Introduction
In a rapidly evolving market like the UAE, companies are constantly looking to expand, form alliances, or restructure to keep pace with change. One of the most prominent legal tools to achieve this is merging companies (M&A). However, behind this strategic move lie precise legal responsibilities, particularly concerning debts, prior obligations, and creditors' rights.
In this article, we review the legal framework for merger operations in the UAE, according to the provisions of Federal Law No. 32 of 2021 on Commercial Companies, focusing on the legal liability for previous obligations and the crucial updates every business owner or investor must be aware of.
First: What is a Company Merger under UAE Law?
Any company may merge with another, either by acquisition (ضم) or combination (مزج), following the approval of the respective General Assembly. A merger contract is signed, detailing the conditions, the transfer of shares or stakes, and identifying the resulting entity. Mergers can occur between companies of the same type or, in certain cases, between wholly-owned subsidiaries without the need for a traditional merger contract.
Second: The Essential Legal Procedures for Company Mergers
- Preparing the merger contract and having it reviewed by administrative authorities.
- Presenting the contract to the Extraordinary General Assembly.
- Notifying creditors within 10 working days of approval, and publishing the notice in two local newspapers.
- Granting creditors a 30-day period to object.
- In the event of a serious objection, the court may temporarily suspend the implementation of the merger.
- Implementing the merger after the deadline expires or the objections are addressed.
Third: Who Bears the Debts After a Merger? (Proven Legal Liability)
"A merger results in the extinguishment of the legal personality of the merged companies, and the acquiring or new company becomes their legal successor in all their rights and obligations".
This means:
- A complete transfer of all financial and legal debts and obligations to the acquiring or resulting company.
- No creditor's right is forfeited; in fact, they have the right to object and demand guarantees.
- If no objection is made within the period, it is considered an implicit acceptance of the merger.
- Therefore, it is always recommended to conduct a comprehensive legal and financial due diligence before any merger operation.
Fourth: The Most Prominent Legal Updates Related to Mergers
- Facilitating electronic merger procedures through local authorities.
- Enhancing financial disclosure and transparency when submitting merger contracts.
- Greater flexibility in merging directly related entities (holding/subsidiary companies).
- Stricter regulatory oversight if there is an impact on competition or sensitive markets.
Conclusion
In the business world, decisions are measured not only by their size but also by their long-term legal impact. While a strategic step, merging companies is a complex legal process that requires a deep understanding and specialized legal accompaniment.
For more information and legal consultations, you can contact Al Safar and Partners Law Firm. We are here to assist you and provide the legal advice you need. Contact us via +971 52 758 3267- reception@alsafarpartners.com or visit https://www.alsafarpartners.com.
Written By: Ms. Rana Al Shoufi - Legal Consultant & Head of legal Coordination Department at Al Safar and Partners Law Firm