditor report, annual financial data and notes thereto, governance reports, and the Sharia Control Committee’s report.
The Amendment Decision stipulates a timeline for disclosure of the Integrated Report, being (i) within the first three (3) months of the company’s financial year, or (ii) at least ten (10) days before the company’s annual general meeting, whichever occurs first in the relevant year.
The Amendment Decision adds a new restriction under Article 9(7) of the Governance Code. It states that no agenda item shall be introduced and/or added at the general assembly to amend a company’s articles of association to increase the number of Board members, after the nomination period for the Board of Directors’ elections opens.
The Amendment Decision introduces a requirement for the audit committee to produce an annual report detailing its activities. This report, endorsed by the chairman of the audit committee, is required to be presented as a separate document within the company’s annual corporate governance report, in accordance with guidelines specified in the Governance Code. The chairman of the audit committee is obliged to participate in the annual general assembly meeting to address any queries concerning activities of the audit committee.
Previously, Article 69(5) of the Governance Code allowed for the role of the compliance officer and the internal auditing function to be combined. Under the Amendment Decision, the functions of the compliance officer and the internal audit are no longer allowed to be merged, nor can they be combined with any other position in the company.
Article 7(c) of the Governance Code allows a company’s Board to elect a managing director. The Amendment Decision introduces an additional restriction, prohibiting a managing director from acting as the chief executive officer or general manager of any other company.
Article 14(7) of the Governance Code includes a general requirement for a company’s Board to ensure the use of appropriate regulation systems for risk management, outlining potential risk and addressing the same transparently. The Amendment Decision revises this requirement into a more specific, detailed obligation for the Board to ensure that it adopts internal control and risk management frameworks in line with global practices, as specified by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Further provisions under the revised Article 14(7) detail the steps to be taken by a company’s Board to fulfill these purposes.
The Amendment Decision provides that it shall be enforceable the day after this publication date. This means that the Amendment Decision was enforced starting from the 16th of January 2024. The elimination of the Government independence exemption will require companies that had relied on this exemption to review the Board’s independence. It is anticipated that if a review necessitates changes in the Board’s composition to align with the amended Governance Code, these changes should ideally be implemented during the next Board rotation. It is recommended to consult with the SCA on a case by case basis. Please note we are able to assist in this process.
At Al Tamimi & Company we regularly advise local, regional, global businesses and financial institutions on matters concerning Corporate Governance. Our expertise and connections extend to the capital markets sector, including with SCA, the DFM and the ADX. Our experience includes updating the Company’s articles of association to be compliant with the rules and regulations in force, drafting and reviewing corporate governance policies, and advising on their compliance with best practice measures and regulatory requirements.