In the Pipeline - July 2019

The Foreign Capital Investment Law is promulgated by Sultani Decree 50/2019. It aims to boost and promote foreign capital investments in the Sultanate by expanding investment sectors. The Executive Regulations and implementing decisions shall be issued within six months. Sultani Decree 102/94 and any legislation that contradicts the new law shall be repealed. The Sultani Decree is to be published in the Official Gazette and implemented six months from the date of publication.

The Privatization Law is promulgated by Sultani Decree 51/2019. The law sets out procedures for the privatisation of government facilities so as to expand the role of the private sector. The former privatization Law, Sultani Decree 77/2004, and any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented the day following the date of publication.

Sultani Decree 52/2019 promulgates the Law on Partnership between Public and Private Sector. The law encourages investments by the private sector in the public sector in order to encourage a diverse range of national income sources. Any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented the day following the date of publication.

The objective of the Bankruptcy Law, Sultani Decree 53/2019, is to support businesses in resuming their economic activity while in distress by restructuring the business. Book Five of the Law of Commerce and any legislation that contradicts the new law will be repealed. The Sultani Decree is to be published in the Official Gazette and implemented one year after the date of publication.

The Public Authority for Privatization and Partnership and its system of governance has been established by Sultani Decree 54/2019. The newly established public authority will have a legal identity that will enjoy administrative and financial autonomy. All employees and assets of the Oman Authority of Partnership for Development and the Department of Privatization at the Directorate General under the Ministry of Finance shall be allocated and transferred to the new Public Authority.

Sultani Decree 9/2014 and any legislation that contradicts the new law shall be repealed. The Sultani Decree is to be published in the Official Gazette and implemented from the date of issuance.

Please contact us if you would like more detailed advice on the above.

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Oman Rolls Out Unified Health Insurance Policy - or 'Dhamani'

In March 2019, the Capital Markets Authority (“CMA”) introduced the Unified Health Insurance Policy (“UHIP”), also known as Dhamani, as part of the mandatory health insurance plans being rolled out by the government for expatriate and local workers employed in the private sector.

Under the policy, all persons employed by the private sector in Oman, as well as all visitors to the country, will be required to obtain health insurance through providers authorised by the CMA.  The policy will also provide coverage to the spouses of employees in the private sector, as well as to their children under the age of 21.  The policy does not apply to public sector employees and is distinct from the social health insurance currently in place which is partially or entirely funded by the government.  The premiums in respect of insurance coverage for private sector employees will be payable by their employers.  It is anticipated that health insurance coverage in the private sector will increase from around 470,000 workers to more than 2 million workers.  Domestic workers who are currently not usually provided with insurance coverage by their employers will mandatorily be covered under the provisions of the UHIP.

UHIP sets forth a minimum level of benefits that the insurance policy must provide, including doctors’ fees, diagnostic services, ambulatory services, and emergency services, but will not include treatment in connection with pre-existing conditions, self-inflicted injuries, drug or alcohol abuse, sexually transmitted diseases, or use of alternative medicine or therapies.  Medical treatment in connection with pregnancy and childbirth will not mandatorily be covered under the UHIP and will be left to the discretion of employers.

Under the terms of the policy, the maximum coverage in respect of inpatient treatment shall be OMR 3,000, which will include hospital stay, treatment, medicines, etc.  The maximum coverage in connection with outpatient treatment will be OMR 500, which will include the cost of consultation, diagnostics, medicines and laboratory fees.  The maximum amount payable in connection with the repatriation of a deceased expatriate’s remains will be OMR 1,000.

The CMA is currently in the process preparing the necessary regulations and legislation to implement the policy.  The CMA has indicated that the implementation of the UHIP will take place gradually over 2019 and 2020 and will be determined in accordance with the classification of the private sector companies, with the larger local companies and international companies being expected to comply with the policy initially, with smaller companies being required to comply at a later stage.

In connection with the implementation of the UHIP, the CMA announced a tender in April 2019 in connection with the creation of an electronic platform to enable the efficient rollout of the UHIP by conducting health insurance transactions online between insurance companies, private health service providers, third-party administrators, and the relevant regulators.

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What are the Likely Consequences of GDPR for Companies in Oman?

The EU’s General Data Protection Regulation (“GDPR”) replaces the Data Protection Directive 95/46/EC and is designed to safeguard people’s personal information by harmonising data privacy laws across the EU.

As of 25 May 2018, individuals now have the right to demand that a company reveals or deletes personal data that the company holds about them.  Regulators now have powers to enforce their decisions with penalties.

The GDPR also addresses the export of personal data outside the EU.  Even entities operating beyond the EU, such as those in Oman, could be affected.

The GDPR applies to personal data, including names, addresses, emails, etc. and also IP addresses.  Most companies of whatever description are likely to have databases of personal information relating to clients, employees, and suppliers - all of which information will potentially be covered by the GDPR.

The GDPR would apply to a company operating in Oman if the company:

(a) has a branch, subsidiary or any representative in the EU;

(b) offers any goods or services to persons located in the EU; and/or

(c) monitors the online behaviour of persons located in the EU.

The GDPR sets out how companies must deal with the data they collect.  Breaches of data confidentiality must be disclosed within 72 hours of discovery of the breach.  Sensitive data cannot be used by organisations when deciding on a course of action.  Sending out mass marketing emails to people that have not actively subscribed to receive them is also not permitted.

An organisation that violates the rules could face fines of up to 4% of their global annual revenue or €20 million (approximately OMR 8.77 million), whichever is greater.

Companies that may fall within the ambit of the GDPR should review their policies in relation to:

(a) protecting and managing personal data;

(b) reporting breach incidents within 72 hours; and

(c) determining who will take the lead role in data protection and privacy - the executive
management, the board, the chief information security officer or a data protection officer.

Companies that might be affected should:

(a) establish transparent and easily accessible privacy and data protection policies and procedures;

(b) review and update all existing contracts with data processors and customers to provide for more stringent data protection and consent clauses;

(c) create a framework for accountability by monitoring, reviewing and assessing data processing activities;

(d) evaluate insurance policies to ensure the company is adequately protected in the event of a data breach;

(e) conduct internal training sessions to ensure employee compliance with the new data protection obligations; and

(f) consider whether the employment of a data protection officer is required.

It will be important for businesses in Oman to assess all personal data processing activities.  This should include an audit of any activities likely to involve the processing of personal data relating to individuals in the EU, including information that indirectly identifies such individuals (such as IP addresses or customer reference numbers).

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Establishment of Companies by Sultani Decree

Typically, commercial companies in Oman are incorporated in accordance with, and governed by, the provisions of Sultani Decree 18/2019, promulgating the Commercial Companies Law (the “CCL”).

However, under the provisions of Sultani Decree 33/1974 concerning Companies Established by Sultani Decree, companies may be established by a Sultani Decree.  Establishing a company by Sultani Decree is most often required when a company is established by a governmental body to acquire public or exclusive functions.  These functions typically relate to a specific activity or economic/business sector and, up to the establishment of the company, form part of the competences of a ministry or other government entity.  Usually, a simultaneous and separate Sultani Decree is issued amending the list of competences of such ministry or public authority by deleting the matters delegated to the new company.  An outline of the main provisions in respect of the establishment of a company by Sultani Decree is set out below:

• The entity proposing the establishment of the company must submit to His Majesty a written statement setting out the reasons preventing the new company’s incorporation in accordance with the CCL.
• His Majesty shall then rule as to whether such reasons are sufficient for the situation to be considered exceptional.
• If the company is set up and no explanatory statement has been submitted; or such statement contains material misrepresentations; or such statement omits material facts whose inclusion is necessary to prevent the statement from being misleading, the company shall be deemed void ab initio.  Any persons conducting activities in the name of the company shall be considered personally liable for the obligations arising out of such activities.
• The new company must take one of the forms of company provided for in the CCL.  However, in practice, a company formed by Sultani Decree tends to take the form of a closed joint stock company.
• The new company’s constitutive documents or regulations, its governing rules, and its activities must comply with the provisions of the CCL within one year of the issuance of the Sultani Decree establishing the company.
• Failure to comply with the above shall render the new company void at the end of this period.  Any persons conducting activities in the name of the company thereafter shall be personally liable for the obligations arising out of such activities.
• The new company must comply with the Commercial Registration Law.
• The company must be managed in accordance with the provisions of the CCL.  Traditionally, government-owned companies formed by Sultani Decree have employed at the outset governmental staff drawn from the promoting ministry or government unit.  This is usually provided for in the relevant Sultani Decree.

Notable examples of government-owned companies established by Sultani Decree include Oman Post, Oman Fisheries, Oman Oil and Oman Aviation Services.

Read more about the New Commercial Companies Law (Sultani Decree 18/2019):

Oman's New Commercial Companies Law (February 2019)

New Commercial Companies Law Permits Work and Services as Contributions in Kind to the Share Capital of Joint Stock Companies (April 2019)

Access to Company Documents under the Old CCL and the New CCL (June 2019)

The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law (June 2019)

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In the Pipeline

Oman is to take measures in line with standards set by the European Union (“EU”) and the Organisation for Economic Co-operation and Development in order to tackle tax evasion.  It is currently drafting regulations governing the automatic exchange of information through Common Reporting Standards (“CRS”).  CRS is a global version of the Foreign Account Tax Compliance Act, which was introduced by the U.S. Congress to prevent offshore tax abuse.  The measures should pave the way for Oman’s removal from the EU tax blacklist, to which it was added in March 2019.

A new Bankruptcy and Insolvency Law is currently under consideration at the State Council.  The law is part of a suite of new statutes planned by the Government to boost investment in the Sultanate and improve the Sultanate’s ranking in the World Bank’s ‘Ease of Doing Business’ Index.  The proposed statute will set out the rights and responsibilities of an insolvent company’s creditors and the sequence of the settlement process to be followed.  It will also define the roles of the various parties involved in the process.  The law is expected to be enacted later in 2019.

Please contact us if you would like more detailed advice on the above.

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Access to Company Documents under the Old CCL and the New CCL

Introduction

Shareholders in a company do not always have automatic right of access to the company’s books and accounts.  This article compares the rights of shareholders in a limited liability company to inspect company documents under the old and new Commercial Companies Law.

The Old CCL 

The old law placed restrictions on the rights of minority shareholders’ access to company documents.  Article 160 of the Old CCL states:

“The managers shall send a copy of the company’s balance sheet, profit and loss statement and the reports of the managers and auditors, if any, concerning the expired financial year, together with a notice of a members’ meeting for the approval of these documents and the allocation of net profits, if any, to each member of the company within six months after the end of the company’s financial year.  The originals of these documents shall be available for inspection by the members of the company during business hours at the principal place of business of the company during a period of at least two weeks immediately preceding the date set for the members’ meeting for the approval of these documents.”

In addition, each member of the company had the right to inspect the original balance sheets, profit and loss statement, reports of the managers and auditors, if any, relating to the last five financial years of the company at any time during business hours at the principal place of business of the company.

The New CCL

However, under the New CCL, shareholders have been granted access to a wider range of company documents, and to documents going back twice as long.

Article 277 of the New CCL provides:

“Every partner may request – whenever he wishes – to inspect records and documents relating to business conducted in the previous ten (10) years, and any provision in the Constitutive Documents or any subsequent agreement that is inconsistent with the provisions of this article shall be void.”

Furthermore, article 270 of the New CCL states:

“Any partner who is not a manager may request, at any time, any information about the company and may examine, either by himself or with the help of a specialist expert appointed by him, the company’s books, records, accounts and other documents.” 

Conclusion

Investors in small corporations generally seek access to a company’s books and accounting records as a way of determining the value of their investments or because they suspect mismanagement.
By granting shareholders full access to all the company’s documents and records – and not just to the restricted categories set out in the Old CCL – it is hoped that the transparency of the management and operations of limited liability companies will be improved.

Read more about the New Commercial Companies Law (Sultani Decree 18/2019):

Oman's New Commercial Companies Law (February 2019)

New Commercial Companies Law Permits Work and Services as Contributions in Kind to the Share Capital of Joint Stock Companies (April 2019)

The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law (June 2019)

Establishment of Companies by Sultani Decree (July 2019)

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The Board of Directors of an Omani Joint Stock Company under the New Commercial Companies Law

Sultani Decree 18/2019 issuing the Commercial Companies Law (the “New CCL”) replaced Sultani Decree 4/74 (the “Old CCL”) and became effective on 17 April 2019.  Executive regulations will be issued within one year to provide clarifications, particularly on the provisions introduced by the New CCL (the “Executive Regulations”).

This article focuses on the changes affecting the composition, elections and functions of the board of directors.

Article 3 of the New CCL provides that:

“Commercial companies in existence on the date of enforcement of this Law shall comply with its provisions within one year of the date of its enforcement.”

Most joint stock companies will be required to amend their articles of association and, if applicable, their shareholders’ agreement before 17 April 2020 to comply with the New CCL.

Number of board members 

The New CCL provides that closed joint stock companies must have at least three directors; and listed joint stock companies at least five.  In both cases the number of directors cannot exceed eleven.  The main change is that there must be an odd number of directors.  An existing company with an even number of directors constituting its board will, in order to comply with these provisions, have to decide whether to add a new director or remove an existing one.

Board meetings

The board of directors may hold meetings by audio and video conferencing, provided that the board secretary is able to identify each of the members and record the discussion.  The number of meetings that may be held via video conference during a certain timeframe is not restricted to a certain maximum number.

Quorum and majority

Under the Old CCL, board meetings required a quorum of 50%.  Such quorum has been increased in the New CCL to two thirds.  Resolutions have to be approved by absolute majority unless the articles of association provide for a higher percentage.  This appears to imply that the majority of directors (as opposed to the majority of the directors attending the meeting) must express a positive vote.  The Executive Regulations may provide further clarifications on this.

Removal of directors

The New CCL provides that any director who does not attend three consecutive board meetings without an acceptable reason is deemed to have resigned by law.  It is interesting to note that the New CCL no longer includes provisions whereby directors appointed by the Government cannot be removed in any circumstances.

Conflict of interest

Under the Old CCL, members of the board of directors were not allowed to participate in the management of any business competitive with that of the company, except with the approval of the ordinary general meeting, with such approval to be renewed annually.  Under the New CCL, instead, a director may not participate in the management of another company engaged in similar business.  No approval can be given to authorise such participation.

In the event of violation, the director concerned will be held liable for damages incurred by the company.  Directors are forbidden from entering into related party transactions.  The Executive Regulations will define the meaning of related party and the applicable rules on recording and disclosure of such transactions.

Read more about the New Commercial Companies Law (Sultani Decree 18/2019):

Oman's New Commercial Companies Law (February 2019)

New Commercial Companies Law Permits Work and Services as Contributions in Kind to the Share Capital of Joint Stock Companies (April 2019)

Access to Company Documents under the Old CCL and the New CCL (June 2019)

Establishment of Companies by Sultani Decree (July 2019)

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In the Pipeline - June 2019

The Capital Market Authority issued a directive on 15 May 2019 suspending the 10% withholding tax that is applicable on dividends and interest, with the aim of boosting foreign investments.  The suspension period is three years and may be extended.

Following the success of compulsory medical insurance policies in other Gulf states, Oman has initiated the rollout of its own national mandate.  The Unified Health Insurance Policy (UHIP), also referred to as Dhamani, is expected to grant approximately two million workers in the private sector and their dependents access to health care.  Implementation will gradually take place in 2019 and throughout 2020.

The establishment of the Oman Credit and Financial Information Centre is promulgated by Sultani Decree 38/2019, and the Centre shall be affiliated with the Central Bank of Oman.  The Oman Credit and Financial Information Centre will enjoy administrative and financial independence in addition to acquiring its own legal identity.  The data, systems and assets shall be transferred from the Banking Credit Information Statistics Department of the Central Bank of Oman to the newly established Centre.  The Board of Governors of the Central Bank of Oman shall issue regulations regarding the enforcement of the provisions. All contravening provisions will be repealed.

The Oman-UK Joint Defence Agreement has been ratified by Sultani Decree 42/2019.  The Agreement was signed in Muscat on 21 February 2019.  It will be published in the Official Gazette and will be enforced from the date it is issued.

Sultani Decree 39/2019 promulgates the regulations enforcing the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and their Destruction.  This shall apply to the Chemical Weapons Convention and it will require the banning of the development, production, stockpiling and use of chemical weapons.  The Minister Responsible for Foreign Affairs shall issue the necessary decisions.  The new law replaces Sultani Decree 21/97 and repeals all contravening provisions.  It will be published in the Official Gazette and will be enforced 90 days from the date of publication.

Please contact us if you would like more detailed advice on the above.

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Set-off Provisions in Loan Agreements

Where two parties owe each other money, it often makes sense for one of the parties to employ the concept of ‘set-off’ to reduce or eliminate its liability to the other party.

For example, assume that Party A owes OMR 100 to Party B under a loan agreement; but that Party B also owes OMR 60 to Party A under a separate (and perhaps unrelated) arrangement.  In this scenario, Party A could in theory ‘set-off’ the OMR 60 that Party B owes to him against the OMR 100 that he owes to Party B – with the result that Party A now owes OMR 40 to Party B (original debt of OMR 100 minus set-off of OMR 60 equals remaining debt of OMR 40) and Party B no longer owes anything to Party A (original debt of OMR 60 minus set-off of OMR 60 equals zero).

Of course, for this to work in practice, Party A also must have the legal right to employ such a set-off mechanism.  Such a right can arise by force of law, or by contract.

In England and Wales, and in certain other jurisdictions, there is detailed legislation and case law specifying various types of set-off available, for example:

• Legal set-off – a defence to a court action where more than one claim and cross-claim is being contested;
• Banker’s set-off – where a customer has more than one account with a bank, at least one of which is in debit and one in credit;
• Equitable set-off – available to a debtor where his cross-claim arises from the same or a closely related transaction;
• Insolvency set-off – often triggered by a party’s entry into liquidation; and
• Contractual set-off – where set-off is included as a provision of a contract.

In Oman, while the Law of Commerce (Sultani Decree 55/90) does contemplate the set-off concept, as a practical matter set-off rights frequently arise as contractual rights – e.g., via set-off clauses in loan agreements governed by English law, or by the laws of another foreign jurisdiction.

The contractual set-off rights often found in loan agreements typically will allow the lender to set off a matured obligation due from a borrower against any matured obligation owed by the lender to that borrower, regardless of the place of payment or currency of either obligation. If the obligations are in different currencies, the lender often may negotiate the right to convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

The result of exercising a contractual right of set-off is similar to enforcing security.  However, set-off is a personal right rather than a proprietary right; unlike a security right, it does not grant an interest in the counterparty’s property.

It should also be noted the Omani courts are unlikely to apply a set-off unless a contractual set-off scenario exists.

Finally, it is important to note that set-off provisions in loan agreements often favour the lender over the borrower.  While set-off clauses in commercial contracts often will apply symmetrically (e.g., permit or prohibit set-off altogether), in many loan agreements the right of set-off is accorded only the lender, with the borrower prohibited from setting off any amounts owed to it by the lender.

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Family Businesses in the GCC States

Family businesses in the Gulf Cooperation Council (“GCC”) region are profoundly aware of the dangers they face.  Most do not make it beyond the second generation.  Power battles between successors and the distribution of wealth and control commonly can lead to the fall of a dynasty.

As a family’s third generation of leaders come of age, many want to put in place rules for its interaction with business.  Many of the family businesses within the GCC are discussing options to modernise themselves by partly separating management from ownership.  A common solution is to develop a family constitution outlining the values, principles and procedures that the family agrees to follow.  Family businesses that generally thrive one generation to the next do so because they have in place a sound governance structure in the form of a family constitution or charter which provides a road map for managing wealth, business and legacy transitions over time.

Generally family constitutions are not meant to be legally binding.  Typically, a constitution will set out the family’s values and vision, criteria for selecting leaders and the rights and responsibilities for family members.  They differ in detail but are designed to ensure that the wealth and the portfolio stay together.  Families that do not have a clear mission or set of values to follow face real risks of internal conflicts and potentially damaging private and public disputes over the governance of the family wealth.  At its centre will be the mission statement for the family and a clear statement of its hopes and aspirations for future generations.  It is important, however, that families choose the forum of dispute resolution they want to use in cases of dispute and that such dispute resolution mechanism is respected and implemented in any disputes across the family’s businesses.

A business must be able to deal with sudden and unexpected events which can do damage to it, challenge management and cause uncertainty among family members who are owners of the business.  For example, a key family member may die or become incapacitated.  Similarly, a divorce or a serious dispute between family members may arise or a third party may seek to bring a substantial claim against one or more of the family-owned entities.  In such situations, it is useful to have protocols or a process in place to deal with such events such as the formation of a family committee to deal with such matters or putting restrictions on incurring any further liabilities until the issue is resolved.  Provisions along these lines can be included in the family constitution.  The constitution should govern the inevitable generational change and provide a vision to manage that change.  A provision establishing criteria for the recruitment and remuneration of family members employed in the business should be included.  Rules for the disclosure and exchange of information between family members and the confidentiality of that information are vital.  Confidentiality promotes trust and it is a key element of any family protocol.  Mention should also be made of a periodic summary of the division of assets between family members and how those assets should be shared.

It will be helpful to have provisions within the constitution which deal with issues such as dividends, the role of new generations, remuneration, ownership, succession, conflicts of interest and exit.  Other issues to address include how the owners are to be represented on the board of directors and how they will set objectives and challenge management.  Likewise, the constitution should identify the key issues on which management should consult the business’s board of directors.  Consideration should also be given to the process for share valuation and payout for all family members on exits.  Other important points to cover are the allocation and conditions for ownership and voting rights which allow the family constitution to be implemented.

Overall, a family’s philosophy and core values should be the cornerstone of the constitution.  A family must take the time to articulate its values.  The constitution is not meant to create binding rules, but rather set out a framework and guiding principles for making future decisions.  The constitution usually deals with many areas of the management structure such as an advisory board, management succession, profit distribution and the process of selling shares.  Naturally, a family constitution should be reviewed and adjusted regularly to be fit for purpose.  If it is done right, the constitution should embody the wishes of the founder of the business, the current generations of the family, the family office and the trustees.  It should then become a guide for the parties and, if required, the courts to interpret the conduct of the parties and the decisions that have been taken.

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