Capital Increases for Joint Stock Companies in Oman

Joint stock companies in Oman seeking to increase their issued share capital have the option by way of a rights issue, or through private placement. The board of directors may, in accordance with the Commercial Companies Law of Oman (“CCL”), approve the rights issue through a board resolution within the limits of the authorised share capital of the company, provided that five years have not elapsed from the date on which the shareholders approved the increase in the authorised share capital. In the event that five years have lapsed from the date on which the increase of the authorised capital of the company was approved, the rights issue will require the approval of the shareholders of the company through an extraordinary general meeting.

In relation to a capital increase through a rights issue, Article 82 of the CCL provides that each shareholder has a preferential right to subscribe for the new shares in proportion to the number of shares currently owned by such shareholder. Accordingly, the additional new shares will be offered to all the shareholders of the joint stock company on a pro rata basis.

Once the approval of the shareholders or board of directors has been obtained and in order for a shareholder to exercise their right and proportionately subscribe for the new shares, a written notice must be sent to each shareholder at their address registered in the shareholders’ register informing them of such preferential right.  For shareholders of a public joint stock company, the notice must be accompanied by a copy of the prospectus duly approved by the Capital Market Authority (“CMA”) and the notice must be published in two daily newspapers for two consecutive days after being certified by the Department of Company Affairs. The said notice must, inter alia, indicate the specified period during which the preferential right may be exercised, provided such period shall not be less than 15 days from the date of publication.

The prospectus should include satisfactory information about the company’s past business performance and the financial position including the certified balance sheet and profit and loss account for the previous financial years or the period that begins from the date of the establishment of the company, if such date goes back less than three years.

With respect to subscription and allotment of shares post a rights issue, Article 83 of the CCL provides that new shares which are not subscribed for by the present shareholders of the company within the offer period may be offered for public subscription or, alternatively, the board may reduce the issued share capital of the company to the extent of shares that are not subscribed for. However, it may be noted that offering the unsubscribed shares to the public is possible only for public joint stock companies.

Notwithstanding the above, a further issue arising out of Article 83 of the CCL is with regard to the shareholders of a public joint stock company being entitled to waive or assign or transfer to a third party their preferential right in respect of the rights issue in accordance with the provisions of the Rules for Waiver of Rights Issue, issued by Ministerial Decision 156/2002 (“MD 156/02”). MD 156/2002 provides that the shareholders’ preferential rights may be assigned/transferred within the period specified for exercising the pre-emption right.

Finally, public joint stock companies need to fulfil an additional requirement of disclosing any material information in respect of the rights issue to the public. Accordingly, Article 3 of the Capital Market Authority Law issued through Royal Decree 80/1998 provides that no securities of any joint stock company may be offered for public or private subscription except in accordance with the prospectus approved by the CMA. A summary of the approved prospectus should be published in two daily newspapers, one of which must be in Arabic. The prospectus must be made in accordance with the form specified by the CMA. Any omission or avoidance of any material information or the inclusion of incorrect statements or information shall be the responsibility of the entity preparing the prospectus.

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Anti-Monopoly and Competition Law in Oman

Introduction

This article provides a brief overview of the legal framework of the Anti-Monopoly/Competition Law in Oman, its implementation, and consequences of businesses in violation of its provisions.

The Competition Protection and Monopoly Prevention Law (the “Competition Law”) was promulgated by Royal Decree 67/2014 in order to establish a control regime and prohibit agreements that would result in abuse of market dominance. The provisions of the law are applicable to all production, trading, or services activities, including any economic or commercial activities that are practiced inside or outside Oman and have an influence on the Omani market.

Under the Competition Law, the concept of the relevant market is defined as a market that is based on two elements: i) the relevant products, and ii) the geographical scope. The relevant products are the those regarded as interchangeable or substitutable from the point of view of the recipient of the service or commodity. This includes products that are provided by competitors in other markets that are accessible by the consumer. The geographical scope refers to the geographical area in which the conditions of competition are homogeneous, with both sellers and purchasers contributing towards the setting of prices. Interestingly, the geographical scope is not limited to Oman, as the Competition Law applies to any economic or commercial activity that has effects inside Oman.

Impact of the Competition Law on businesses

While the Competition Law does not apply to wholly owned government entities, it has significant implications for private-sector businesses that have a dominant market share.

Under the Competition Law, private-sector businesses with dominance in the market are prohibited from engaging in practices that would undermine, lessen, or prevent competition. A juristic or legal person is considered in a “dominant position” if it has control of, or has an influence over, more than 35% of the relevant market, including the acquisition of a market share. This market share is the sole determinant of a business’ dominant position; the Competition Law does not include any references to local turnover or other financial indicators.

If a business is considering taking acts that might result in market dominance, whether directly or indirectly, to avoid sanctions under the Competition Law it must submit a written application before undertaking these acts (see below).

The Competition Law also prohibits businesses or individuals from entering into agreements or contracts, whether inside or outside Oman, for the purpose of monopolising the import, production, distribution, sale, or purchase of any commodity.

Enforcement of the Competition Law  
The Public Authority for Consumer Protection (the “PACP”) implements the Competition Law. When a business applies for approval of an act, it must provide PCAP the information relevant to the specific situation. The PACP then has a period of time to consider the application; interestingly, if the period expires without a response, this is considered an approval of the act. However, the PACP may withdraw an approval after its issue in case it discovers that the information submitted by the applicant is incorrect or deceptive. In any case, any act that will result in a market share of more than 50% is prohibited and no such approval may be granted.

The PACP is rather strict in enforcing the Competition Law provisions and the consequences are wide- ranging as explained above. By virtue of Article 17 of the Competition Law, any person may submit a complaint to the PACP, including competitors and the general public. The PACP receives a large number of complaints and investigates them thoroughly. We are aware of a number of such proceedings and therefore we do not advise any entity to take such a risk, especially considering the severity of the penalties.

Consequences of violating the Competition Law  
A business’ failure to apply to the PACP for approval, followed by acts resulting in market dominance, may result in sanctions under the Competition Law. These range from imprisonment to administrative fines depending on the violation committed. Under the Competition Law, the PACP may also choose to refer a case to the Public Prosecution. The chairman and members of the board of directors, the chief executive officer, and the authorised managers of the violating business may face penalties depending on their awareness of the violation of the Competition Law. Finally, the Omani courts may force businesses to take measures in compliance with the Competition Law.

Unfortunately, the PACP current policy in respect to this issue is not to disclose details of the filings received and this, coupled with the fact that the Executive Regulations of the Competition Law have not been issued yet, contributes to the general uncertainty on the actual application of the Competition Law.

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Promotional Offers in Oman: Key Considerations

A commercial establishment looking to conduct a promotional offer in Oman must be aware of and comply with the provisions and terms set out in Ministerial Decision 239/2013 (the “Regulations”), the key aspects of which are set out herein.

Do you need a licence to conduct a promotional offer? 

By Article 3 of the Regulations, a commercial establishment must obtain a licence from the Ministry of Commerce and Industry (the “MOCI”) prior to undertaking or advertising any promotional offer. It is important to note that a licence shall only be granted to an Omani entity or a registered agent or distributor in Oman. Further, a licence application must be submitted to the MOCI at least fifteen days prior to the start of the promotional offer and must be supplemented with the following details:

• type of offer and way of running the promotion; 
• periods and places in which the promotion will be run; 
• a list detailing the number and type of prizes and gifts to be given to the winners; and 
• date and place for raffle and mechanism of selection of the winner. 

The MOCI is the responsible authority for review and approval of any such licence application. On the basis that approval is granted, the period of the promotional offer shall be a maximum of two months. However, it is within the MOCI’s discretion to grant one licence which runs for two concurrent periods, equating to four months. As Article 6 of the Regulations limits the amount of times any given promotional offer may run to four times a year, and the period for each promotional offer is two months, the maximum time in which the promotion can run is eight months per annum. If the MOCI grants a licence for an initial period of four months (i.e., two concurrent periods), the licence may be renewed for a further two months and then a further two months period after that. 

Requirements on the licencee: how to effectively conduct a promotional offer? 

To comply with the Regulations, a promotional offer must be displayed in a conspicuous location within the shop(s) in which the offer is being conducted, whereas only a copy of the licence needs to be displayed in each of the locations for the period of the promotional offer.

It is a requirement on the licencee to notify the MOCI of the names and addresses of the winners of any promotional offer in Oman. Additionally, the names of the winners should also be published in two daily newspapers, one of which must be in Arabic. A winner of a promotion has a period of three months from the date of newspaper publication to claim their prize, and any Oman-based winner seeking to claim their prize after the date in which three months has elapsed shall forfeit their rights to the prize. Any unclaimed prizes of Oman-based winners should be reallocated to charitable associations under the supervision of the MOCI.

In an effort to protect the interests of consumers, in addition to the Regulations, the Consumer Protection Law promulgated by Royal Decree 66/2014 (the “CPL”) and its implementing regulations by Ministerial Decision 77/2017 (the “Implementing Regulations”) (collectively the “Relevant Legislation”) provide for strict rules on commercial enterprises. By way of example, under the CPL suppliers must provide their customers with correct and true information. Suppliers are also not permitted to engage in false or misleading advertising activities by virtue of Article 20 of the CPL. When making a promotional offer, other key requirements for a commercial establishment to be aware of and comply with include as follows:

• coordinating with the Public Authority for Consumer Protection in addition to the MOCI; 
• providing a statement setting out the manner of running the promotional offer; and 
• providing a description of prizes, gifts and other benefits of any given promotional offer. 

When conducting promotional offers in Oman it is recommended to consider all provisions and terms of the Relevant Legislation. Non-compliance with the provisions of the Regulations may see a violator prohibited from conducting promotional offers for up to one year and, more serious still, under the CPL a supplier which fails to provide its customers with correct and true information could face imprisonment of between ten days to one year and/or a fine. Any supplier which engages in false or misleading advertising activities could face imprisonment of between three months to three years and/or a fine as stipulated by the CPL.

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Third-Party Funding in International Arbitration

While third-party funding (“3PF”) is not new, it is playing an increasingly prevalent role in big ticket commercial arbitration and in investment treaty cases. 3PF involves the financing of arbitrations or claims in exchange for a portion of the proceeds in the event of success. Funders commonly include insurance companies, hedge funds, private equity funds, investment banks and law firms. The funder may earn an agreed percentage of any award or a success fee or both. In the event of an unfavourable award, the funder will lose its investment and will not be entitled to any payment.

In Europe and East Asia (principally Hong Kong and Singapore), 3PF is burgeoning. Professional funders have realised that the potential of multimillion- and multibillion-dollar cases are the norm in the current environment, and are also attracted by the absence of regulation of 3PF in key jurisdictions. Meanwhile, 3PF offers claimants the ability to pursue claims that they would have otherwise abandoned or settled. Though some countries have drafted voluntary codes of conduct (for example, the French bar association has declared 3PF to be consistent with French law), 3PF remains unregulated in many places and there is currently no formal regulation of its use in the context of international arbitration.

3PF in the GCC region 
In the GCC, 3PF has not been widely used and currently little, if any, regulation addresses 3PF. One of the few bodies in the region to address 3PF is the Dubai International Financial Centre (DIFC), which after public consultation formally adopted a Practice Direction on third-party funding in March 2017. The DIFC guidance requires disclosure to the other party of the existence of 3PF; such notice must include the name of the funder, but no further details of the funding arrangement. The guidance may have been a response to the funded case of Al Khorafi v Bank Sarasin in which the DIFC Court ordered damages in excess of US$50 million. This case and others reflect growing confidence in enforceability of judgments in the region, further encouraged by the establishment of the English common law Abu Dhabi Global Markets (ADGM) Court in 2016.

We are not aware of any cases in Oman using 3PF to date, but we see no bar to the use of 3PF in arbitration claims in Oman. It is reasonable to expect institutions that typically fund arbitrations to look at the caseload of ad hoc and institutional arbitrations currently underway in the Sultanate. The current restricted liquidity in many sectors across the GCC may also heighten interest in seeking 3PF.

Why engage in 3PF?
The sudden increase of 3PF in international arbitrations has raised concerns of increased frivolous claims, while proponents of 3PF argue that the careful screening of claims by funders protects against unmeritorious claims. In reality, 3PF of international arbitration offers the potential to bring together funders seeking a return on their investment with clients in need of finance to support their claims. 3PF is also being used by claimants to take the costs of conducting an arbitration ‘off-balance sheet.’ Any claimant company would prefer to outsource these costs rather than be required to carry them as a contingent liability in its accounts.

What are the risks of 3PF? 
3PF is no longer completely unregulated, but in the absence of regulation some of the risks and concerns that need to be considered in any 3PF include (i) potential conflicts of interest arising out of the involvement of an investor; (ii) whether reliance on 3PF is grounds for ordering security for costs; and (iii) whether and to what extent a party relying on 3PF should disclosure the 3PF arrangement.

Incentives to funders/investors 
Investors in international arbitration are attracted by high quantum claims and the enforcement benefits of the New York Convention on the Recognition of Foreign Arbitral Awards. Other key drivers that attract funders are:

(i) a strong case on the merits;
(ii) the size of the estimated damages, usually a minimum of US$10 million;
(iii) the funder’s share of the award;
(iv) the amount of costs that the funder has agreed to bear;
(v) the prospects of success;
(vi) where the assets are situated;
(vii) a solvent respondent and its ability to meet the damages awarded and costs;
(viii) the jurisdiction in which the arbitration takes place; (ix) the ease of enforcement of the award; and
(x) the time it will take to bring the case to a settlement or award.

The percentages earned by funders in 3PF arrangements vary between 20-50 per cent of the quantum awarded in a case and can be a multiple of the amounted invested by the funder. A funder is usually looking for a minimum return on investment of three, as in any project finance or private equity transaction.

Funders have also been encouraged by the recent case of Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd in which the English High Court upheld an arbitrator’s decision to award a funding premium as part of the claimant’s claim for costs. This funding premium reimbursed the claimant for its costs of seeking 3PF for the case. While the effect of this case remains to be seen in other jurisdictions, claimants using 3PF now have a framework for making similar requests for costs.

An increase of arbitral decisions, commentaries, and efforts to codify applicable rules represent the first step towards self-regulation. One can expect more regulation if the voluntary codes of conduct currently in operation in many jurisdictions prove ineffective or if funders cannot meet their commitments. Where 3PF is legal, it is safe to say statutory regulation is likely to increase.

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