Several GAFI Circulars and Decision

Continuing in the trend of publishing procedural rules and guidelines for companies and investors, the General Authority for Investment and Free Zones (“GAFI”) has issued several circulars, decisions, and guiding rules over the past two months. The following is a brief of these.

1. Shareholders’ Access to Company Information – Correction[1] of GAFI Circular No. 13 of 2018[2]

The Companies Law[3] gives shareholders owning 10% or more of the company’s capital the right to obtain information and copies of contracts or transactions that the company has entered into with related parties. If the company fails to provide said records upon request, shareholders may refer to GAFI in order to oblige the company to provide said information. This GAFI Circular is a correction of previous GAFI Circular No. 13 of 2018[4] which contained the procedures for submitting that request for obtaining company records. The correction however, has stated all of the provisions of the pervious circular, with the only variation being that in the event that the company fails to provide the requested information after GAFI issues a decision obliging it to do so, then (according to this recent correction) GAFI “shall undertake legal procedures to protect the rights of the shareholders”. Originally, Circular No. 13 of 2018 provided that in the event that the company fails to comply with GAFI’s decision “a statement will be issued to the applicant noting that the company has failed to implement the decision”.

2. GAFI’s In-kind Contribution Valuation Committees – GAFI Chairman Decision No. 480 of 2019[5]

The Companies Law provides that the founding shareholders or the board of directors perform an initial valuation of in-kind contributions to capital, following which this preliminary valuation is submitted to a GAFI committee for review. This decision provides the formation of these review committees, the procedures and rules for submitting a request to review before these committees, and their fees (EGP 10,000 for book value review, and EGP 20,000 for market value review).

3. Valuation at Change of Form to One-Person Company – GAFI Chairman Circular No. 32 of 2019[6]

This circular states that it is sufficient when changing the form of a company to a One-Person Company to submit declarations from the parties involved, or a relevant regulatory authority determining the apparent value, without need to undertake valuation procedures similar to the valuation of in-kind contributions to capital.

4. Real Estate Pricing – GAFI Chairman Circular No. 32 of 2019

The second part of this circular concerns Article (64) of the Investment Law, which relates to the allocation of land for investors. The Article states that the valuation of sale price or rental value shall be undertaken by one of five entities: (1) General Authority for Government Services, (2) Higher Committee for the Pricing of State Land at the Ministry of Agriculture, (3) New Urban Communities Committee, (4) Tourism Development Authority, (5) Industrial Development Authority. In this respect, GAFI’s circular states that it will be sufficient to rely on pricing reports submitted by the aforementioned bodies without need for these reports to be ratified by a real estate or financial valuation expert.

5. Regulation of Electronic Voting in General Assembly Meetings – GAFI Decision No. 484 of 2019[7]

This decision provides the regulation for the use of e-voting in general assembly meetings for companies with shares registered at the Central Depository (joint stock company shares). The use of e-voting was introduced in recent amendments to the Companies Law. Its use is optional but must be provided for in the company’s bylaws. For a period of five days preceding the ordinary or extra-ordinary general assembly meeting, the automatic system must allow shareholders attending the meeting remotely to express their opinion regarding the subjects that will be reviewed. The Decision then goes to say that shareholders attending the meeting remotely are considered in quorum count and as such all the rules for the physical attendance of the meeting apply to the remotely attending shareholder. A remotely attending shareholder may not delegate their voting right, and board members (other than those who are also shareholders) may not participate in general assembly meetings through e-voting. The company must maintain record of the percentage of remote voting separate from physical attendance.

6. Preferred Shares (JSCs) – GAFI Decision No. 488 of 2019[8]

This decision contains rules for the issuance of capital or its increase with preferred shares. It reiterates the requirement that the company’s bylaws contains that certain shares shall have preferential treatment in terms of voting, liquidation, or profit sharing, so long as shares of the same type confer the same privileges. It further reiterates that voting privileges may not be grouped with liquidation privileges, then goes on to list the types of preferred shares that could be issued: (1) callable preferred shares, (2) liquidation priority preferred shares, (3) convertible preferred shares, (4) participating preferred shares. In addition, the decision contains the following rules:

• A company wishing to issue preferred shares must cover the nominal value of all issued common shares in full, in addition to the value of the required preferred shares being fully paid.

• For convertible preferred shares, the total of the issued and paid capital and the issuance of the preferred shares must not be greater than the company’s authorized capital.

• Voting privileges may not exceed two votes per share except upon an extra-ordinary general assembly decision taken by the holders of at least three quarters of the company’s issued capital prior to the granting of the higher voting privileges.

• The rights and limitations conferred upon a certain type of preferred shares may not be amended except by an extraordinary general assembly and the approval of at least two thirds of the holders of that type of preferred shares.

7. Transfer of Public Enterprise Companies to Companies Law Framework – GAFI Circular No. 34 of 2019[9]

This circular refers to the government’s public divestiture program and the resulting exit of some public enterprise companies from the framework of Public Enterprise Law 203/1991 and into the Companies Law framework. It states that in the event that public shareholding in a company falls below 51% certain procedures must be followed including: holding an extraordinary general assembly to amend the company’s bylaws in accordance with the Companies Law, the reformation of the board, notifying GAFI within 10 days from conducting the meeting and submitting certain required documentation for that purpose. GAFI’s legal affairs department then reviews the submission with the accompanying documents in order to amend the company’s listing in the commercial registry.   [1] Correction to GAFI Circular No. 13/2018 with regulations on accessing information on related party transactions. [2] GAFI Circular No. 13/2018 with regulations on accessing information on related party transactions, available through this link (in Arabic). [3] Law No. 159/1981 on Joint Stock Companies, Partnerships Limited by Shares, and Limited Liability Companies, Official Gazette, Issue No. 40, 1 October 1981. [4] Erroneously referenced as Circular No. 13/2019 in GAFI’s Correction Circular published in April 2019. [5] GAFI Chairman Decision No. 480/2019 on the formation of in-kind contribution valuation committees. [6] GAFI Chairman Circular No. 32/2019 on the valuation at change of form to one-person companies. [7] GAFI Decision No. 484/2019 on the use of e-voting in general assembly meetings for companies with shares registered at the Central Depository, available through this link (in Arabic). [8] GAFI Decision No. 488/2019 on the rules for the issuance of capital or its increase with preferred shares for Joint Stock Companies and Companies Limited by Shares. [9] GAFI Circular No. 34/2019 on the transfer of public enterprise companies to the Companies Law framework, available through this link (in Arabic).