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Vision 2030 and the regulatory reforms on the horizon

Posted on March 23, 2022 - 6:38 am by

Since its inception in 2016, Saudi Arabia’s Vision 2030 has been positioned as a transformative blueprint for the country’s future. And while there is no doubt that the plan — which aims to wean the economy off its dependence on oil and gas revenues and make the Kingdom a global investment powerhouse — will have a profound impact on virtually every sector of Saudi society, its legal implications are most far-reaching.

From the introduction of 5G and the accompanying increase in regulation to the need for businesses to embed new systems and ways of working, Vision 2030 is certain to have a major impact on Saudi law. Perhaps nowhere is this more evident than in the area of competition law, where the plan’s ambitious diversification and privatisation goals are likely to bring increased competition — and with it, the need for stricter enforcement.

With this in mind, here’s a closer look at some of the legal implications of Saudi Arabia’s Vision 2030.

5G & Regulation

The rollout of 5G networks is set to transform the way we live and work, and the Saudi government is keen to ensure that the country is ready for this next-generation technology. Abdullah Al-Sawahah, Minister of Communications and Information Technology, stated that “Saudi Arabia is determined to be a world leader in 5G to take early advantage of its benefits.”

To that end, the government announced in 2021, that they would designate the entire 6GHz radio band for unlicensed use. This is in line with global trends, as more countries are making large swaths of radio spectrum available for 5G deployment.

However, in order to ensure that the rollout of 5G in Saudi Arabia is done in a way that is safe and compliant with international standards, the government has also laid out a framework for telecoms companies. Under these new regulations, they must adhere to a number of strict security and privacy requirements and are advised of the need to develop disaster recovery plans and ensure that customer data is properly protected.

Information Security & Data Protection

With the rise of cloud computing and the increasing digitisation of society, the issue of information security and data protection is becoming increasingly important. The Saudi government has taken note of this trend and has introduced several regulations aimed at safeguarding consumer data.

Saudi Arabia’s Personal Data Protection Law was implemented by royal decree in 2021. This regulation sets out a number of strict requirements for businesses that process or store personal data.

Among other things, businesses must, in most cases, obtain prior consent from individuals before collecting, using, or sharing their data. They must also ensure that personal data is properly protected and take steps to ensure that any data breaches are promptly reported and resolved. The CITC has also published a set of guidelines on information security, which businesses are encouraged to adopt in order to protect themselves from cyber-attacks.

Competition Law

As Saudi Arabia moves away from its dependence on oil and gas revenues, the need for strong competition laws becomes increasingly important. This is especially true in the context of Vision 2030’s ambitious diversification plans, which are sure to bring new players into many sectors of the Saudi economy.

In late 2019, a new Competition Law was announced by Royal Decree. This new set of regulations is in line with international best practices and designed to ensure that businesses compete fairly, without resorting to anti-competitive practices such as price-fixing, bid-rigging, and illegal market manipulation.

The General Authority for Competition (GAC) has begun to increase its enforcement of competition law in recent years, and this is likely to continue as the Saudi economy becomes more competitive. In 2021, the GAC blocked its first transaction during a merger, signalling a new era of tougher enforcement.

“Competition filing has been a standard part of acquisition and investment transactions relating to Saudi Arabian companies, including technology companies, which have seen an investment boom over the last 2 years. Private equity and, to a certain extent, venture capital, investors and targets must now consider the impact of competition on their intended transactions” stated Abdulrahman Hammad, partner and head of the finance practice at Hammad & Al-Mehdar.

The Changing Future Of Saudi Arabia

The Saudi government’s Vision 2030 is a bold and ambitious plan that is sure to have a major impact on the Kingdom’s economy. While the full extent of these impacts is not yet known, it is clear that businesses will need to be prepared for a number of legal and regulatory changes. From new regulations on 5G and data protection to increased competition law enforcement, businesses will need to adapt in order to stay ahead of the curve.

Incorporation Requirements For Educational Institutes In Saudi Arabia

Posted on March 29, 2022 - 7:19 am by

Education in Saudi Arabia has come a long way over the past few decades. In the 1970s, only 7,000 students were enrolled in Saudi universities and today that figure stands at over 1 million. There has been a concerted effort by the government to provide education for all its citizens, and the results are evident. The primary education enrolment rate has increased dramatically, and the country now boasts several world-class institutions of higher learning.

There are still some challenges to be addressed, however. The quality of education remains uneven, with attainment levels still lagging some of the leading developing nations. COVID-19 also put a strain on the sector as schools were forced to close, meaning students had to learn remotely. Nevertheless, the future looks bright for Saudi Arabia’s education sector.

 

Saudi Private Sector Education – A Growing Industry

The Saudi private sector has been playing an increasingly important role in education over the past few years. As part of Vision 2030, the government is aiming to increase the proportion of students in private schools to take the strain off public funding and boost attainment levels.

Saudi Arabia’s exceptionally young population has increased the demand for good-quality schooling, and many parents are now willing to pay for private education. This has created opportunities for a number of international school chains to enter the market. By the year 2025, it’s anticipated that there will be a need for an additional 980 private schools to support the 2.1 million new school seats that will be required. In 2018, private school enrolment sat at 13%, but by the year 2025, this will likely increase to 15% to match the 3.5% annual increase in the total number of Saudi students. As a result of these factors, the private education sector is expected to grow at a CAGR of 11% until 2026.

As part of the government’s plan to increase private participation to 25% of the education sector, they have created an “independent schools” program. This program aims to make 2,000 public schools independent, meaning they have full autonomy over their administration, financial support, and curriculum. It opens up even more opportunities for private investment and management of public schools.

 

Current Challenges Facing The Saudi Education Sector

Saudi Arabia has typically fallen behind its Gulf neighbours when it comes to quality of education. However, government efforts are starting to have a positive effect, and the country is now ranked 35th place globally for quality of education (up from 45th in 2020). However, attainment levels remain relatively low when compared to other nations.

To tackle this issue, the Saudi government has funnelled one-fifth of their budget into the education sector and made steps to increase private sector participation in the market. Their efforts were somewhat hampered by the COVID-19 pandemic, which forced students to switch to online home-based learning. This meant private schools had to drop their fees, resulting in reduced funding and staffing issues.

 

Key Considerations For Private Educational Institutes

In 2017, the Saudi government opened the private education sector to 100% foreign ownership and investment. This means there are now plenty of opportunities for foreign businesses to get involved in the education sector without the requirement of a local partner.

In the same year, the government announced new regulations under the Tadarruj system to regulate the building requirements for private schools operating in the Kingdom. By 2018, over 113 private schools were shut down for not abiding by these new regulations and operating out of buildings not designed for educational activities. Private schools are now required to wholly own their school buildings in order to be granted the appropriate licensing. Their premises must also fulfil a number of criteria to ensure they are fit for purpose.

The government recently announced that by the end of 2022, the Human Resource Development Fund (HRDF) would withdraw their funding support for Saudi citizen teachers. Until now, the government had been paying up to 50% of Saudi teachers’ salaries. This funding program was previously initiated after a Saudi citizen minimum wage was introduced, but schools must now start paying these salaries in full. This may result in a fee increase to combat the shortfall in funding.

The government has made it a priority to address the issues affecting educational attainment within the Kingdom and is working hard to ensure that Saudi Arabia’s education sector continues to develop and improve. In the coming years, we can expect to see even more progress in this vital area.

Thriving in Saudi Arabia – key considerations

Private institutes who are considering entering the education sector will need to consider a multitude of elements, which include:

Incorporation – navigating the registration structure, considering your location, core age demographic which you are targeting, incorporation legal requirements, regulatory legal approvals,

Funding & Finance – the financial resources required to incorporate and operate across Saudi Arabia, whether you should consider a joint venture or merger, feasibility and due diligence assessments, banking structure across the country

Real estate – land law considerations, development, and leasing requirements, musataha agreements with government entities and developers.

Construction and infrastructure – construction laws, operating and maintaining of new campuses and student accommodation.

Employment –  contracts, review of HR policies, employment laws.

Technology – technology procurement, outsourcing arrangements, licensing agreements.

Our education specialists at Hammad & Al-Mehdar have been supporting the education sector and its related entities for decades and have delivered the full lifecycle of legal and corporate services for its clients.

To discuss your education entity contact us.

How Technology Is Transforming Saudi Arabia’s Healthcare Industry

Posted on April 13, 2022 - 7:25 am by

The Saudi healthcare market is expected to generate US$464m in 2022, growing at a CAGR of 12.79% until 2025. Due to its young and growing population, it is estimated that Saudi Arabia will require more than 20,000 additional hospital beds by 2035. Innovations in technology and the global pandemic are amongst the key forces driving changes in Saudi Arabia’s healthcare industry at such an unprecedented rate. From patient care to medical research and training, every aspect of healthcare is being affected by technological advances and operational reforms.

Hospital stays are becoming shorter as more procedures can be carried out on an outpatient basis. This is thanks to advances in diagnostic techniques and treatments, as well as the availability of better-quality medical equipment. Over the coming years, it’s expected that healthcare will become increasingly digitised, improving the level of access and convenience for patients.

The Digitisation Of Healthcare

With the pressure of the global pandemic, Saudi’s healthcare industry has been forced to adapt to new ways of working at a pace that would have been unthinkable just a few years ago. The sudden and rapid increase in patient numbers has necessitated a more consolidated and connected approach to care. In response to this need, the Saudi government has begun working on the development of a unified vision of e-health provision across the Kingdom. It’ll enable patients to access streamlined, efficient, and high-quality care regardless of location.

At the heart of this transformation is the digitisation of healthcare. By making use of new and innovative technologies such as AI, big data, and cloud computing, Saudi Arabia’s healthcare system will be able to become more responsive to the needs of patients. What’s more, these tools will help to improve communication between different care providers, leading to better coordination and delivery of care.

New technologies are already being implemented across the Kingdom’s hospitals. AI is being introduced to interpret patient X-rays, taking some pressure off hospital staff. In the near future, Saudi doctors may be able to mine patient healthcare records using big data technology, to assist with diagnosis and the development of treatment plans. Health tech startups are also playing a crucial role in the digitisation of healthcare in Saudi Arabia.

There are currently 150 health tech startups operating within the Kingdom. One of these is Cura — a locally developed application that allows users to receive remote video consultations with doctors across 34 different specialities. Similarly, a new app named Labayh, gives users the ability to connect with a qualified counsellor or psychotherapist quickly and discreetly. These companies are developing innovative solutions that are making a positive impact on the lives of many patients.

Beyond Saudi Arabia’s borders, Neurosurgeons at John Hopkins performed their first augmented reality surgery in June 2021. VR headsets are also being deployed during medical training, to allow students to practice in a virtual environment before moving on to the real thing. This technology could be used to train the next generation of Saudi doctors, possibly in virtual spaces like the metaverse, to meet the Kingdom’s growing demand for qualified physicians.

How The Legal Industry Is Keeping Up With Development

As the healthcare industry evolves, the legal landscape must keep pace. With the wider proliferation of cloud data storage, the Saudi government introduced a new law that prohibits healthcare providers from storing the personal data of any Saudi national outside the Kingdom. The ongoing push towards Saudization also impacts the Healthcare industry. As it currently stands, each hospital must appoint a locally qualified doctor of Saudi nationality as a medical manager for the hospital, with some exceptions granted for hospitals in very rural or remote locations.

Negligence liability is still an area of Saudi law that does not yet have a well-defined framework. Saudi’s lack of legal precedence means that the results of civil cases are often unpredictable. This presents a challenge for both patients and practitioners when it comes to seeking damages for medical negligence. Most cases are resolved on the principle that a contract between two parties constitutes the law between two parties — unless it is in breach of some element of Shari’ah.

The way technology is impacting the healthcare industry is set to continue at an ever-increasing pace. As more countries around the world begin to adopt similar approaches, the potential for further improvement and efficiency is huge. For Saudi Arabia, the next few years will be crucial in shaping the country’s healthcare landscape for the future.

Opportunities For Chinese Investors In KSA

Posted on May 8, 2022 - 6:50 am by

The Kingdom of Saudi Arabia is well-positioned to take advantage of the opportunities offered by China’s continued pursuit of an international investment strategy. With China’s CIC, the country’s sovereign wealth fund, seeking to diversify its portfolio and invest in foreign assets, Saudi Arabia is an attractive option.

As the world’s largest crude oil supplier to China, Saudi Arabia is in a unique position to offer energy security and assist the Chinese government to meet their growing energy requirements. Additionally, Saudi Arabia’s economic reforms have been designed to foster growth and attract foreign investment, making it an attractive option for Chinese businesses and investors.

The Saudi government is committed to developing the country’s infrastructure and has made significant investments in transportation and logistics. This will make it easier for Chinese businesses to access the Saudi market and set up operations in the Kingdom. KSA also has a large and rapidly growing economy, with a population of over 32 million people.

China & Saudi Trade Relations

The 2019 Aramco IPO was seen as a key part of the Kingdom’s economic diversification program in its efforts to attract foreign investment. Earlier this year, Saudi Aramco initiated a joint venture with China to develop a new refinery and petrochemical complex in the northeast of the country. Saudi Arabia will supply the new Huajin Aramco Petrochemical Company (HAPCO) with 210,000 barrels a day of crude oil feedstock.

This move represents a tightening of economic ties between the two nations and provides a significant boost to Saudi Arabia’s downstream sector. It also reflects China’s continued interest in Saudi Arabia as an investment partner and will strengthen Chinese-Saudi relationships.

In 2020, Chinese imports into Saudi Arabia increased by 17.8 per cent to $28.1 billion. Bilateral trade between the two nations continues to grow at a steady pace and is expected to continue to do so in the years ahead. Political commentator Zaid M. Belbagi told Arab News last year that China increasingly saw relations with the Arab world as “central” to its geostrategic ambitions. In 2017, King Salman visited the country during a six-country Asia tour, which set in motion a “comprehensive strategic partnership” between the two nations. With its strategic location, vast natural resources, and favourable economic climate, Saudi Arabia is ideally suited to assist China in achieving its economic goals in the Arab world.

The Future of Chinese Investment in Saudi Arabia

Looking to the future, it’s clear that there are significant investment opportunities in Saudi Arabia for Chinese businesses and investors. In 2020, the annual flow of foreign direct investments (FDI) from China to Saudi reached approximately $390 million. Rumours that Saudi would start accepting the Yuan during oil sales were quashed earlier this year by Aramco CEO Amin Nasser, but it’s undeniable that China sees Saudi Arabia as a key strategic and economic partner in the region.

For Chinese businesses and investors looking for opportunities in the turbulent global economy, Saudi Arabia remains an attractive and promising option. Chinese business leaders should keep a close eye on the Kingdom in the coming years as it looks to attract more foreign investment and continue its economic reforms.

Resolving Shareholder Disputes In Saudi Arabia

Posted on May 22, 2022 - 10:42 am by

Shareholder disputes are a common occurrence in many business entities worldwide, and Saudi Arabia is no exception. Disputes can arise because of disagreements over the company’s direction, distribution of profits, or management.

When shareholders are unable to resolve their disputes themselves, they may bring the matter to the attention of the board of directors to seek a resolution. In Saudi Arabia, the board of directors has the authority to resolve shareholder disputes. However, if the board is unable to reach a decision, the shareholders may seek resolution through arbitration or the courts. This can be a time consuming and expensive process, so it’s always preferable to try to find a working solution before the situation gets to the point of arbitration or litigation.

What Is Dispute Resolution?

Dispute resolution is the process of resolving conflicts between two or more parties. It can take many different forms, such as mediation, arbitration, and litigation. Mediation is a process in which a neutral third party helps the parties involved in the dispute come to an agreement. Arbitration also involves a neutral third party who listens to both sides of the dispute, but the difference is that they are granted authority to make a binding decision. Litigation is a process in which the dispute is resolved by a court of law.

Key Elements Of Effective Dispute Resolution

The key elements of effective dispute resolution are:

  1. Communication – The parties involved in the dispute must be willing to communicate with each other to reach a resolution.
  2. Cooperation – The parties must be willing to cooperate with each other and the mediator or arbitrator to reach a resolution.
  3. Flexibility – The parties must be willing to be flexible to reach a resolution that is acceptable to all parties involved.
  4. Respect – The parties must respect each other and the mediator or arbitrator to reach a resolution.
  5. Time – The parties must be willing to invest the time necessary to reach a resolution.

Why Are Shareholder Agreements Important?

Shareholder agreements are a key tool in managing and resolving shareholder disputes. These agreements can provide a mechanism for shareholders to resolve their differences without resorting to arbitration or litigation. They can also help prevent disputes from arising in the first place by setting out clear rules and procedures for the management of the company.

How To Start The Arbitration Process In KSA

In 2012, the Saudi government issued the new Law of Arbitration with the aim to modernize and streamline the arbitration process in the Kingdom. This law made arbitration a more viable option for businesses seeking to resolve disputes, which they have failed to resolve internally.

If you are a shareholder in a Saudi company and you have a dispute with another shareholder, you can commence an arbitration process. The arbitration process will typically take about six months to complete. Once the arbitrator has decided, it will be final and binding for the parties involved.

To discuss arbitration in further detail please contact our Head of Dispute Resolution, Ali Altoukhi.

 

What is the Legal Impact of Web 3?

Posted on May 29, 2022 - 7:29 am by

Apart from Dubai being a tourist destination, it’s a haven for web 3 and the cryptocurrency community. On March 9, 2022, the city approved the first law for the regulation of operations of digital assets, such as non-fungible tokens (NFTs) and cryptocurrencies. The news was confirmed through a tweet by Sheikh Mohammed bin Rashid Al Maktoum, the prime minister of the UAE.

Under the new law, Dubai wants to establish itself as a key player in designing the global future of virtual assets. In addition, the UAE seeks to form a Virtual Assets Regulatory Authority (VARA), which will be an independent body under the Dubai World Trade Center. VARA will oversee the governance, licensing, and setting of regulations for NFTs, cryptocurrencies, and other virtual assets. As a result, the city has become an epicenter for web 3 entrepreneurs from all over the world.

Web 1.0 and Web 2.0

The World Wide Web, referred to as web 1.0, dates back to the 90s. Web 1.0 was made up of web pages connected by hyperlinks. This first generation of the web was read-only, where businesses only shared information for you to search and read it.

Then in the 20s, web 2.0 came to life, the current version of the internet. The platform created a rise in eCommerce and social media platforms like Facebook, Instagram, and Twitter. This improved version of the first worldwide web has a more friendly user-generated interface. During web 2.0, users have been able to work and earn money through various platforms.

However, in web 2.0, users are needed to give out personal information to access and use the ‘free’ services provided by tech giants like Amazon, Google, and Microsoft. The information gathered is then sold to third parties like shopping sites to offer you targeted advertisements.

Web Version 3.0 Explained

Gavin Wood, a co-founder of the Ethereum cryptocurrency, popularized the term web 3 in 2014 to describe anything involved with the changes on the internet for the next generation by making the platform a decentralized digital infrastructure. A cryptocurrency is a digital currency that does not rely on a central authority like a central bank or the government. As a result, transactions done through web 3 technologies, such as peer-to-peer payments, are free from the control of any central governing body.

Web 3 is a new version of the web built on blockchains that are peer-to-peer and decentralized. This format will allow people to control what is published, archived, and stored in secrecy.

A blockchain is a database hosted by a network of several computers instead of a single computer. This distributed ledger offers its users a transparent and unchanging way of storing information.

A blockchain-centric internet will be harder to manipulate and control since the technology used will be the same as in the cryptocurrency technology, which is built to prevent “double-spending.” This means computers will store data on a network instead of servers as it is now, making it easy to track the stored data as there will be an established record of the movement pattern.

An example of a web 3 application is the peer-to-peer payment app that works on blockchains where instead of opening a bank account, you can use the decentralized app (Dapp) to make payments. Examples of peer-to-peer apps include;

  • Ziina
  • Zand
  • mePay
  • Rise
  • YAP
  • NOW-money

How Web 3 Will Impact Businesses

The third phase of worldwide web evolution will bring revolutionary changes to the UAE’s mode of operating its businesses. There are four main types of legal business structure in the UAE, which include:

  • Individual establishment – Owned by a single person and responsible for its financial obligations
  • Civil company – Established by investors from local and foreign countries to provide specialized services in the UAE. They include but are not limited to lawyers, doctors, consultants, and engineers
  • Commercial company – Business arrangements between two UAE nationals where each partner is responsible for the company
  • Limited Liability Company – Involves more than two but less than fifty, and each partner is responsible to the company according to the shares bought

The introduction of web 3.0 will allow companies to work efficiently by cutting out the middleman through the connection of artificially intelligent computers. As a result, businesses will experience optimum growth. Below are the benefits and challenges that web 3 will present.

1. Streamlined Business Process

With web 3 integrated into the business format, companies and sole proprietorships will find it easy to maintain their transactional ledger. As a result, continuous customers will enjoy personalized services as their previous purchase information is readily available.

2. Provides an Efficient Collaboration With all Involved Parties

Most businesses fail because there is a lack of transparency. However, web 3 will make the business more transparent to all the parties involved. This is achieved through an unchangeable chain of records visible to everyone on the blockchain.

As a result, slow-performing companies will suffer stiff competition due to the end-to-end transparency system that provides real-time transactional proof and supply chain activities to its customers.

3. No-third Parties

Blockchain technology will allow a business owner to control all their in-house operations, including directly contacting the customer. Although it will reduce cost, save time, and make the business more competitive, third-party service providers will experience a decline in their business due to the lack of demand for their services.

Web 3 might be revolutionary, but it also presents various sets of challenges. For example, if your cryptocurrencies like Bitcoin or Ethereum are stolen, you lack a way of pursuing the case due to a lack of centralized control. In addition, due to the nature of public distributed ledgers which makes transactions visible to all, making it directly opposite to privacy

Why You Should Stay Alert on Web3

Businesses will undoubtedly adapt to web 3 technology as it offers a higher competitive advantage. However, before getting involved in the space, all businesses–small or large, existing or start-ups- should know that endless legal issues can arise. This is because the space is relatively new, and laws are continuously being created to regulate the industry.

Web 3 is still at its infancy stage, and the already existing technologies prove that the future of the internet will usher new tides in businesses. As Dubai fully embraces the idea by creating regulatory bodies to control the space and attract investors, understanding this new technology and its impact on your business will benefit you and your business.

Hammad & Al-Mehdar law firm dutifully serves the legal needs of regional businesses and individuals from the five offices across the Kingdom of Saudi Arabia and the United Arab Emirates. Our firm is well-positioned and structured to handle legal issues while providing you with support to navigate through the implications of web 3 in your business or industry. Contact us for more information or legal representation.

Arbitration and its Role in Family-Businesses

Posted on May 29, 2022 - 7:34 am by

Family businesses contribute significantly to the GDP of Saudi Arabia, albeit the dynamics of the family business continue to evolve as the second and third generation enter the corporate world.

While family businesses leverage cooperation, disputes may arise which threaten the health of the enterprise. Alternative dispute resolution offers a mechanism family members can use to resolve differences privately and cost effectively.

Common Disputes in Family Businesses

Disputes over succession following the demise of a founding member are common and can take the business on a downward spiral if no succession planning or dispute mechanisms exist.

Often, family and business values will overlap but not necessarily align. Family values will insist on the unity of the members, which sometimes conflicts with the objective of optimizing the economic return of the family business. There may be a reluctance to disassociate a family member whose actions harm the company.

Furthermore, in the event a formal succession plan is not in place, the voting in of a temporary leader may cause unharmony between family members, which brings into question their position and future within the business.

Such rapid changes may lead family members to cash in on their stake, which may give rise to potential liquidation or divestment of stakes, again compromising the family business, brand reputation and future growth plans.

Avoiding Disputes

Families that decide to go into business should plan on ways to resolve conflicts in advance, usually at the outset of drafting company laws.

There are various pre-emptive measures at the disposal of family businesses to prevent disputes. These measures include legal governance structures providing for dispute resolution.

Families must establish a dispute resolution mechanism in their constitution, appointing an arbitrator or mediator.

The constitutional documents should have provisions for family members that want to cash in on their share, allocation of voting rights, processes of operating charities, and a dispute resolution mechanism.

Family businesses should prioritize succession planning in the event the founder expires.

In a nutshell, precautions that family members can take before they decide to go into business together include:

  • Preparation for conflicts: conflicts are always possible when business and family inter-twin. A careful analysis of the potential pitfalls and interests can preempt conflicts to establish sound mechanisms for resolution.
  • Focus on transparency: conversations about issues and challenges should come before negotiations on business matters. In addition, discussions on the norms and procedures in conflict resolution should also occur.
  • Appoint an arbitrator: parties should agree on a competent arbitrator in case of a dispute.

Alternative Dispute Resolution (ADR)

The Saudi government has taken steps to modernize the countries legal system to align with global standards. This includes provisions for mediation and arbitration. Unlike in the past, the parties can choose the foreign law they wish to apply in the ADR process. The provision is practical where one or more parties to the dispute are non-Saudis.

Usually, mediation and arbitration are the two major forms of ADR available to family businesses in KSA. Other variations such as expert determination, conciliation, neutral evaluation, and adjudication may exist, but they are still sub-branches of mediation and arbitration.

Mediation should typically come before arbitration and only move to arbitration when mediation fails. When the government established the Taradhi platform for virtual mediation, the primary objective was to accelerate dispute resolution, which is the overall goal of ADR.

The 2020 Commercial Courts Law introduced various changes to encourage arbitration and mediation in conflict resolution.

The benefit of ADR is control of the process. It is more flexible and inexpensive and provides a faster way to resolve differences between parties.

Arbitration as a Legal Resolution Channel for Family Businesses

With arbitration, dispute resolution between the family members usually involves one or more hearings. The arbitrator is a neutral third party, mutually or contractually engaged by the parties, or the arbitral tribunal based on the arbitration law.

Before the arbitration process, parties to the dispute agree to be bound by the arbitrator’s final decision.

Considering that the arbitration process is private, the public does not access information on disputes or resolutions. However, the parties must sign a non-disclosure agreement to keep all the dispute details confidential.

The process is also preferable when subject matter expertise is necessary. Some arbitrators specialize in particular areas such as construction and real estate law, and the process can leverage this expertise for quick and fair resolutions.

Drawbacks of the arbitration process can include the relaxed evidentiary and discovery rules. The arbitrator may use materials that an actual court may not have to make final decisions, and the result may be an unfavorable outcome that does little to resolve the dispute in the long run.

Normally, the arbitration law in KSA requires the supervision of the process by a court that typically has jurisdiction. Parties can appeal the arbitration decisions through that court, which can lengthen the process. The absence of finality can water down the benefits of the arbitration process, such as swiftness and cost-effectiveness.

The Saudi legal regime is undergoing significant changes, and challenges such as compliance will be apparent. However, the new modifications benefit the overall dispute resolution mechanism and provide greater certainty and clarity.

The decision to include a binding arbitration clause in the governance structure of a family business is up to the members. Nevertheless, the family business should consider drafting a process for arbitration for effectiveness and to avoid wasted time through appeals. Attention to the KSA arbitration law provisions is vital to making informed decisions.

Hammad & Al-Mehdar Law Firm has experience in all legal matters involving businesses and can help with arbitration agreements. Contact us to discuss your requirements further.

 

Legal Due Diligence: Why Is it Important in M&A Transactions?

Posted on May 29, 2022 - 7:41 am by

A 2021 report by the Saudi Venture Capital, showed that the VC ecosystem had 88 deals, which were all valued at $152 million. Another report by the financial market data firm, Refinitiv, highlighted the growth of mergers and acquisitions (M&A) across the Middle East and North Africa. The report showed that Saudi Arabia dominates M&A, with deals reaching a record high compared to the previous years.

The increase in M&A activity is attributed to an influx of foreign investment, however such transactions are sensitive and require rigorous legal, due diligence. They also have the tendency to attract the scrutiny of the General Authority for Competition, trying to avoid monopolistic and oligopolistic practices.

What Is Legal Due Diligence?

Legal due diligence involves reviewing a company’s documentation to identify any potential legal exposure and non-compliance issues. Legal due diligence is conducted when a business is interested in acquiring or merging with a target company.

Legal due diligence has different subcategories, which include:

  • Business
  • Accounting
  • Intellectual property

The due diligence seeks to know more about the company:

  • Lawsuits (pending or potential)
  • Debts
  • Leases
  • Warranties
  • Compensation
  • Distribution agreements
  • Contracts

The company looking to get involved in a M&A will request the following documents from the target company:

Material contracts

The buyer must review all the seller’s material and commitments. The contracts that must be reviewed include:

  • Guarantees and credit agreements
  • Indemnification agreements
  • Employment agreements
  • Customer and supplier contracts
  • Partnership or joint venture agreements
  • Settlement agreements
  • agreements on past acquisition
  • Equipment leases
  • Government contracts
  • Any other relevant contracts the company is involved in

Employee & Management Issues

The buyer should also try to understand all the issues affecting the employee and the management. Such documentation includes:

  • Policies or allegations involving sexual harassment
  • Allegations of any sexual misconduct
  • Any labor disputes
  • Relevant information involving previous, pending, or threatened labor stoppage, slowdown, or other similar labor activity.
  • Any key employees and company officials involved in any criminal proceedings or civil litigation

Litigation

A review of any pending, threatened, or settled litigation or arbitration the seller is involved in. Some documentation to be reviewed include:

  • Attorneys’ letters directed to the auditors
  • lawsuits brought against the company

Governmental Regulations, Filings, and Compliance with Laws

The buyer would want to know whether the seller was involved in any regulatory requirements by reviewing the following documents and citations.

  • Any current or pending governmental proceedings
  • Government agencies’ citations or notices issued to the seller
  • Certification of compliance with respect to the company’s regulatory standard
  • Any cancelled or terminated company permits or licenses.

Once all the information is reviewed and relevant data collected, a business can make informed decisions.

Why is Legal Due Diligence Needed?

Due diligence offers the following advantages, which are all crucial in an M&A deal:

1. An opportunity to understand the target company.

When conducting legal due diligence, all the relevant documents touching on any current or potential legal exposure are collected. All these documents help the buyers understand more about the target.

2. Understand the Target’s Fair Price

Having financial information about the company, including lawsuits, can help come to a conclusion on how much the company is worth. The information gives each party room for negotiation, especially in an M&A transaction.

3. Identify Possible Future Risks

Certain risks a company is facing can become a big problem after an M&A transaction. Identifying all the risks early on can help a company better prepare on how to handle them. Identifying the risks early on can also help a buyer decide whether to proceed with the M&A transaction.

4. Helps Prepare an M&A Contract

Legal due diligence helps identify existing problems that can prevent the deal from going through. When all the parties are aware of these problems, they can discuss solutions that will ensure a smooth transaction.

Significant M&A Transactions in Saudi Arabia

Saudi Aramco closed a US$12.4 billion deal that involved selling a 49% stake in Aramco Gas Pipeline to a consortium of international investors. The investors included Keppel Infrastructure Trust, Silk Road Fund, China Merchants Capital, and Hassana Investment. The deal is part of ongoing Saudi Arabia’s efforts to sell assets and use the proceeds to find other industries and increase oil and gas output.

The private equity sector has also witnessed an increase in M&A activity over the past few years. In the first half of 2020, the venture capital got 45 deals valued at US$95 million. During the same year, the Public Investment Fund allocated US$1 billion to develop the private equity and venture capital ecosystem.

When it comes to prominent industries in Saudi Arabia, the e-commerce industry is still the most targeted industry for the second consecutive year. Along with the fintech industry, the e-commerce industry represents 30% of all the total M&A transactions.

Choosing Who To Manage the Due Diligence Process

Choosing who to conduct and manage the due diligence process is critical. They should be able to communicate the due diligence process, what is covered in the review and what is commercially material to the buyer.

Conducting due diligence on the petroleum and gas business is different from the construction industry. A buyer should choose a legal counsel that is experienced and knowledgeable in matters related to M&A.

Additionally, reviewing all documents in the legal due diligence process is challenging for one person, which is why a buyer should choose a legal firm for the job.

For a smooth M&A transaction, relevant people must be involved to undertake all the work involved in legal and due diligence. Having an experienced legal firm overseeing the whole process will ensure that potential risks are pointed out and worked on early on.

At Hammad & Al-Mehdar Law Firm, we will represent your interests and help conduct the legal due diligence for M&A transactions. As one of the leading private legal practices across Saudi Arabia and​ the wider Gulf Cooperation Council (GCC) we have decades of experience in M&A transactions. Contact us today to learn more on how we can help you conduct legal due diligence.

The Legal implications for Education Institutes in the Kingdom of Saudi Arabia

Posted on May 29, 2022 - 7:45 am by

For any institute, the legal aspects are of utmost importance regardless of the nation. This pertains to the registration of the institute, the qualifications and experience of the staff, contracts with parents and other institutes, and dealing with government departments.

Education institutes in Saudi Arabia need to consider a range of regulations when establishing themselves. These include regulations relating to their physical premises, the curriculum they offer, and the staff they employ. Ensuring compliance with these regulations is essential for any institute wanting to operate in Saudi Arabia. These regulations include:

1.      Mergers and acquisitions (M&A)

When it comes to M&A, education institutes are no different than any other type of organization. There are several legal considerations which need to be taken into account, and it is important to cover the full cycle of the merger in order to ensure a smooth transition.

Financial considerations will be key, as the educational institute will need to assess the value of the target institute and agree on a fair price. It is also important to have an operational model in place so that the educational institute can continue to provide quality education and services to its students.

2.      Operational model

The operational model is one of the regulations which education institutes in Saudi Arabia need to consider. An operational model is a set of procedures and processes that an organization uses to produce products or services. It includes the organizational structure, the division of labor, and the way resources are allocated. When establishing an educational institute in Saudi Arabia, it is essential to develop an operational model that complies with its regulations.

3.      Partner Agreements

Partner agreements are contracts between two or more organizations that outline their roles and responsibilities in a joint venture. When establishing an educational institute in Saudi Arabia, it is essential to have partner agreements in place with any partners involved in the venture. These agreements should clearly define the roles and responsibilities of each party and how decisions will be made.

4.      Asset Management

Asset management is the process of identifying, acquiring, developing, and maintaining assets to maximize their value to the organization. When establishing an educational institute in Saudi Arabia, it is essential to implement an asset management plan that complies with the country’s regulations. This plan should identify the assets required for the institute and how they will be acquired, developed, and maintained.

5.      Expansion

An expansion is the process of growing an organization by expanding its operations into new markets or by acquiring other organizations. When establishing an educational institute in Saudi Arabia, it is essential to consider the potential for expansion and how this might be achieved. The institute’s expansion plans should comply with the country’s regulations and should be achievable within the desired timeframe.

How can education institutes ensure compliance with the law?

For education institutes to ensure compliance with the law, they need to have a comprehensive understanding of the applicable laws. It is also important for institutes to have a well-versed legal team in Saudi and UAE law and can provide guidance and support when required.

Institutes should also put in place systems and processes that ensure all employee conduct is in line with the law. This includes ensuring that employees are aware of the legal requirements and policies in place and implementing disciplinary procedures for staff who do not comply with the law.

What legal challenges could educational institutes face?

There are several legal challenges that could face an education institute in the Kingdom of Saudi Arabia.

One such challenge is the process of merging with another academic institute. This process must be undertaken in accordance with the regulations set by the government and can be a complex and time-consuming procedure.

Another challenge is the operational model of the institute. The model must be compliant with the regulatory framework to protect all stakeholders’ interests.

Financial considerations are also key, as institutes often need to secure finance in order to fulfill their objectives. A partnership agreement is essential in order to protect both the interests of the partner and the academy.

Expansion is another key issue for institutes as they look to extend their reach into new markets. Careful planning and execution are required in order to minimize any legal risks.

Real estate and asset management are important aspects of an education institute’s operations and must be undertaken in a responsible manner. Any breaches of regulations in this area could lead to significant legal penalties.

What are the benefits of compliance with the law?

There are a number of benefits to be had when an education institute complies with the law. Perhaps the most obvious is that it demonstrates a commitment to best practice and a desire to operate safely and legally.

Compliance with the law also helps to build trust with regulators, parents, and students. It shows that an institute takes its responsibilities seriously. This also indicates that it is committed to safeguarding the welfare of its clients.

Lastly, compliance with the law can help to protect an institute from potential legal action. This can include financial damages, as well as damage to reputation.

Education institutes in the Kingdom of Saudi Arabia need to be aware of the legal implications that come with running their institute. There are a number of laws and regulations that institutes need to adhere to in order to protect their students and staff and avoid any legal penalties.

Institutes should seek legal advice to ensure they are aware of their responsibilities and help comply with the relevant laws. A reputable law firm can help with all aspects of running an institute, from drafting contracts and policies to representing the institute in legal proceedings.

If you are looking for legal assistance in establishing an educational institute in Saudi Arabia, don’t hesitate to contact Hammad & Al-Mehdar Law Firm. Our experienced team can help you navigate the regulatory landscape and ensure compliance with all relevant regulations.

What Are the Legal Implications of Health-Tech?

Posted on May 29, 2022 - 7:49 am by

Over the years, there has been unprecedented growth in digital health used in delivering healthcare across the GCC states. However, the COVID-19 Public Health Emergency (PHE) has accelerated digital transformation in the healthcare industry more than in any other industry.

With the rise in demand to meet patients’ needs and control over their health, tech companies are coming up with new tech advancements in in-patient management diagnostics and treatment. Inventions like e-prescriptions, electronic medical records (EMR), and healthcare information and management systems (HIMSS), among others, have changed how healthcare is delivered to patients.

However, like any other industry undergoing rapid growth, health tech faces dramatic legal changes; for instance, in 2019, the UAE president issued the health data law, which aims at regulating the use of technology in the healthcare industry. Moving forward, tech companies in these spaces should expect heightened legal scrutiny from various regulators.

The following are some legal considerations in health tech.

1. Regulatory Bodies

Companies developing medical devices that incorporate Artificial intelligence (AI) and machine learning (ML) should abide by the Ministry of Health and Prevention (MOHAP) new approaches to regulate health tech. Companies must provide their proposals and any other critical information about any of the machines to be installed and used in healthcare.

Recently, a blockchain-based health data storage platform was introduced to help MOHAP efficiently provide smart health services to patients. The guidance by the regulatory bodies will help companies developing medical devices clarify to what extent the products will be regulated.

2. Fraud and Abuse

As healthcare operations are adopting technology, every person involved, from providers to vendors and payers, must adopt key practices to prevent or minimize fraud and abuse. All models involved in digital delivery create different types of risks under the legal theories, which the Ministry of Justice(MOJ) has taken a key interest in.

MOJ scrutinizes different healthcare vendors, for instance, those that provide electronic medical records. Organizations must provide consumers using medical insurance cards with relevant knowledge on how to protect themselves against questionable actions.

The companies must also have appropriate monitoring and enforcement strategies to eradicate fraud and abuse, according to the Saudi Arabia Anti-fraud and abuse regulation body.

3. Antitrust

Balancing data sharing, and data blocking, is one of the greatest antitrust concerns in digital health. Oversharing data in digital health is much more complicated compared to any other industry. While some companies can positively welcome the idea, sharing data in digital health can lead to regulatory issues.

Limited sharing can make a provider dominant in the market; while this isn’t necessarily a bad thing, it creates different antitrust issues, for instance, abuse of dominance. Abuse of dominance is considered a breach of antitrust, which results in lawsuits, and heavy fines, among others.

4. Data Privacy

Healthcare professionals must protect the confidentiality of patient’s medical data at all costs, and any breaches in the data should be reported immediately and appropriately. Relevant companies must comply with data protection in the right manner to prevent exposure to any liability when handling sensitive patient data.

All the following issues should be put into consideration when handling sensitive data:

  • Seek consent in data processing, particularly in clinical trials
  • Ensure that data subjects are notified about secondary uses of data, for instance, in the case of research
  • Healthcare providers and pharma businesses impacted by any data flaws are allocated compliance responsibilities
  • All consent should be explicit, specific, and informed

5. Product Liability

Product liability is a type of law in which the law holds the producer (manufacturers, suppliers, retailers and distributors) responsible for any product defects that cause injuries to patients. In digital health, many people can be held liable in case of litigation; such people include:

  • Data provider
  • Software developer
  • Device manufacturer
  • The company responsible for commercialization

The Consumer Protection Association of Saudi Arabia aims to protect consumers’ interests and safeguard their rights. All those who fail to meet the established professional standards, requirements and ethics must face disciplinary actions.

6. Employers Liability

As more and more digital devices are adopted by employers, there will be a need to analyze data collected by all these devices. Analysis of data comes with its own set of risks to the employer; for instance, if a patient is harmed due to any foreseeable issues that weren’t addressed, then the employer can be held liable.

A foreseeable issue depends on what the employer knows or doesn’t know. As a way to protect the employer, digital health providers must not disclose personal health data to the employer.

7. Ethical Use of Artificial Intelligence

With the rise in technology in healthcare, there is more focus on the use of AI. Several guidelines have been produced over the years to help with the evaluation and implementation of digital technologies in the healthcare industry. However, even with this, there have been cases of discrimination and biases made by AI systems.

As a result, there have been increased calls to make these systems more transparent. Companies must adapt and implement good governance when it comes to procuring and implementing AI systems in healthcare.

8. Cybersecurity

Every day, organizations are becoming susceptible to cyber-attacks that are threatening confidential information and disrupting daily activities. Hospitals, particularly private hospitals, store a lot of information that is worth lots of money in the wrong hands.

All the healthcare organizations accessing patients’ data must comply with any laws set, including the proposed Personal Data Protection Law (PDPL). Ensuring digital health solutions are in compliance with the set laws is one way to reduce and prevent cyberattacks.

The healthcare industry is quickly adopting technology to provide health services smarter and faster. However, with technology comes great risks that affect everyone involved. Regulatory bodies are increasingly becoming focused on the health tech space and new products introduced in the healthcare industry.

Even though there are various opportunities for healthcare delivery models, the responsible companies must tread lightly and ensure they are in compliance with the rules and regulations in all the GCC states.

If you are facing any issues in the health tech sector, our attorneys at Hammad & Al-Mehdar can help. The attorneys will provide you with practical solutions thanks to their years of experience and high knowledge. Contact us for assistance.

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