Abu Dhabi Global Market – regulatory developments

On 7 January 2015, Abu Dhabi Global Market (ADGM) released a series of consultation papers setting out its proposals for a suite of regulations governing the core business of the ADGM, specifically in relation to: (1) the application of English law in the ADGM; (2) companies' regulations; (3) operating regulations; (4) insolvency regulations; (5) employment regulations; and (6) real property and strata regulations.

Industry participants have been invited by the ADGM to comment on the draft regulations published with such consultation papers during January and early February and, as such, we will be reviewing the consultation papers and draft regulations, and considering the impact the new rules will have on businesses in the Emirate of Abu Dhabi, the United Arab Emirates, and further afield.

In the meantime, from an initial review of the considerable and comprehensive draft legislation, some key points are immediately evident. We summarise these key points as follows:

1. Applicability of English common law

The regulatory regime of the ADGM will be based, primarily, on English common law. What is particularly interesting about the approach proposed by the ADGM is that English common law will be directly applicable in the ADGM, implemented by way of ADGM regulation, not unlike equivalent implementing regulations promulgated in Hong Kong and Singapore.

Accordingly, English common law will govern matters such as contracts, tort, trusts and equitable remedies, unjust enrichment, damages, conflicts of laws, security, and personal property, and will also incorporate a number of English statutory provisions which modify English common law, such as the Contracts (Rights of Third Parties) Act 1999. Real property matters would be governed by stand-alone ADGM regulation, with freehold ownership being governed by Abu Dhabi law.

While English common law applied in the ADGM would remain subject to any specific ADGM legislation, it would appear that the ADGM's approach is subtly different from the approach adopted by the Dubai International Financial Centre (the DIFC). The jurisprudence and regulatory regime of the DIFC is less explicitly based on English common law (a position demonstrated by the "hierarchy" of laws the DIFC Courts may consider in determining cases).

2. Company regulations

The intention of the ADGM, in relation to company law matters, is to adopt regulations based on the UK Companies Act 2006. In addition to this base legal position, the ADGM is also considering the introduction of certain beneficial elements from other jurisdictions, resulting in (for example) the creation of a new type of corporate vehicle – a "restricted scope company", or RSC – for which the regulatory requirements would be less onerous than for the standard ADGM company. We anticipate that such vehicles could prove attractive for clients looking to establish a "regulation-lite" subsidiary in the ADGM.

3. Licensing

The ADGM is seeking to adopt a streamlined approach to the licensing of businesses while at the same time acknowledging that commerce in the ADGM, as is the case elsewhere in the United Arab Emirates, will remain "activity-based". Accordingly, and as would be expected, the licensing of certain industries and business activities will be controlled and only permissible with the appropriate ADGM licence or exemption. Examples of likely controlled activities include financial services (for which equivalent consultation papers and draft regulations are anticipated in due course from the ADGM); provision of legal and accountancy services; hospitality and food; retail; dealing in or development of real estate; and medical services.

4. Insolvency

In what we regard as a highly encouraging move, the ADGM has proposed that the ADGM's insolvency regulations will be based on the UK Insolvency Act (and Rules) 1986, and other related or proposed UK insolvency legislation, including the draft UK Insolvency Rules 2015. Those familiar with the insolvency regime in Abu Dhabi and the United Arab Emirates in general will be aware of the limitations of the current legislation and the lack of a clear and certain process for companies in financial difficulty to wind up their operations. The new ADGM regulations will provide for the appointment of an administrator in such cases, together with a clear framework for the process of receivership and provisions setting out that the administrator must act in the interests of the company's creditors as a whole, and not merely the interests of one particular creditor. Company voluntary arrangements (CVAs) are also envisaged by the ADGM draft regulations.

5. Employment matters

English common law concepts, as varied by specific English statutes, would also apply to employment law matters within the ADGM; and it is planned that an ADGM employment tribunal would, in due course, be established for the determination of disputes relating to employees subject to the ADGM employment regulations. We anticipate that the regulations relating to employment will be broadly similar to those in operation in the DIFC. For example, provisions relating to the size of, and long-service triggers for, end-ofservice gratuity are equivalent (21 days' pay for each of the first five years of service after one full year of continuous employment, and 30 days' pay for each year thereafter).

6. Real property

While most of the ADGM land on Al Maryah Island is currently undeveloped, ADGM intends to develop such land and, in particular, make such land available to market participants. As noted above, freehold interests in ADGM land will be governed by the laws of Abu Dhabi. However, the ADGM contemplates the introduction of a self-contained ADGM system for registration and regulation of real estate interests, which is anticipated to be based on English common law principles recognising such interests as leaseholds, easements, joint tenancies and so on. It will be very interesting to observe how this area of legislation develops as the ADGM grows as a centre. 

Conclusion

The materials published by the ADGM in connection with the consultation on its draft regulations, spanning as they do a number of legal areas pivotal to the appeal and ultimate success of ADGM as a business centre, represent an exciting new development in the life of what is still a relatively new enterprise on Al Maryah Island (formerly Sowwah Island). It is immediately obvious that a great deal of thought has gone into the preparation of the consultation materials, resulting in an impressively comprehensive and coherent body of draft regulations, containing elements which will undoubtedly prove popular with businesses on the lookout for a clear and consistent regulatory regime in which to establish a presence in the capital. These are early days yet, of course, but the initial indications are looking good that the ADGM is set to position itself as an attractive option for Abu Dhabi-based businesses, in much the same way as the DIFC has positioned itself in neighboring Dubai.