EXECUTIVE SUMMARY

Family Owned Businesses (“FOB”) have been a part of the Emirati economic landscape as well as the GCC for several decades and account for over 80% of the private sector and 80% of the non-oil GDP in the Gulf region. However, traditionally there have been significant issues when the founder and primary shareholder of the FOB dies and leaves behind significant assets to be divided amongst his/her heirs, and disputes among family members over the division of the deceased’s assets often forces them to resort to lengthy and costly court proceedings.

Dubai Law No. (9) of 2020 Regulating Family Ownership (the “New Law”) came into force on 13 August 2020 and has been introduced to provide a comprehensive legal framework for the regulation of family property and prevent disputes amongst members of the same family. The New Law has provided much-needed clarity to both succession issues that arise with Shariah compliant wills and family owned businesses and much-needed relief in terms of how to allocate the assets of FOBs.

FAMILY PROPERTY

Family property is regulated by the Family Property Contract (the “Contract”), and can be broadly defined as “stocks and shares in commercial companies and civil companies and assets of sole establishments, except public joint stock companies” as well as “any real or personal property.”1

The question is, what constitutes “real or personal property”?

Real and Personal Property are defined in line with Federal Law No. 05 of 1985 on the Civil Transactions Law of the United Arab Emirates (the “Civil Code”) which defines it within the parameter of ownership rights. Article 1133 of the Civil Code states that “ownership rights is the power given to the owner to freely dispose, use and enjoy of his property. The owner of a thing has alone, the right to enjoy the property owned, its yields, fruits and products and to dispose of the property by all acts of disposition allowed by law.” Therefore, the broad definition of Family Property is welcomed in terms of flexibility and applicability in the 21st century.

THE FORMALITIES OF THE CONTRACT

The Family Property Contract shall be valid if:

It is between the same family members (the “Partners”): This includes relatives of the fourth degree (i.e. uncles, aunts and first-degree cousins);

There is a common interest: The subject matter of the Contract relates to the same business or common goal;

The shares of property are readily identifiable: The part and share of each partner is specified in the Contract.

It establishes ownership: The parties or ‘Partners’ thereto own the property subject matter of the Contract or have the right of disposal thereof.

Notarisation: The Contract is notarised in the presence of a notary public.

Not contrary to public order: The subject matter of the Contract cannot be against public order. 2

TERM AND VALIDITY OF THE FAMILY CONTRACT

The term of the Family Contract shall be chosen by the Partners provided that it does not exceed 15 years. 3 If the parties want to renew the contract it must be by unanimous decision. If the Partners are unable to unanimously consent, then the dissenting partner may withdraw his share from the Family Property after giving 6 months written notice.

The Family Contract shall take effect on the date set by the Partners. However, they may elect to postpone the implementation of the Family Contract until the death of the Partner who owns the property identified in the contract. 4

MANAGEMENT OF THE FAMILY PROPERTY

The Family Property under the Contract is managed by one or more managers who is appointed by a resolution of partners holding at least two thirds of the assets in the Contract. The Contract may also provide for the formation of a Board of Directors to supervise and govern the management of the Family Property and the acts of the Manager.

The Manager is granted extensive authorities under the Contract including (but not limited to) 5:

To undertake the direct management of the Family Property;

To distribute dividends and benefits generated from the common property among partners in the form and at the rates specified in the Contract;

To deduct from any dividends or benefits payable to a partner from the Contract and to sell his share in the Family Property;

To request the Committee to withdraw any partner from the Contract and to sell his share in the Family Property and to sell his share in the Family Property to other partners, if such partner does not meet his obligations provided for in the Contract;

To seek the assistance of any person he/she deems fit to help manage the Family Property; and

Any other functions specified in the Contract.

Further, the Manager is under an obligation to exercise a duty of care and shall be held liable for any damage caused to the Family Property, a partner or a third party, in circumstances where it fails to do so. The Manager may be removed by any of the reasons specified in the Contract, or by the majority of partners as required to amend the Contract.

THE DISTINCTION FROM WILLS AND PROBATE

There is a clear distinction between Contracts and traditional wills. Unlike wills, that are offered in the DIFC and ADGM and are in line with common law jurisdictions, Shariah compliant wills have the following formalities:

The testator must be over the age of 21 years;

They should be of sound mind;

They must appoint a trustee and a guardian for minor children; and

The will must be duly notarised.

Moreover, there is an additional caveat for wills of Muslim testators which states that the assets defined in the will must be limited to one-third of the deceased’s estate and that assets within estate may not be gifted to any of the heirs. However, if the value of the estate is more than one-third of the estate, the courts must approve it upon seeking written consent from the heirs.

CONCLUSION

In summary, the New Law has provided much needed relief for succession issues in family estates.

By providing a clear contract that allocates shares to partners of the same family after the death of a legal owner, it minimises disputes and uncertainty from large multinational FOBs all the way to small family estates alike. It will be interesting to see how the Law will be interpreted in practice and whether the remainder of the Emirates outside of Dubai will follow suit.

Should you have any questions about the New Law, we would be pleased to support and work with you.

Mohamed Nour | Corporate Associate

Hamdan Al Shamsi Lawyers & Legal Consultants

1 Article 4 of Dubai Law no. 9 of 2020

2 Article 6 of Dubai Law 9 of 2020

3 Article 8 of Dubai Law 9 of 2020

4 Article 11 of Dubai Law 9 of 2020

5 Article 17 of Dubai Law 9 of 2020