K&L Gates Secures First Public Company Capital Reduction Court Approval Under New Dubai Law

29 May 2019

Dubai - A team of lawyers from the Dubai office of global law firm K&L Gates LLP recently represented ENBD REIT (CEIC) PLC, a NASDAQ Dubai-listed, Sharia-compliant real estate investment trust, in successful proceedings before the Dubai International Financial Centre (DIFC) Courts. ENBD REIT sought the DIFC Courts’ approval for a US$84.5 million reduction of share capital to create a reserve account for making dividend payments to shareholders in circumstances where fluctuations in underlying asset values would otherwise result in there being no funds available for distribution.

Under Articles 56-63 of the new DIFC Companies Law, which was passed last November, public companies registered in the DIFC must obtain court confirmation both of any proposed reduction of share capital authorized by shareholder resolution and that any reserve created by the proposed reduction is distributable. A novel feature of the new law, the requirement for court approval places particular emphasis on the protection of creditors in public company capital reductions, but defines creditors very broadly, leaving several categories of creditors from whom it would have been impractical and disproportionate for companies like ENBD REIT to seek consent.

ENBD REIT’s application for court approval thus set out clear and robust measures to ensure the adequate protection of non-consenting creditors, to the satisfaction of the DIFC Courts, in order to avoid a lengthy and onerous settlement of a complete list of creditors by the Court. This was the first application for approval of a proposed reduction of share capital heard by the DIFC Courts, serving as a test case for both the Court and the new law.

The K&L Gates team was led by international disputes partner Jonathan Sutcliffe, who conducted the advocacy in court, and disputes associate James Lightley-Hunt. They were assisted by corporate partner Bill Reichert, corporate counsel Adela Mues, and corporate senior associate Mona Lemp, who liaised with the DIFC Registrar of Companies to ensure the timely registration of the capital reduction following issuance of the DIFC Court order.

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