Moving companies in the AIFC practice

Redomicilation has a number of circumstances that must be taken into account in the process of its implementation. Thus, the creditors of the company should be provided with protection. At the same time, the participants of the redomiciling legal entity who are not interested in redomiciling need guarantees (for example, a minority of participants who voted against the decision on redomiciling). In addition, in the case of redomicilation, the fiscal interests of the state are affected, since the state loses the taxpayer.

We call the second option of relocation the actual relocation of a legal entity. In this case, the statutory location remains the same, the legal entity moves only the management center or the actual location to the AIFC. By the actual location, we mean the place where the basic decisions of the company's management are made, which are subsequently implemented, and the management center is located where the decisions made are translated into current management acts. Unlike the actual relocation of a company, a formal relocation is an exclusively legal procedure, and therefore neither exclusion from the public register of legal entities nor registration of a new legal entity in the AIFC occurs during the actual relocation. In the best case, the branch is registered as a management center in the AIFC. This procedure is referred to in the AIFC as the accreditation of a foreign legal entity. The accreditation process applies both to AIFC participants (Authorized Persons) and to persons who do not carry out licensed activities on the territory of the AIFC. The problem with actual relocation is that the State in which the legal entity is registered often prohibits actual relocation due to the requirements of tax legislation.

When a company is formally relocated, a number of problems arise, which the AIFC resolves by applying the Company Regulation No. 2 of 2017 (Regulation on Companies). Firstly, there are corporate and legal problems related to the fact that not only the legal location of the legal entity is changing, but also the territorial competence of the registration authorities. Secondly, in the country of its creation, the redomiciling entity is subject to exclusion from the register, which is usually possible only upon its liquidation, while the identity of the legal entity is not preserved and there is no relocation. This problem has been solved in the AIFC by the provisions of section 13 of the Regulations on Companies. These rules ensure that the statutory location of a foreign legal entity is moved to the AIFC, while maintaining it as a legal entity without subjecting it to liquidation. As previously noted, redomicilation generates a change in the applicable law, and therefore the relocating legal entity assumes the organizational and legal form provided for by the AIFC law. Thirdly, such changes affect the interests of the participants of the redomiciling legal entity and its creditors, therefore, the AIFC law establishes requirements to protect the company's participants and third parties when transferring its statutory location by attributing this requirement to the competence of the legislation of the national registration of the redomiciling legal entity. So, in particular, according to subparagraph (1) of paragraph 151 of the Company Regulations, a foreign legal entity may apply to the registrar of AIFC companies with a request to continue the activities of a foreign company only if it is authorized by the laws of the country in which it is registered. This requirement is quite appropriate, since only the national legislator can better take into account the specifics of his corporate law and the mechanisms for protecting the participants and creditors of the company. In addition, according to subparagraph (c) of paragraph 5.1.1. According to the Company Regulations No. GR0004 of 2017, the redomiciling person is required to provide evidence satisfactory to the registrar of AIFC companies that the foreign company is authorized by the laws of the relevant jurisdiction to continue operating in accordance with the laws of the AIFC and that it has fulfilled all relevant requirements in accordance with the laws of the relevant jurisdiction. Fourthly, from the point of view of tax legislation, redomicilation, despite corporate law, is equated to the liquidation of a legal entity, and as a result, all increments in the value of the property of the redomiciling legal entity, all hidden reserves, previously not subject to taxation, are taxed.

From the moment of the company's registration with the AIFC, amendments to the company's articles of association become legally binding. Further, upon presentation of confirmation that a legal entity is registered with the AIFC, it is excluded from the register in the state of its creation. The new location becomes legally binding for third parties from the moment of registration with the AIFC.

The AIFC Law contains a non-exhaustive list of documents that must be prepared for submitting an application to the AIFC Registrar of Companies. 1) a copy of the valid certificate of establishment or registration of the company; 2) a copy of the current articles of association of the company; 3) evidence satisfactory to the Registrar that the company is authorized by the laws of the relevant jurisdiction to continue its activities in accordance with the laws of the original jurisdiction and that it has fulfilled all relevant requirements in accordance with the laws of that jurisdiction – (Legal Opinion (signed by an authorized person of the Law Firm providing the opinion)); 4) evidence satisfactory to the Registrar that all necessary consents in the relevant jurisdiction have been obtained and confirmed by the relevant authorities of that jurisdiction (Consent from the Financial Services Commission and Consent from the Registrar of Companies); 5) a copy of the most recent financial statements of the company; 6) a copy of the company's Certificate of Good Standing or a document of similar effect issued by the relevant authority in the relevant jurisdiction; 7) the statement (declaration) of the company's Directors, which should indicate that: (a) the company is able to pay off its debts as they become due; (b) there is no reasonable prospect that the company will not be able to repay its debts when they become due.; (c) the value of the company's current assets exceeds the amount of its current liabilities, taking into account its contingent and future liabilities; (d) no applications have been filed with any court: (i) to liquidate the company; (ii) declare the company insolvent or otherwise unable to repay its debts when they become due; (iii) the appointment of a manager or administrative manager (whatever his name may be) with respect to any property of the company.

An important condition is the provision of Legal Opinion by a licensed law firm (Company Service Provider) to the national jurisdiction of the primary company.

It is also important to note that the AIFC has published a list of countries allowing redomicilation into the AIFC, this list consists of 55 states. At the same time, it should be borne in mind that the legislation of Kazakhstan does not provide for a redomicilation procedure, accordingly, Kazakhstani companies will not be able to redomicile in the AIFC.

The AIFC has established special requirements for the redomicilation of companies licensed to carry out any financial activity. In particular, if the foreign company is an authorized firm, an authorized market institution, an ancillary service provider, or an investment fund, the AIFC Registrar of Companies should not approve the application unless the AIFC Financial Regulator (AFSA) has given its written consent to redomicilation.

If the AIFC Registrar approves the application for redomicilation, the foreign company is provided with a document certifying the approval of redomicilation (Certificate of continuation), an identification number is assigned, and the company is published in the AIFC Register of Legal Entities (Public register).

It is important to note that the norms of the AIFC law in the case of redomicilation establish two fundamental conditions for the concept of continuity of a foreign company in a new jurisdiction for it. First, the redomiciling company continues to own the property, rights and privileges, as well as responsibilities, debts and restrictions that it possessed before the approval of the redomicilation by the AIFC regulator. Secondly, the redomicilation procedure does not allow avoiding prosecution, as it would be if the company were liquidated. This legal entity continues to be a participant in any legal proceedings that take place prior to the approval of the redomicile by the AIFC regulator.

Exclusion of liability

The information in this article does not constitute legal or professional advice. No part of it can be relied upon, and no part of this article can be used instead of obtaining legal advice. The information in this article is intended for general information. It should also be noted that the law may have changed since the date of publication of this article.