A recent amendment to the Qatari Commercial Companies Law No. 5 of 2002 (Companies Law) established, for the first time, a regime for take-over of companies in Qatar. Francesco Lucente and Yuen Ping Wong of Al Tamimi & Company explain how this new provision is creating ambiguity within legal circles.
The new provisions in Chapter 9 of the Companies Law set out the definition and procedural elements of a take-over. Article 282 bis 1 states, inter alia, that, “A take-over shall occur through the direct or indirect partial acquisition by a company of another company’s share capital, or by acquiring the majority of voting rights in a company through the purchase of some or all of its shares, or through exchange of shares, or by virtue of an agreement…”
It appears at first glance that the new provisions of the Companies Law were enacted to cover situations where a company acquires a majority interest in another company. However, the first part of Article 282 bis 1 has been worded such that a take-over occurs by virtue of any acquisition by a company of shares in another company, without providing a minimum threshold for the acquisition.
In many other jurisdictions, the take-over laws recognise the possibility of a change of control with acquisition of a lower percentage than 51%. Against this background, it is not clear how Article 282 bis 1 would be interpreted by the Qatari courts and the authorities. It also remains to be seen if, in practice, there will be any challenges mounted by interested parties against a proposed acquisition where it does not comply with these take-over provisions, even though the acquisition is not of a majority stake in a company.
Additionally, although the take-over provisions do refer to an “indirect partial acquisition”, they do not define what amounts to an indirect acquisition nor do they clearly address and define the concept of related parties in an acquisition. As such, it is arguable that these provisions could be circumvented through an acquisition by parties acting in concert.
Under the new take-over provisions, both the offeror and the target are required to approve the acquisition by way of a resolution of an Extraordinary General Assembly (Article 282 bis 2 (1)). In the case of a Qatar Shareholding Company, this effectively means approval of shareholders holding at least two thirds of the shares represented at an Extraordinary General Assembly and, in the case of a limited liability company, 75% of the share capital of the company.
A take-over must also be ratified by the Minister of Business and Trade. It is not clear what criteria or factors would be taken into account by the Minister when ratifying or objecting to the take-over. The factors could conceivably range from minority protection or procedural issues to broader economic and policy considerations.
Article 282 bis 2(2) requires the offeror to increase its share capital by the amount of the offer and if accepted, such share capital is issued to all of the shareholders of the target in proportion to their shareholding. Consequently, the target becomes a subsidiary retaining its separate legal personality. Although not explicitly stated in this Article, this procedure presumably only applies to take-overs through an exchange of shares.
The take-over provisions state that the provisions of the QFMA Law would apply to take-overs of companies listed on the Qatar Exchange. The QFMA Law currently does not contain any take-over provisions, but it is anticipated that the QFMA will introduce a code on take-overs in the near future. Soon after introduction of the new provisions, the changes were applied to the Qatar Navigation-Qatar Shipping and the Barwa-Alaqaria mergers. Clearly, until the QFMA introduces its own regime, listed and unlisted public companies are likely to apply the take-over provisions contained the Companies Law and the authorities will continue to approve such application of the process.
Ordinarily, any offers of acquisition of shares in a limited liability company is subject to a statutory right of pre-emption granted to current shareholders under the Companies Law unless the company’s articles of association otherwise permits (Article 236). With Qatar Shareholding Companies, statutory pre-emptive rights only extend to shares created as a consequence of an increase in capital. How these pre-emptive rights will sit vis-à-vis the take-over provisions is not clear; a possible interpretation is that the specific provisions on take-overs would override the pre-emptive rights where a take-over is being conducted in accordance with the statutory provisions of chapter 9.
Another potential cause of confusion is Article 282 bis 2(6), which states that in order for a take-over to be valid, one of the conditions to be met is: “Undertaking all the procedures necessary for the acquired company to protect its minority shareholders, including presenting proposals to purchase the remaining shares or voting rights, in accordance with the decision issued by the Minister for this purpose.”
A Ministerial Decision has yet to be issued in respect of these new provisions and it is not clear what sort of proposals an acquirer would be obliged to present to the minority shareholders. It would cause some concern if the effect of this Article was such that an acquirer has to make an offer to purchase the shares for cash from the minority shareholders. If the take-over had been conducted by way of an exchange of shares, an obligation to purchase further shares by way of cash could pose problems for an acquirer from a financial perspective and also creates uncertainty in how a take-over would be implemented and completed.
As the new take-over provisions of the Companies Law are applicable to acquirers which are companies, there remains a gap in the law with regard to individuals seeking to take control of a company. It remains opens for a potential acquirer to by-pass the take-over laws through the use of family members or associates and the authorities will have to deal with the same.
Whilst the new take-over provisions have already been used to effect the two very recent mergers mentioned above, it will be very interesting to observe the application of the take-over provisions with a hostile take-over.
For more information and updates on commercial law in Qatar please visit: http://www.companiesinqatar.com/Companies/qatar-commercial-company-law.html
Francesco Lucente is a senior Lawyer in the Corporate Commercial practice of the Qatar of Al Tamimi & Company office having previously worked in this field in Australia for some 20 years. He has had a wide exposure to all manner of corporate commercial transactions as well as having had experience in trusts and revenues fields. He has also prepared services for clients in Malaysia, Singapore and Indonesia and has strong familiarity with those Jurisdictions.
Based in the Qatar office, Yuen Ping Wong deals with various aspects of corporate and commercial matters. She gained vast experience from three years with Maxis Mobile in Kuala Lumpur as legal counsel where she provided legal support on a range of operational and regulatory issues.
Wong was also part of the legal team at a leading internet service provider in Singapore where she gained valuable experience in the legal aspects of internal restructurings, investments into the company’s e-commerce subsidiaries, the transfer of assets and the proposed takeovers of the company.
Al Tamimi & Company Advocates and Legal Consultants, originally established in 1989, is today one of the leading law firms in the Arabian Gulf region. It is the largest local, non-affiliated law firm in the United Arab Emirates with offices in the Emirates of Dubai, Abu Dhabi and Sharjah, Riyadh (KSA) and associate offices in Doha, Baghdad and Riyadh. Visit www.tamimi.com for more information.