Publications – Page 12 – Hammad & Al-Mehdar Law Firm

Saudi Arabia’s Evolving Data Privacy Landscape

Posted on January 31, 2023 - 7:29 am by perpetual-admin

As technology continues to develop, countries worldwide have begun to recognise and address the importance of data privacy. Saudi Arabia is no exception. As part of its Vision 2030 economic reform plan, the government has prioritised data privacy and security, creating new regulations to ensure that financial information is collected, used, and stored securely.

In the past, financial institutions have had the freedom to collect, store, and process customers’ personal information with few restrictions. With the introduction of the new regulations, however, financial institutions in Saudi Arabia must now comply with strict data privacy requirements to ensure customer data is protected. This will bring Saudi Arabia in line with international standards, while also providing greater protection for its citizens. In this article, we will explore these changes and the implications for financial institutions in Saudi Arabia.

How are Data Privacy Laws & Regulations Changing?

The government of Saudi Arabia announced the new Personal Data Protection law in 2021, which aims to protect and regulate the collection, storage, and use of personal data by institutions and businesses in the Kingdom. Since the initial announcement, there was a delay in the implementation of the law to give more time for consultation with stakeholders. After these considerations are taken into account, the law is expected to come into force in March 2023.

The new data privacy regulations aim to safeguard customer information and protect it from misuse or abuse. Financial institutions are required to meet the requirements of these laws, which include implementing specific measures to ensure the security and confidentiality of customers’ personal data.

To comply with these laws, financial institutions must take the following steps:

Create and implement a data protection policy
Appoint a Data Protection Officer (DPO) to oversee compliance
Implement technical and organisational measures to protect customer data
Conduct regular risk assessments and audits
Ensure that all customer data is securely stored and processed
Use robust encryption technologies to protect customer data
Provide customers with clear and adequate information on how their data is being used
Put in place procedures for dealing with data breaches
Put in place mechanisms for customers to exercise their rights under the regulations

It is important to note that these regulations are still in the process of being developed and, while they may be subject to change, all financial institutions must ensure that they are aware of the latest developments and regulations by March 2023 to remain compliant.

The Collaboration of Finance & Tech Teams is Key

The process of compliance with data privacy regulations can be a daunting task for any financial institution in Saudi Arabia. But the responsibility for compliance does not lie solely with the finance teams. It requires a collaborative effort between the finance and technology teams to ensure that all regulations are being met and that customer data is adequately protected.

Technology teams must be involved in the implementation of any regulatory requirements, as they are the ones with the technical expertise to implement the necessary measures. Inter-departmental communication and collaboration are essential to ensure that all requirements are being met. This includes sharing information and knowledge between the finance and technology teams to ensure that everyone is on the same page. Everything from the training of staff to developing and implementing an internal data protection policy must be done in collaboration with the technology team.

By working together to understand and comply with the new data privacy regulations, financial institutions in Saudi Arabia can ensure that customer data is adequately protected and remain compliant with the law.

The Evolution of Saudi Arabia’s Legal Framework

Posted on February 5, 2023 - 6:28 am by perpetual-admin

Over the past two decades, Saudi Arabia has been undergoing a remarkable transformation, which has touched nearly every aspect of life in the Kingdom. This is especially true of its legal framework, which has been a critical part of this transformation process.

To better understand how this evolution has taken shape and the potential implications for businesses, it is important to explore what has changed and what is still changing. In this article, we will explore the changing legal framework in Saudi Arabia, the impact this has had on businesses in the Kingdom, and what changes are expected to come in the near future.

Saudi Arabia’s Changing Legal Landscape

The Saudi government’s National Transformation Program put in place in 2016 marked a dramatic shift toward modernization. As part of this, the government has made a concerted effort to modernize its legal framework, create new standards for businesses, and promote transparency and accountability. Here are some of the highlights:

One key change has been the overhaul of the Kingdom’s arbitration laws and the establishment of the Saudi Centre for Commercial Arbitration in 2016. This has led to a dramatic increase in the number of arbitration cases, providing businesses with a more efficient and cost-effective way to resolve disputes outside the courtroom.
In 2018, the Ministry of Justice published a book detailing Shariah-guided legal principles and a history of previous rulings to provide guidance for litigants in civil and commercial courts. While there is no system of judicial precedents in the Kingdom, this book represented a step towards providing greater legal certainty.
In 2020, the new Commercial Courts Law was enacted, providing a modernized and streamlined framework to resolve business disputes that required court action.
Another major change was the introduction of e-filing systems and remote hearings for courts, initially triggered by the global pandemic in 2020. This has made it easier for businesses to file legal documents and launch court cases without the need to travel, leading to a marked improvement in the efficiency of the legal system.
The Law of Evidence was introduced in 2022, with the aim of reducing court discrepancies in relation to the consideration of evidence across all civil and commercial transaction disputes. This law brings Saudi Arabia further in line with international legal standards and will make it easier for businesses to present their cases in court.

What’s on the Legal Horizon?

The evolution of Saudi Arabia’s legal framework is set to continue in the coming years. In particular, there are plans for further reforms and improvements that will provide additional clarity, consistency, and transparency for businesses in the Kingdom in relation to subjects such as data protection and cyber security. The Personal Data Protection Law, which was initially introduced in 2021, is still being modified and will eventually provide businesses and individuals with a clear set of legal rulings with regard to how they should protect customer data and ensure privacy.

In addition to this, the licensing of foreign law firms is set to become increasingly open and streamlined, making it easier for businesses in the Kingdom to access foreign expertise when needed. Laws related to property and real estate are also expected to become more aligned with international standards, allowing for foreign investments in the sector.

Preventative justice will also become a focus for the Ministry of Justice, with a new committee currently being established to develop a strategy for the implementation of this concept in the Kingdom. This is expected to be beneficial for businesses, providing them with greater clarity and guidance on how to obey the law and avoid legal disputes.

Saudi Arabia: Creating a Better Legal Landscape for Businesses

The changes that have taken place in Saudi Arabia’s legal landscape over the last 20 years, but especially in the past decade, have been remarkable, and are ongoing even today. Businesses in the Kingdom can benefit greatly from these changes as they provide more clarity and consistency in how legal issues are resolved.

What’s more, greater access to foreign expertise and the introduction of preventative justice will help businesses be more proactive about avoiding legal disputes in the first place. With further changes on the horizon, businesses are strongly advised to ensure that they keep up with these developments and work with law firms to ensure that they are both compliant and well-prepared for the future.

The Legal Considerations of Alternative Funding of Growing Companies

Posted on February 19, 2023 - 1:07 pm by perpetual-admin

Funding your business is a critical part of your growth journey, and in Saudi Arabia, banks are often the first port of call for borrowing funds. Banks, however, have been restricting lending to private businesses globally, and Saudi Arabia is not an exception. To the contrary, bank credit availability to private business in Saudi Arabia can be rather limited. That’s why a business may wish to explore alternative funding sources. In this article, we will explore the different funding sources available and discuss some of the legal implications of each.

What Type of Alternative Funding Sources are Available in KSA for early stage growth?

Saudi Arabia’s venture stage ecosystem is rapidly maturing, and as such, the choice of alternative funding sources available to businesses continues to expand. It’s essential to keep in mind that for in-KSA enforceability, Shari’a compliance may be a legal requirement for recovery of profit charges or “interest”.

Angel Investors

Angel investors are customarily high-net worth individuals who provide capital to entreprenerus during the life of their ventures in exchange for an ownership stake in the business. This type of funding is often more readily available than traditional bank loans and can be used to fund the launch and very early stages of growth of a business.

Legal Consideration: Documentation in angel investment transactions is key, and while some angel investors can be qualifying or accredited investors, they may not be sophisticated. Therefore it is very important that the transaction documentation is prepared by specialists to protect both parties, and to take into consideration the private placement nature of the offering securities given applicable laws. It is also essential to perform due diligence on the investor and ensure that they qualifying or accredited investors.

Venture Capital (VC)

Venture capital is a form of capital provided by specialist investment funds (referred to as venture capital funds) to businesses in exchange for equity. VC is typically available from after the proof-of-concept stages of a business, through advanced scaling stages.

Certain venture capital funds provide debt financing, which can help businesses looking to finance working capital or other aspects of their capital requirements, but without parting way with equity. Customarily venture debt is available to companies that received institutional venture capital equity investments.

Legal Consideration: Both forms of venture capital financing are considered to be private placements or financing, and as such special legal attention should be given to documentation to ensure that they are drafted in line with applicable laws. Additionally, businesses looking to receive venture capital should carryout internal legal and compliance review in preparation for investor legal due diligence.

Additionally, debt funding is likely to be subject to the borrower providing security to the lender, and the perfection of such security. The borrower should consider carefully the scope of security and its ability to perfect the security in favour of the lender, especially if the lender is a foreign party, which is customary.

Equity Crowdfunding

Equity crowdfunding is a form of funding provided by a large group of investors, including retain investors, through a platform in exchange for a share of the business’ equity.

Legal Consideration: Under Saudi law, equity crowdfunding is permitted, subject to certain restrictions. Fundraising must occur via a platform licensed by the Capital Market Authority (CMA).

Debt Crowdfunding

Debt crowdfunding is where investors provide funds in exchange for a fixed return. This type of funding is often used by businesses to meet their short-term cash flow needs or finance a specific project. In Saudi Arabia, two debt crowdfunding platforms recently received licensed from the Saudi Central Bank (SAMA) – Forus and Tameed.

Legal Consideration: In 2021, SAMA issued a new set of regulations that clarify the legal requirements for debt crowdfunding platforms. The platform must be registered with and regulated by SAMA, submit periodic financial statements, and establish a risk management system. If you choose debt crowdfunding, you must ensure that the platform you use is fully compliant.

Key Takeaways

Alternative funding sources are worth considering if you’re looking to finance the launch or growth of your business. However, it is crucial to consider the legal implications of each type of funding before selecting an option. It is also possible for you to utilize a number of funding options in tandem. In Saudi Arabia, angel investment, venture capital, equity crowdfunding, and debt crowdfunding are all viable options for businesses looking to raise capital, but each with its own set of legal implications.

To discuss the legal implications of the options suitable to you, contact our team.

Listing and IPO Trends in KSA

Posted on February 21, 2023 - 12:50 pm by perpetual-admin

The Kingdom of Saudi Arabia (KSA) has been making significant strides in developing its capital market and promoting investment in recent years. The listing and initial public offering (IPO) trends in KSA are a reflection of the growth and development of the country’s financial sector.

Listing on the stock exchange allows companies to raise capital and increase visibility, while IPOs provide a platform for new and growing companies to enter the public market. Understanding these trends is essential for investors, entrepreneurs, and stakeholders in the financial sector to make informed decisions and capitalize on the opportunities available. This article will provide a brief overview of the listing and IPO trends in KSA, including some of the key drivers and future outlooks.

Current Market Trends

Saudi Arabia boasts the highest growth rate among G20 nations, backed by the government’s strong effort to diversify its economy and a steady flow of foreign direct investment. Despite global market volatility in 2022, Saudi Arabia’s stock market has remained relatively resilient. Ending 2022 with a bang, the economy grew by 8.8% in the third quarter, with the market capitalization of publicly traded companies totalling around $2,706 billion (USD) by January 2023. However, the nation’s stock exchange experienced its first dip since 2015, with the Tadawul All Share Index (TASI) slipping by 7.1% by the end of 2022.

Despite this, the overall trend in KSA’s stock market has been positive. Q4 of 2022 saw the MENA region, and more specifically Saudi Arabia, become a dominating force in listing activity. Seven Initial Public Offerings (IPOs) were conducted on the Tadawul Main Market with an impressive collective sum of $4.7 billion raised from investors.

Additionally, six IPOs brought in an additional $65 million while two direct listings occurred on Nomu – Parallel Market as well. Luberef subsidiary Saudi Aramco Base Oil Company achieved the largest IPO, which raised a staggering $1.3 billion – amounting to more than double what had been collected through all Saudi offerings during Q3 2022.

Key Drivers of Saudi Arabia’s Listing and IPO Market

The key drivers of Saudi Arabia’s listing and IPO market can be attributed to the nation’s successful economic policies and several serendipitous global events. Here are some of the factors at play:

Reforms such as Vision 2030, the National Transformation Program (NTP), and introducing a new regulatory framework for public offerings have played a pivotal role in driving investment and making it easier for businesses to list. This has enabled companies to gain access to capital markets, broadening their investor base and allowing them to scale up quickly.
Increased investor confidence and a low-cost capital environment have also contributed to the growth in listing and IPO activity. Direct and indirect foreign investments into KSA have risen significantly, with more international investors participating in public offerings.
Recent geopolitical events that contributed to the global increase in oil prices have bolstered the Saudi economy and prompted investors to seek lucrative opportunities in the region.

What is the Future Outlook?

The outlook for KSA’s listing and IPO market remains positive. There is a strong expectation that the optimism and growth witnessed in 2022 will continue into 2023, with more IPO activity and an increase in the number of listed companies.

The Tadawul Group remains committed to furthering its capabilities beyond what they have already achieved. In 2022, this progress was particularly noteworthy as multiple post-trade upgrades were implemented for the first time ever on the Exchange, in addition to introducing a new Single Stock Futures (SSFs) product on its derivatives market. As a result, we are likely to see more investor interest in listing and IPO activity on the Tadawul exchange as investors become more confident of the market’s potential.

In addition, the number of cross-listings is also expected to increase, with Tadawul hosting its first dual listing of the Americana Restaurants (AMR) in December last year with the Abu Dhabi Securities Exchange (ADX). This follows an agreement in 2019 with ADX to encourage more cross-listings between the two exchanges.

A strong IPO pipeline has been identified, with the potential for even larger offerings than in 2022. The government’s commitment to economic reform and the favourable geopolitical climate will likely sustain investor confidence, making it easier for companies to raise capital through public offerings. Bucking global trends, the outlook for KSA’s listing and IPO market remains promising.

Managing Construction Disputes in Saudi Arabia

Posted on February 28, 2023 - 1:51 pm by perpetual-admin

The construction industry in Saudi Arabia has experienced significant growth in recent years, with numerous infrastructure projects and real estate developments underway across the Kingdom. From tourist attractions to transport projects, the Kingdom is undergoing a transformation fuelled by rapid infrastructure development.

While this trend presents significant opportunities for investors and developers, it has also given rise to its fair share of challenges, including construction disputes. These disputes can occur due to a variety of reasons and can often lead to costly and time-consuming legal proceedings.

Effective management of construction disputes is therefore crucial for the success of any construction project in Saudi Arabia. This article will provide an overview of common types of construction disputes in the Kingdom and examine the available dispute resolution methods.

Common Types of Construction Disputes in Saudi Arabia

It’s an unfortunate reality of the construction industry that disputes are a frequent occurrence. However, the root cause of many of these disputes can be narrowed down to several common issues. Here are the main types of construction disputes, which commonly arise in Saudi Arabia.

Design Faults and Errors. These types of disputes may arise when the construction design does not meet local regulations or when the design fails to match the specifications agreed upon in the contract.
Delay Claims and Disputes. Delays can be triggered by a range of issues, such as adverse weather conditions, modifications to the scope of work, or the late delivery of equipment or materials. This can impact the timeline of a project and lead to claims for compensation or other remedies.
Scope of Work Disagreements. Disagreements about the scope of work can lead to disputes during the completion of construction projects. These disputes can occur when relevant parties disagree over the interpretation of the contract, or when there is unclear contract language, or an unexpected change in the scope of work.
Payment and Billing Disputes. Disagreements over payment are common in Saudi Arabia’s construction industry, with contractors and subcontractors sometimes coming into conflict over compensation for unpaid work or additional work that was not included in the original contract.
Contractual Obligation Disputes. Finally, contractors and developers may disagree about the terms of a contract, such as payment schedules or other contractual obligations, leading to costly and time-consuming disputes.

Dispute Resolution Methods in Saudi Arabia

When construction disputes arise in Saudi Arabia, there are a variety of dispute resolution methods available for the parties involved to resolve their disagreements. These methods can include litigation in the courts or alternative dispute resolution (ADR) methods, such as mediation, arbitration, and expert determination. Here’s a brief overview of each of these dispute resolution methods:

Litigation in the Courts. The most traditional method of resolving disputes is through litigation in the courts. The dispute is presented before a judge, who decides on the outcome of the case. Litigation can be a time-consuming and expensive process and may not always result in a favourable outcome for all parties.
Mediation is an ADR method in which a neutral third party, the mediator, assists the parties in reaching a mutually acceptable solution. Mediation is voluntary and confidential and can often result in a faster and more cost-effective resolution to the dispute.
Arbitration is another ADR method in which a neutral third party – the arbitrator – listens to both sides of the dispute and renders a binding decision. Arbitration can be faster and less expensive than litigation, but it can also result in a limited ability to appeal.
Expert Determination. Expert determination is an ADR method in which an independent expert is appointed to determine the outcome of a dispute. The expert’s decision is binding, and the process is often faster and less formal than other ADR methods.

Resolve and Prevent Disputes for a Stronger Construction Industry

Construction disputes in Saudi Arabia can be costly and disruptive for all parties involved, delaying the completion of projects, and causing financial losses. However, construction disputes in the Kingdom are an unfortunate but common reality for stakeholders within the industry. By understanding the common types of construction disputes, stakeholders can take proactive steps to mitigate the risk of disputes occurring in the first place.

Additionally, by utilising the appropriate dispute resolution methods available, such as mediation or arbitration, stakeholders can resolve disputes more efficiently and effectively than through traditional litigation. If you need help with a construction dispute in Saudi Arabia, it is best to seek legal advice from a qualified expert who can guide you through the process and help you reach a resolution.

A Summary of Saudi Arabia’s Mediation Draft Law

Posted on March 14, 2023 - 12:50 pm by perpetual-admin

Saudi Arabia recently introduced a draft law introducing mediation as an alternative way to resolve disputes. This law is currently in the 30-day public consultation phase, and once implemented, it will apply to all legal entities registered with the Ministry of Commerce who are engaged in commercial disputes.

The law defines mediation as a process in which two or more parties come together to resolve their disputes with the assistance of a neutral third party (the mediator). It is intended to provide a more efficient and cost-effective method for resolving disputes between parties outside of the court system while ensuring that their rights are protected.

What Does the Law Mean for Parties Involved in Disputes?

The law lays out a framework for mediation and outlines the requirements that parties must meet in order to participate in this process. Here are some key takeaways from the new draft law below.

Confidentiality and Privacy

Mediation must be conducted in a confidential setting, which includes both in-person and virtual sessions. The mediator is bound by a duty of strict confidentiality and all parties involved in the mediation session must agree to maintain a similar standard of confidentiality. This means that the mediator and all participants must agree not to disclose any confidential information obtained during the mediation process and nothing that is discovered during mediation may be used as evidence in court.

Selecting a Mediator

The mediator must be approved by the Saudi Centre for Commercial Arbitration, with the appropriate qualifications and accreditation. The mediator will act as an impartial arbiter and facilitate communications between the parties in order to reach a resolution that is acceptable to everyone involved. The parties involved in the mediation session are responsible for paying the mediator, and the mediator’s fees should be agreed upon before the mediation session begins.

Terminating Mediation

If one of the parties decides to terminate the mediation, the law states that all information discussed during the session must remain confidential and may not be used in any subsequent legal proceedings. Failure to appear for a mediation session will also result in a termination of the mediation, and any expenses incurred in relation to the session will be borne by the party that failed to appear.

Mediation Agreements

The agreement reached through the mediation session must be recorded in writing and signed by both parties. This agreement will be enforceable by law and the parties are expected to abide by the terms of the agreement. There are a few exceptions to this, such as cases in which one or both parties are discovered to have been fully competent at the time of the agreement or if the mediator seriously violated their duties during proceedings.

How Does This Law Benefit Businesses in Saudi Arabia?

The introduction of this draft law is a positive development for those seeking to resolve disputes through mediation. Not only does it bring the Kingdom in line with international best practices for commercial mediation, but it also facilitates a more business-friendly environment. It creates a framework that ensures fairness, transparency, and privacy for all parties involved.

The law provides legal certainty and clarity, which should encourage more individuals and entities to explore mediation as an alternative dispute resolution method. As a result, businesses will benefit from a faster and more cost-effective way to settle disputes and will benefit from greater peace of mind while operating in Saudi Arabia.

Navigating M&A in KSA: A legal roadmap

Posted on April 3, 2023 - 1:14 pm by perpetual-admin

Mergers and acquisitions (M&A) have become a standard business strategy for companies seeking to expand, diversify or enter new markets. In Saudi Arabia, M&A activity has grown significantly, with the government encouraging foreign investment to promote economic growth and diversification.

M&A transactions in Saudi Arabia are subject to a complex legal framework, and navigating the process can be challenging. A combination of laws and regulations governs the legal framework for M&A. The most significant is the Companies Law, which sets out the requirements for the incorporation, management, and dissolution of companies in Saudi Arabia. Other relevant laws and regulations include the Capital Market Law, the Anti-Monopoly Law, and the Foreign Investment Law.

In addition to these laws, M&A transactions in Saudi Arabia are subject to the rules and regulations of the Capital Market Authority (CMA) and the Saudi Arabian General Investment Authority (SAGIA). The CMA is responsible for regulating the securities industry in Saudi Arabia, while SAGIA is responsible for promoting foreign investment in the country.

The process of an M&A in Saudi Arabia generally involves the following steps:

Due diligence: The acquirer thoroughly analyses the target company to determine its financial, legal, and operational position. This is done to identify potential risks or liabilities associated with the target company.

Negotiation of terms: Once due diligence is complete, the acquirer and target company negotiate the terms of the merger or acquisition, including the purchase price and the transaction structure.

Memorandum of Understanding (MOU): The parties sign a non-binding MOU outlining the key terms of the transaction.

Approval from regulatory authorities: The transaction is subject to approval from regulatory authorities, including SAGIA and the CMA. The parties must submit the required documents to the authorities, including a share purchase agreement, audited financial statements, and other relevant documents.

Shareholders’ approval: The transaction is subject to approval by the shareholders of both companies. A meeting is held to obtain the necessary approvals.

Closing: Once all approvals have been obtained, the transaction is completed. The acquirer pays the agreed-upon purchase price, and the target company’s shares are transferred to the acquirer.

Post-merger integration: After the transaction, the acquirer and target company must integrate their operations. This includes IT systems, combining departments, and restructuring the organisation.

The exact process may vary depending on the nature of the transaction and the companies involved.

M&A in Saudi Arabia is subject to a range of legal requirements that must be carefully considered by the parties involved. Some of the essential legal requirements to consider include the following:

Regulatory approvals: M&A transactions in Saudi Arabia require approval from regulatory authorities, including the Saudi Arabian General Investment Authority (SAGIA) and the Capital Market Authority (CMA). The parties must submit the required documents to the authorities, including a share purchase agreement, audited financial statements, and other relevant documents.

Foreign investment restrictions: Certain industries in Saudi Arabia are restricted or closed to foreign investment. The parties must ensure compliance with these restrictions and obtain any necessary approvals or licenses.

Anti-trust regulations: transactions may be subject to anti-trust regulations, which prohibit anti-competitive behavior. The parties must ensure that the transaction does not result in a dominant market position or otherwise violate anti-trust laws.

Employment laws: M&A transactions may have implications for the employment of staff of the target company. The parties must comply with Saudi Arabia’s employment laws and ensure that staff is treated fairly and appropriately during the transaction and integration process.

Tax laws: The parties must ensure compliance with Saudi Arabia’s tax laws and seek appropriate advice to manage any tax implications of the transaction.

Intellectual property rights: The parties must ensure that any intellectual property rights associated with the target company, such as patents, trademarks, and copyrights, are transferred adequately as part of the transaction.

Contractual obligations: The parties must carefully review any existing contracts or agreements of the target company to ensure that the transaction does not violate any contractual obligations.

It is important to note that the above list is not exhaustive, and the exact legal requirements will depend on the specific circumstances of the M&A transaction. Therefore, it is recommended that the parties seek legal and financial advice to ensure compliance with all applicable laws and regulations.

Suhaib Hammad and Rakesh Bassi have presented a comprehensive analysis and insightful perspectives on strategic mergers and acquisitions in the Saudi Arabian market. Their expertise and acumen in this field are evident in the thought-provoking insights and valuable contributions that this article offers. Should you wish to engage in further discussions or seek clarifications, please reach out to the authors on info@hmco.com.sa

An Insight into Kuwait’s Economic Market

Posted on April 3, 2023 - 2:33 pm by perpetual-admin

Situated at the tip of the Persian Gulf, Kuwait is a small but fascinating oil-rich nation, with a population of just over 4 million people. Before its reinvention as a global oil supplier, it was a busy trade port, connecting merchants and traders between ancient Mesopotamia, Persia, and India. Today, Kuwait is considered one of the most prosperous countries in the Middle East – it has one of the highest GDPs per capita and is a major player in the global oil industry.

It currently holds around 7 percent of the world’s oil reserves and is one of the wealthiest nations in the region. But there is more to modern-day Kuwait than just oil. In this article, we will explore some of the exciting investment opportunities that Kuwait has to offer.

Exploring Kuwait’s Economic Opportunities

There are plenty of reasons why Kuwait should be on the radar of investors. Thanks to its long history of oil production, Kuwait has benefited from a stable economic foundation on which to build further prosperity. Here are some of the economic opportunities Kuwait has to offer:

Infrastructure Development. Kuwait’s government is making enormous investments in infrastructure projects, aiming to build a new subway system and modernize its airport in the coming years.

Oil-backed economy. While Kuwait makes gains in developing other economic sectors, its significant oil reserves provide investors with a stable economic foundation for investment.

Politically stable. Kuwait ranks well in terms of political stability, providing a beacon of security among the turbulent political climates of other countries in the region.

Business-friendly. Kuwait has created a business-friendly atmosphere, with its open economy characteristics, favorable taxes, and an active venture capital market.

Kuwait’s Most Well-Developed Sectors

Kuwait boasts a diversified economy and is home to some of the most innovative start-ups and modern business ventures in the Middle East. The government has made considerable strides towards liberalizing the economy, making it easier to invest and start businesses. Let’s take a look at some of the most profitable opportunities (outside of the oil sector) in Kuwait.

Renewable Energy

With the increasing demand for electricity and the growing threat of global warming, Kuwait has invested heavily in renewable energy sources. With a goal of 15% of its energy needs being supplied by renewable sources by 2030, solar and wind projects are featuring prominently in Kuwait’s energy sector.

Finance

Kuwait boasts a flourishing banking sector, making it an attractive option for investors looking to take advantage of its highly competitive financial services industry. Regional and international banking institutions are well-established here, so businesses in the finance domain will find all that they need to explore the market.

Technology

As the government seeks to digitize the nation’s healthcare system and bring its other industries up to international standards, technology and ICT companies are finding excellent opportunities for growth in Kuwait. Cybersecurity, mobile application development, and software development are some of the most in-demand industries in the country.

Real Estate

Although Kuwait is a small nation, demand for housing is beginning to pick up pace. The government has recently started to devote its resources to the development of this sector, creating even more attractive opportunities for investors.

Kuwait’s Trade Relationship with Saudi Arabia

Kuwait and Saudi Arabia have a long history of trade ties, with Kuwait often serving as the gateway to regional markets. The two countries share many cultural and economic similarities, making Kuwait an ideal partner for Saudi businesses and investors.

The United Nations COMTRADE database on international trade has revealed that Saudi Arabia’s imports from Kuwait totaled US$566.55 million in 2021, and in the same year, Kuwait imported US$149.89 Million in goods from Saudi Arabia. KSA primarily imports petroleum-related products, paper, iron, and steel from Kuwait, whereas Kuwait largely imports Saudi dairy products, plastics, and soaps.

Kuwait: A Strategic Investment Hub

For investors with an eye for the Middle East, Kuwait is an obvious choice. With its strong economic fundamentals and strategic location, Kuwait provides investors with a stable opportunity to diversify their portfolios. Non-GCC, foreign-owned companies can own 100% of their subsidiary in Kuwait with approval from the Kuwait Direct Investment Promotion Authority (KDIPA). Alternatively, non-GCC foreign investors may join forces with a local Kuwaiti partner and own up to 49% of the company. There is no double taxation treaty between Kuwait and KSA, however, Gulf nationals are not required to pay corporate or personal income tax in Kuwait. Except for the requirement to retain 5% of the contract or transaction value by entities in Kuwait on payment to any incorporated body (which will be released at the presentation of a tax clearance certificate), Kuwait does not have any other form of withholding tax regime on payments made by residents to a non-resident.

Reserved Matters: Desirable Governance, Not Back-Seat Control

Posted on May 20, 2021 - 4:19 pm by perpetual-admin

Reserved Matters is a term that is used in the corporate management world that refers to a particular set of situations or decision points that are reserved for the approval of a certain person or group of persons. In the private equity and venture capital worlds, such certain person or persons tend to be the investors or minority shareholders.

The existence of these Reserved Matters gives the approving persons a veto right over the company proceeding with actions involving the particular set of situations or decision points identified as Reserved Matters. Shareholders therefore tend to use Reserved Matters to address points of particular risk to them where they feel that the decision making body (board or shareholders meeting), who would otherwise have authority to decide on the situations or points in question, may decide in a manner that is against their interest if it were to proceed on standard (majority) basis. This, in turn, enhances the governance of the company and ensures that its various stakeholders are well represented and catered for.

Reserved Matters are customarily addressed in shareholders’ agreements and negotiated prior to consummating an acquisition or investment. In certain jurisdictions, including ADGM and Saudi Arabia, it is also recommended to reflect the reserved matters in the relevant entity’s constitutional documents to avoid lack of clarity on the enforceability of the provisions.

Protecting Minority Shareholders

Companies laws tend to favor majorities in decision making in relation to companies. A majority of board members is the base for approving decisions before the board, and a majority of shareholders customarily form the base for approving most shareholder decisions. Because of this standard tendency, incoming minority shareholders, especially investors, will wish to protect their interests where they may conflict with those of the majority of the shareholders, or where they may steer the company in a direction that is contrary to their investment purpose.

With the foregoing in mind, it important to remember the timing and agility impact Reserved Matters introduce into the decision-making process, and how requiring the approval of a specific sub-set of decision makers may slowdown company progress and growth. Therefore, where Reserved Matters are established to protect minority interests, it is advisable to also consider quorum and deadlock provisions that can enable the company to push forward without significant delays.

Not Back-Seat Control

It is vital that minority directors or representatives of shareholders entitled to veto rights in respect of Reserved Matters keep in mind that they may owe certain legal obligations to the company, which legal obligations may influence their vote. As such, the abuse of such power to approve Reserved Matters may, at time, subject the shareholders to legal challenges. In general, it is also not advisable that minority shareholders or investors attempt to exert back seat control over a company by deadlocking its decision making through Reserved Matters. Industry best practices is to use Reserved Matters as a shield to protect investors, rather than a sword to exert their influence.

Where the protected minority is a group of persons rather a single shareholder or investor, it is best practice that Reserved Matters are approved by a majority of the protected persons, being shareholders or directors. This reduces the likelihood of having to cater to holdout individual positions, or subject the company to lockups resulting from a very small number of shares.

Types of Reserved Matters

Customarily, Reserved Matters fall into 3 categories: preferred shares or investor reserved matters, board reserved matters, and statutory reserved matters. Let’s take a closer look at each category and what it means for companies and shareholders.

Preferred Shares / Investor Reserved Matters

This type of Reserved Matters is customarily structured to protect preferred shareholders or investors. By invoking such reserved matters, certain decisions that impact the preferred shareholders or investors cannot be made without receiving a “yes” vote from a majority of the shares that includes a majority of the preferred shares or the investors. Decisions that are typically included in Preferred Shares / Investor Reserved Matters include decisions that will:

Change the terms of the shares in any way at all, no matter how small,
Create a new class or series of shares, or digital coins or tokens,
Increase the number of shares available to employees, outside consultants, or investors,
Cause shares to get repurchased,
Result in shares becoming listed on an organized exchange platform,
Cause a subsequent liquidation event,
Alter the size of the board of directors or managing body and its authorities,
Result in the dissolution of the company, and
Permit borrowing above a certain debt ceiling.

Board Reserved Matters

Board Reserved Matters are decisions structured to protect minority shareholders by subjecting certain board decisions to the approval of the minority-elected board members. This typically includes decisions pertaining to:

Approving the business’s annual budget,
Giving the green light to a proposed business plan,
Appointing auditors or changing them,
Altering the company’s accounting policies,
Acquiring, redeeming, or issuing shares and equity securities,
Borrowing or guaranteeing debt, usually above a certain ceiling,
Agreeing to a settlement including litigation or arbitration for disputes on the company’s behalf, usually above a value threshold.
Licensing, selling, or transferring company property, whether it be physical, digital, or intellectual,
Altering the company’s business or entering new business lines,
Making impactful changes to the company at any level,
Approving expenditure requests above a certain percentage of the already approved budget,
Entering into or terminating any contracts with shareholders or other conflicted parties,
Changing compensation policies as it relates to benefits, retirement plans, healthcare, leave, and salaries, and
Filing for bankruptcy.

Statutory Reserved Matters

Statutory laws pertaining to companies also customarily provide for certain Reserved Matters, which may or may not be varied. Saudi Arabia’s Companies Law, by way of example, provides for certain situations to be approved by a certain level of share votes, which may or may not be varied by shareholders.

As an example, in limited liability companies, matters requiring a 100% affirmative vote are:

Deciding to change the company’s nationality
Making shareholders responsible for debts that exceed half of the business’s share capital
Financially increasing the liability of the company’s shareholders

and matters requiring a 75% affirmative vote are:

Agreeing to proposed amendments to the company’s Articles of Association (AoA).

Corporate Advisors

We highly recommend that you consult your lawyers when negotiating or considering your compliance with reserved matters. As you may have gleaned from the above, many of the typical reserved matters are key decision points in the life of the company, and should be weighed expertly.

The attorneys at Hammad & Al-Mehdar represent over 35 years of experience in providing corporate law services in Saudi Arabia and the UAE. Contact us today to discuss how we may be able to support your corporate legal requirements.

Your Guide to Navigating KSA Construction Claims in the current climate and the effects of the COVID-19 Pandemic

Posted on April 22, 2021 - 11:06 am by perpetual-admin

KSA construction claims are either against the contractor by the owner or against the owner by the contractor, similarly, construction claims may also be made between the contractor and the subcontractor. They are a prevalent part of the construction business, and their successful management plays a large role in whether the contractor can stay in business long-term. In this highly volatile economy, things are changing at a faster than ever pace. This is your guide to navigating KSA construction claims in the current climate.

Why Do KSA Construction Claims Happen?

Construction claims occur when goals or expectations on either the contractor’s or the owner’s end are not met. In most cases, it is due to a breach in the agreed-upon timeline, services provided, or money. KSA construction claims can happen as a result of errors, change orders, poor project planning, or a change in the scope of the project. If not managed correctly, the successful completion of the project may be at stake.

Proper KSA claim management involves 4 steps:

Claim prevention – This is when detailed project plans are created, including the scope, requirements, and timeline. After the contract has been enacted, you are no longer allowed to revisit this phase.
Claim mitigation – Reducing the chance of a claim is best achieved through a realistic and well-developed scope as well as the utilization of risk management plans.
Pursuing claims – To pursue a claim, the amount of time the project is delayed and/or the additional costs involved should be defined.
Resolving claims – If parties cannot reach an agreement on their own, then the claim may go into negotiations, arbitration, mediation, and even litigation.

The Rights of Contractual Parties

COVID-19 brought about unprecedented times. Every industry has had to pivot and adjust, including the construction industry. As a result of the pandemic, three doctrines were enacted under KSA law regarding construction claims.

Force majeure (Quwa Qahira) – A situation in which a construction property is delayed or unable to be completed due to unforeseen circumstances. The key is that these unforeseen circumstances must be outside of the party’s control.
Emergency situation (Al Dhorouf Al Tari’a) – A situation in which hardship makes it extremely difficult to complete the job within the defined timeline (however not impossible).
Impossibility (Istihala) – A project is unable to be completed because it is impossible for one reason or another as a direct result of COVID-19.
Saudi Law stipulates that during these unprecedented times, one or both parties may have the right to extend or delay deadline, request additional costs, or suspend and terminate the contract.

When Does Force Majeure Take Effect?

According to the KSA Supreme Court in its decision no. m/45 dated 08/05/1442H, Force Majeure can be enacted if COVID-19 makes it impossible to meet the contract’s terms. The party claiming force majeure must prove beyond a shadow of a doubt that COVID-19 is the reason the project is unable to be completed or must be suspended.

For instance, one of the most well-known byproducts of COVID-19 is the delay in the production and shipment of goods. If you cannot finish a construction project due to the inability to obtain goods in a timely manner, force majeure may be enacted in such circumstances.

When Does Emergency situation (Al Dhorouf Al Tari’a) Take Effect?

Hardships due to COVID-19 can make it all but impossible to successfully complete a project. Potential hardships due to COVID-19 include:

Delay in obtaining the required materials.
Lowered productivity due to social distancing.
Difficulty accessing the construction site.
Employees out of work due to COVID-19.

Criteria required to meet the Emergency situation (Al Dhorouf Al Tari’a):

The contract must have gone into effect prior to COVID-19, meaning that neither party had an opportunity to put provisions in place.
COVID-19’s effect must be clear and unavoidable.
COVID-19 is the only cause of the breach of contract.
The claim has not been settled in any way.
The effects of the COVID-19 pandemic were not addressed by another specific KSA law or the relevant competent authority.

When Does Impossibility (Istihala) Take Effect?

Similar to hardship, impossibility or Istihala is a situation in which it is deemed impossible to finish a construction project. In order to avoid a claim, due to impossibility, you must be able to prove that the contract cannot be honored due to the unforeseeable events of COVID-19. A couple of examples include:

The inability to get the needed materials to continue with or finish the construction project.
Lack of the needed workforce due to an outbreak of COVID-19 or voluntarily choosing not to work in order to further protect themselves and high-risk family members.

Possible Relief Options Under KSA Law

If your construction claim is deemed to meet the criteria for any of the three doctrines enacted as a result of the pandemic, then the following relief options may be available:

Payment – The contractor has the right to request additional payment for the project if the cost of materials, labor, and additional resources needed for the job have increased as a result of COVID-19.
Suspension/termination of contracts – If the other party does not agree to additional payment or an extended deadline, the contract can be suspended until normalcy is restored or terminated.
Contract amendments – KSA courts may also grant amendments to contracts to reduce required quantities of service when materials are difficult to come by.

The Bottom Line

It is important to note that these are guidelines set forth by the KSA Supreme Court. They do not replace current construction claim Saudi laws but are rather an extension of them due to the extenuating circumstances brought about by COVID-19. The KSA Judiciary is responsible for addressing construction claims that are not able to be resolved between the parties involved.

Hammad & Al-Mehdar are the most trusted attorneys in Saudi Arabia, offering a full suite of business and corporate legal services. We provide a local presence with powerful, international capabilities to ensure you receive unrivaled focus and expertise in all corporate matters, including construction claims. Contact us today for more information on how we can help you with your legal needs.