investing in qatar - global m&a toolkit...

Investing in QatarDecember 2014

2 © Clifford Chance, 2014

Clifford Chance Qatar team ...................................................................... 3

Corporate practice ......................................................................................... 3

Projects and Finance practice ........................................................................ 3

Snapshot of Qatar ...................................................................................... 4

Five things you need to start thinking about ........................................... 5

Foreign investment ..................................................................................... 6

Domestic ....................................................................................................... 6

Free zones ..................................................................................................... 6

Most common form of investing in Qatar: through an LLC ................... 7

Features of a Qatari Limited Liability Company? ............................................ 7

Potential Liability of a Director (called a Manager) of an LLC .......................... 7

Potential liability of a shareholder of an LLC ................................................... 8

Financing matters .......................................................................................... 8

Commercial agency ................................................................................... 9

Legal framework and enforcement ........................................................ 10

Employment, health and safety .................................................................... 10

Concealment Law ........................................................................................ 10

Environmental Law ...................................................................................... 10

Insolvency Law ............................................................................................ 10

Enforcement ................................................................................................ 10

Key contacts ............................................................................................. 11

contents

Clifford Chance Qatar team

n Our Qatar team comprises Richard Parris (Projects), Jason Mendens (M&A Corporate), Robin Hickman (Banking & Finance) and ateam of associates.

n� The Qatar team is closely integrated with our offices in Dubai, Abu Dhabi and Riyadh.

n��We have been appointed to all of the prominent Qatari government panels and have been appointed on a number of matters inrelation to these. We have also been appointed as an advisor for the 2022 FIFA World Cup™ projects including the main stadium.

Corporate practicen� Much of the corporate work we do in Qatar involves M&A, commercial arrangements and joint ventures.

n� We have strong relationships with the key Qatari entities such as the Supreme Committee for Development and Legacy, QatarInvestment Authority, Qatar Foundation Endowment, Qatar Islamic Bank, Qatar National Bank, Qatar Petroleum, Qatar PetroleumInternational, Qatar Steel, Qatar Mining, Al Khalij Commercial Bank, Qatar Navigation (Milaha) Supreme Council of Health and GulfWarehousing Company.

n� We also advise international investors into Qatar from Europe, Asia and the Americas.

n� We also work with our other offices on various mandates in the GCC and Africa.

Projects and Finance practicen� The depth and quality of our team is unrivalled in the region.

• Our profile on the largest, most complex deals in projects and energy is unmatched

• Our Qatar team not only advises on matters on the ground in Qatar but also advises Qatari and international clients on projectsand energy matters across the globe (such as in the GCC and Africa).

• We are one of the few firms in the market capable of fully resourcing complex project financings solely from our regional offices.

• We are the only magic circle firm with a dedicated Islamic finance practice based in the region.

• We are the only magic circle firm with a dedicated Financial Services & Regulatory team with seasoned international experts.

© Clifford Chance, 2014 3

Snapshot of Qatar


Qatar has one of the fastest growing economies and is brimming with business opportunities.

Qatar

Qatar’s NationalVision 2030

By 2030 Qatar aims to be an advanced society capable of sustaining its development and providing ahigh standard of living for all of its people

The four pillars The four pillars of Qatar’s National Vision 2030 comprise economic, social, human andenvironmental development

Population The population of Qatar is just over 2 million people (August 2014)

Major exportdestinations

Japan, Korea, India, Singapore and China (in order)

GNI per capita Approximately US$80,000 (World Bank report 2014)

Development goals n Encouraging competition

n Reducing red take and investment risk

n projects and initiatives to stimulate the private sector

n Launching economic zones

n IAAF 2019 World Championship and FIFA 2022 World Cup Infrastructure

Qatar is a complex jurisdiction for foreign investors, with transaction execution risks need to be managed.

Five things you need to startthinking about


Five things you need to start thinking about

Form of investment: joint venture or commercial agency?

Need for a Qatari transaction counterpart

Level of investment and control

Employment and sponsorship

Legal framework and Enforcement


Foreign investment

Domesticn Generally speaking, foreign investors may invest in all sectors of Qatar’s economy provided one or more Qatari shareholders

own(s) at least 51%.

n With relevant Ministerial approval foreign investment may exceed 49% and reach 100% in the fields of agriculture, industry,healthcare, development and exploitation of natural resources and certain other sectors.

n Foreigners may now own up to 49% of the shares of Qatari companies listed on the Doha Securities Exchange (provided thecompany’s articles enable this). GCC nationals will be treated as Qatari nationals with respect to such companies listed on theQatar Exchange.

n Ministerial approval may exempt certain investments from income tax for a period of up to 10 years and foreigners may freelyrepatriate funds from the Qatar investments without foreign exchange controls.

n Foreign investment in commercial agencies is prohibited, and foreign investment in the banking and insurance sectors requires aCabinet resolution.

Free zonesn Free zones generally permit 100% foreign ownership of companies domiciled within the free zone, are tax free and to an extent

feature a separate legislative framework.

n Qatar Financial Centre

n The Qatar Financial Centre (QFC) is primarily geared towards financial and asset management and service providers, but isconsidering broadening this remit.

n Qatar Science and Technology Park

n The Qatar Science & Technology Park (QSTP) is Qatar’s national agency charged with executing applied research and deliveringcommercialised technologies in four areas: Energy, Environment, Health Sciences, and Information and CommunicationTechnologies. It resides within the Qatar Foundation.

n Other free zones are planned

n Work is underway in relation to a number of other free zones, such as Manateq.

There are a number of different routes to market for foreign investors, includingthrough applicable free zones. We touch on a number of these in a separatepresentation on Qatar’s Corporate Legal Framework, for an overview of such entities.By far the most common route to market for a joint venture transaction is through a“Limited Liability Company” (also known as a “With Limited Liability” Company or aW.L.L.) established under Qatar’s Commercial Companies Law.

Most common form of investing inQatar: through an LLC


Separate legal entity Once declared, an LLC (also known as a “With Limited Liability” or “WLL”) has a separate legal entityfrom its shareholders/owners.

Limitation of liability Generally, shareholders are not accountable other than for the amount of the company’s capital.Minimum share capital is QAR200,000, unless a “holding company” in which case the capital must benot less than QAR10 million.

Manager Shareholders can appoint one or more managers to manage the company and represent it beforeothers and courts.

The articles of association can include provisions to set up a board of managers which is akin to aboard of directors. Qatari Law affords significant flexibility in determining the modus operandi of theboard of managers.

A manager normally has all the powers necessary to manage the company unless restricted in thearticles of association of the company. In practice, the powers of the Manager are specified in thearticles of association and we can work with you on the governance arrangements to be put in place.

Liability to thecompany, shareholdersand third parties

Managers are liable to the company, the owner and third parties for harm resulting from deceit, mis-useof authority, violations of the companies law or the company’s articles of association, and any errorin management.

The liability is borne by all managers if the mistake results from a consensual decision. A manager mayavoid liability if he objected in writing to the decision by the board of managers.

Suit by the Company The company, following a resolution by the shareholders, may bring a claim against a manager formistakes resulting in harm within five years from the mistake occurring.

A company’s shareholders can however clear the responsibility of the manager after the lapse of fiveyears from the shareholders’ meeting, except in circumstances where the act committed amounted to acriminal act, then the time limit will lapse on the lapse of the time limit for the criminal action.

The fact that the shareholders may discharge the board will not release the managers from the mistakeswhich occurred while they were performing their duties.

Features of a Qatari Limited Liability Company?

Potential Liability of a Director (called a Manager) of an LLC

Most common form of investing in Qatar: through an LLCcontinued


Company losses If the losses of the company exceed half its capital, the manager(s) must call a shareholders’ meetingwithin 30 days. At that meeting the owner will have to decide whether or not it can rectify the positionby making arrangements to ensure that losses no longer exceed 50% of the company’s capital or moveto liquidate the company.

If the manager(s) fail to call the meeting within 30 days then they will be personally liable for thecompany’s debts. Similarly, if the shareholder fails to make a decision at a meeting it will be responsiblefor the debts of the company.

Strictly speaking, the meeting should take place as soon as the manager becomes aware of such loss.However, in practice, such determination is likely to be made when preparing the annual financial statements.

If the manager(s) neglect to invite the shareholder to resolve the issue, the managers may beresponsible for the liabilities of the company resulting from their negligence. Unfortunately (as notedabove), there is no guidance on what could amount to negligence.

Bankruptcy If a bankrupt company’s assets do not cover at least 20% of its debts, the court may upon the requestof the liquidator, order the managers to pay all or some of the debts of the company if they cannotprove they used due care to conduct the affairs of the company.

Some specific headsof liability

Though the general principle of a “corporate veil” exists under the Commercial Companies Law, thereare some specific heads of liability under the CCL for a shareholder.

Conflict of interest The shareholder of a company will be liable if it does not separate its interests from the company’s interest.

Company losses As noted above, if the losses of the company exceed half its capital then the manager(s) must call ameeting of the owner within 30 days. At that meeting the shareholders will have to decide whether or notthey can rectify the position by making arrangements to ensure that losses no longer exceed 50% of thecompany’s capital or move to liquidate the company. If the manager(s) fails to call the meeting within 30days then they will be personally liable for the company’s debts.

Similarly, if the shareholders fail to make a decision at a meeting it will be responsible for the debts of thecompany. This means that the shareholder can no longer hide behind the corporate veil and will beresponsible in its personal assets.

Shareholder guaranteesto Qatari bank lenders

Pursuant to the Qatar Central Bank’s Instructions, the shareholders of an LLC will be required toguarantee the borrowings of the company from Qatari banks.

However, Qatari banks may waive such requirement in circumstances where the credit facility is againsttangible collateral of not less than 100% of the value and return of the credit facility or against reliablesources of repayment that are transferred to the bank covering the value and return of the credit facility,for example government source of repayment.

Permission from theMinistry of Finance forany credit facilities

Qatari banks are prohibited from granting or renewing any credit facilities to a company in which thegovernment owns more than 50% if the company does not have the prior written approval of the Ministry ofFinance for such facilities.

Potential liability of a shareholder of an LLC

Financing matters

Commercial agency


General principles n Generally no requirement to register an agency or distribution agreements

n Commercial agency agreements not registered pursuant to Qatar’s Commercial Agencies Law aregoverned by the general principles under Qatar’s Commercial Code and Civil Code

n Agent’s often wish to register the agency in order to benefit from the compensation rights andprotection afforded in the Commercial Agencies Law

Need for a Qatari The Commercial Agents Law provides that commercial Agents must be Qatari nationals orQatari companies

Governing Law An agency agreement can be governed by a foreign law and could also provide for internationalarbitration of any dispute. Enforcement of such awards needs to be considered.

Certain mattersto consider

n The commercial agency regime in Qatar is relatively ‘agent friendly’, with certain rights granted underQatari law to registered agents.

n In particular, upon termination or non-renewal following expiration of a fixed term of an agencyagreement, agents may be entitled to compensation even if such termination or non-renewal islawful and pursuant to the terms of the agency agreement.

n If a new agent is appointed, that new agent is obliged to acquire any unsold and marketable goodsof the old agent according to a specified price formula.

Another route to market is through a commercial agent.

Legal framework and enforcement

In addition to the matters outline above, you should also be mindful of the following.

Employment, health and safetyIf investing in an entity that will have employees in Qatar, you will need to consider the application of Qatar’s employment regulation.Qatar has announced various reforms and legislative changes. Investors should also be mindful of Qatar’s Health & Safety regimeplacing certain obligations on employers.

Concealment LawQatar has in place a “proxy law” which is aimed at preventing foreign investors circumventing Qatar’s laws regarding foreigninvolvement and investment. Care is to be taken therefore in structuring your investment

Environmental LawQatar’s Environmental Law establishes framework controls relating to environmental impact assessment, air pollution, water pollution,marine pollution, noise, radioactive materials, the management and disposal of hazardous materials, oil pollution, other harmfulmaterial pollution, the use of best available technologies, emergency plans for environmental disasters, and important enforcementand penalty provisions. Shareholders may be held liable for breaches of this law in certain circumstances.

Insolvency LawAs a general principle, a Qatar company has a separate legal entity from its shareholders. A shareholder therefore generally would notincur liability for the debts of its company beyond any amount due and unpaid on its shares. However, if half or more of the capital ofthe company has been lost, an extraordinary general assembly must be held to decide whether the situation necessitates dissolutionor other appropriate action. If that general assembly refuses to dissolve the company, any shareholder may apply to the court for awinding up order. Should the directors fail to call for such a shareholders’ meeting, or if the shareholders fail to pass a resolution onthe matter, such directors or shareholders (as the case may be) shall be jointly and severally responsible for the company’s liabilityresulting from their negligence. There have been very few insolvency proceedings in Qatar.

EnforcementIn structuring your investment, joint venture or agency arrangement, you will need to be mindful of:

n Who is your transaction counterparty?

n What is to be method of dispute resolution – litigation, arbitration or commercial resolution and what are to be the governingprinciples and laws applicable?

n Where are your counterparties assets and where is the dispute resolution to occur?

n When is the dispute to be resolved noting applicable time limitations?

n How are such dispute resolutions or awards to be enforced (in Qatar or abroad)?


Key contacts


Richard ParrisOffice Managing Partner,Doha, QatarT: +974 4491 7041E: [email protected]

Jason MendensHead of Corporate,Doha, QatarT: +974 4491 7049E: [email protected]

Abu Dhabi Amsterdam Bangkok Barcelona Beijing Brussels Bucharest Casablanca Doha Dubai Düsseldorf Frankfurt Hong Kong Istanbul Jakarta* Kyiv London LuxembourgMadrid Milan Moscow Munich New York Paris Perth Prague Riyadh Rome São Paulo Seoul Shanghai Singapore Sydney Tokyo Warsaw Washington, D.C.*Linda Widyati and Partners in association with Clifford Chance.

www.cliffordchance.com

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© Clifford Chance 2014

Clifford Chance, QFC Branch, 30th floor Tornado Tower, Al Funduq Street,West Bay, PO Box 32110, Doha, State of Qatar.

Clifford Chance International LLP is registered in England & Wales underNo.OC333618. The firm's registered office is at 10 Upper Bank Street,London, E14 5JJ. The principal place of business of Clifford ChanceInternational LLP, QFC Branch, is at Suite B, 30th floor, Tornado Tower, AlFunduq Street, West Bay, PO Box 32110, Doha, State of Qatar. The firm usesthe word 'partner' to refer to a member of the LLP or an employee orconsultant with equivalent standing and qualifications. It is a law firm licensedby the QFCA.

This publication does not necessarily deal with every important topic or coverevery aspect of the topics with which it deals. It is not designed to provide legalor other advice.

If you do not wish to receive further information from Clifford Chance aboutevents or legal developments which we believe may be of interest to you, pleaseeither send an email to [email protected] or by post atClifford Chance LLP, 10 Upper Bank Street, Canary Wharf, London E14 5JJ

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