In a pioneering decision, the Abu Dhabi Court of Cassation recently ruled (at Civil Appeal 30 2015) that, in the event that a united Arab Emirates national deliberately sells his shares in violation of the NJEV Companies Act and the country`s public order, he has no right to later resell the profits of the company he voluntarily served as a service provider and not an active shareholder (which is prescribed by law) as soon as the grant agreement has been cancelled. It should be noted here that the cancellation of the contract for sale and sale/sale incidental will come into effect from the date of the Court`s judgment. This article is intended to highlight the short facts about the case and the judgment of the honourable court. The third approach is based on the principle that a registered contract has priority over an unregured agreement. In that case, the court ruled that the MoA should prevail over the NSA. The judges argued that the first was registered and signed in front of a notary, although it was not applicable because it did not meet the certification and registration requirements. This decision was made on the basis of Articles 8, 10 and 11 of the former Social Law No. 8/1984 (Abu Dhabi Court of Appeal 300 and 301 of 2012). While the MOA and the company`s commercial license may reflect de jure ownership, ancillary agreements can help the foreign shareholder protect its interests and ensure that it has control of the business. Similarly, a creditor and a debtor are permitted to agree on the terms of repayment of a loan, including the date of repayment. Moreover, if the local shareholder authorizes the foreign shareholder to represent the foreign shareholder at all general meetings and to collect dividends on its behalf, it appears that there is no contradiction with the laws in this area. Given the legal scenario, foreign investors have used secondary structures to maintain their controlling financial interests in their UAE businesses.
As a result, it is customary in the United Arab Emirates for shareholders to make “nominated shareholder agreements” (NSA) or “Side Agreements” between the parties. Under the NSA, a UAE national agrees to waive all rights of the LLC, exercise votes at general meetings and collect the proceeds from the sale of the shares. In short, the provisions of the NSA circumvent uae corporate law. The NSA or the tacit agreement prevents the majority shareholder of the United Arab Emirates from participating in the activities of the LLC, making the foreign partner the sole beneficiary and sole decision maker of the company. In its decision, the Supreme Court held that the ancillary agreement can be established with all the evidence and allows the parties to hear testimony. Following the company`s improved post-global economic recovery, the promoter requested dividend payments in addition to sponsorship fees for the years in which it made a profit. After several years of litigation, the court struck down the NSA and said the agreement violated corporate law. At the same time, the judges decided that the annulment takes effect from the date of the Court`s judgment and not from the date of the agreement (i.e., the nullity was not applied retroactively). As a result, the foreign investor is entitled to the benefit based on his actual participation (in the NSA) if the domestic partner has received a sponsorship fee. In summary, NSA rights, such as profit distribution, are protected, although the agreement is inconclusive (Abu Dhabi Court of Cassation and Civil Appeal 30 of 2015). This debate also led to the adoption of the federal law called The Anti-Fronting Law, which aims to ban ancillary agreements with UAE nationals.
Failure to comply with the provisions of the anti-border law calls for a penalty.