As companies globally navigate the ongoing COVID-19 pandemic, there are a number of matters and procedures that entrepreneurs and business owners in the United Arab Emirates (UAE) will have to take into consideration while reorganizing their corporate affairs.
One of the adjustments UAE limited liability companies (LLC) have to make is the way general assemblies will be held, specially when the annual general assembly meeting (AGM) season is getting under way for companies with December 31 year-ends. Serious consideration should be given at this time conducting physical meetings with fewer numbers of partners giving up the necessity of physical presence.
In order to examine whether a company can move to a virtual meeting in response to the coronavirus threat, a LLC should consider whether under UAE laws and in its memorandum of association (MOA), (i) notices can be delivered by electronic means, (ii) an AGM can be held virtually, and (iii) a resolution of the partners can be passed electronically.
1. Delivering Notice of Meeting by Electronic Means:
The UAE Commercial Companies Law (Federal Law No. 2 of 2015) (CCL) provides in its article 92 that at least once in a year, within four months after the end of the fiscal year of the company, the general assembly shall convene at such time and place as set out in an invitation letter from the general manager which should stipulate where the meeting should be convened and at what time. In fact, such letter constitutes the notice of meeting and is an integral part of any properly convened meeting under the CCL and other statutory regimes. The CCL does allow for flexibility by providing for any alternative means of invitation that are provided for in the MOA which could potentially enable notice to be delivered by electronic means.
2. Conducting the AGM Virtually:
Some companies may incur the risk of having to postpone their AGM and running out of time before the statutory deadline expires. Can companies hold virtual AGMs?
Article 96 of the CCL provides that decisions by the general assembly shall not be valid unless passed by the majority of the partners present in person and those represented at the meeting, unless the MOA provides for a higher majority.
There are no statutory provisions prohibiting a general assembly of a LLC from being held via teleconference or correspondence. Its MOA will typically specify the methods acceptable for conducting the AGM.
3. Passing Resolutions by Electronic Signature:
UAE businesses widely use e-signatures in their business processes. According to the UAE E-Commerce Law (Federal Law No.1 of 2006) regulating electronic signatures (e-signatures) in the UAE, an e-signature that meet certain requirements has legal force and effect and nothing shall prevent the admission of an electronic message or e-signature in evidence. Reliance on e-signatures must be reasonable which reasonableness is generally based on the following factors:
- the nature, value and importance of the transaction adopted by e-signature;
- whether the person relying on the e-signature took appropriate steps to determine the extent to which the e-signature is reliable;
- evidence of prior breach or cancellation of the e-signature;
- previous transactions between the parties, which relied on e-signatures; and
- any other relevant factor.
Therefore, a resolution may be passed by e-signature as long as the business processes and technology used to create such e-signature are reliable.
The unique circumstances of COVID-19 mean that all LLCs required to hold an AGM in the coming weeks and months should review, and if necessary, amend their MOA to simplify the way meetings are held and to take decisions by electronic means.
It is also hoped that governmental authorities and courts will provide further direction to assist companies concerned about meeting statutory deadlines in order to help them make decisions about their 2020 AGMs.