Halvorsen & Reith

Conflicts and related-party protocol in the DIFC

Conflicts and related-party protocol in the Dubai International Financial Centre asks a narrower question than it does onshore: which duty governs a director's undisclosed interest, and which forum decides if it was breached. The Centre operates as a common-law free zone with its own companies law and its own courts, distinct from the civil-law system that applies in the rest of Dubai and the wider United Arab Emirates. A board that treats the Dubai International Financial Centre as a variant of onshore practice, rather than as a separate common-law jurisdiction, will misjudge both the test and the consequence.

A director sitting on the board of a company registered in the Dubai International Financial Centre is also a shareholder, through a separate vehicle, in the counterparty to a services agreement the company is about to sign. Nobody disputes that the arrangement is commercially sound. The question the board has not yet answered is whether the director's interest was disclosed and recorded before the vote was taken, and what happens to the resolution if it was not.

This page sets out what the Dubai International Financial Centre requires of that disclosure, where the record of it has to sit, and where the boundary of this firm's advisory work in the Centre falls. Background specific to the wider practice is addressed in the conflicts and related-party protocol brief, which this page assumes.

What changes in the Dubai International Financial Centre

The Dubai International Financial Centre is a common-law free zone carved out of a civil-law federation. Its company law is drafted in an English-law idiom, and its courts apply common-law principles, including the rule that a director owes the company an undivided loyalty and may not profit from an undisclosed interest in a transaction the company enters into. None of that is unusual by international standards. What is easy to miss is that the duty, and the register that evidences compliance with it, sit entirely inside the Centre's own legal system and do not automatically track the practice of the onshore Emirate in which the Centre is physically located.

A group that operates both an onshore Dubai entity and a Centre entity under the same holding structure sometimes assumes that a conflicts policy adopted for the onshore company will do double duty for the other. It will not. The two tests differ in derivation even where they resemble each other in substance, and a policy drafted against the wrong branch of law leaves the board with nothing that actually answers the question a related-party transaction puts to it: was the interest disclosed, and was it disclosed before the resolution was passed.

Board and governance practice for the Centre is addressed separately in the board meeting protocol for this jurisdiction, which this page treats as the companion piece rather than repeating.

The local requirement or test that drives the work

The test a board in the Dubai International Financial Centre applies is not whether the transaction is fair in some abstract commercial sense. It is procedural: did the interested director disclose the nature and extent of the interest to the other directors, and did the board – excluding the interested director from the vote where the company's own constitution requires exclusion – approve the transaction with that disclosure already on the table. A transaction approved without disclosure is not automatically void, but it is voidable, and the interested director carries a personal exposure to account for any profit made, regardless of whether the underlying deal was commercially sound.

The company's own articles usually narrow or widen this test further. Some articles in the Centre require the interested director to abstain entirely; others require disclosure while still allowing the vote to count. A board that has not checked which version its own articles adopt is checking the wrong test, and correcting that after a transaction has closed is a different, harder exercise than checking it beforehand.

This is where the first hard point sits. Once the board minute recording an approval is signed and placed on the company's file at its registered office, the absence of prior disclosure cannot be edited out of that record. It can only be corrected by a further minute admitting the omission, and that later minute is itself now part of the permanent file, visible to anyone entitled to see it.

A board that discovers an undisclosed interest only after the transaction has closed is not choosing whether to keep the exposure quiet. The record already exists, the transaction has already been acted on, and the only choice left is between a corrected file and an incomplete one – a decision that becomes considerably harder to make well once counsel is brought in after the fact rather than before it.

Assess your director exposure. Write to info@hreithlaw.com with the jurisdiction and the structure.

The filing, register or forum consequence

A company in the Dubai International Financial Centre is expected to keep, at its registered office inside the Centre, a record of any interest a director has disclosed and of the resolution that dealt with it. This is not a public filing in the way a change of director is a public filing – it does not appear on the face of the company's record with the registrar – but it is not private either. It is producible on request to the Centre's regulator, to an auditor, to a liquidator, and to the counterparty to the transaction if that transaction is later challenged.

Once the entry is made and the board has acted on it – the payment sent, the contract countersigned, the asset transferred – the entry becomes part of the company's permanent record. It can be corrected by a further minute if it was wrong, but it cannot be withdrawn, and a corrected minute sits alongside the one it corrects rather than replacing it. A board that finds, months later, that disclosure was incomplete is not choosing between disclosing and not disclosing. It is choosing between a corrected record and no record at all, and only one of those two options remains open to it by that stage.

The forum consequence follows the same separation as the substantive law. A dispute over whether a director in the Centre breached this duty is heard in the Centre's own court system, applying the Centre's own case law, not in the onshore courts that would hear an equivalent dispute involving a mainland company. A shareholder agreement or a set of articles drafted on the assumption of onshore enforcement, because the group's other entities sit onshore, will misdirect a claim to the wrong forum before the dispute ever reaches its substance. A comparative view of what different jurisdictions attach to governance breaches, including forum consequences of this kind, is set out in the comparison of governance breach penalties.

What this service does not include in the Dubai International Financial Centre

This firm's advisory work on the conflicts protocol in the Centre maps the duty, sets the disclosure criteria a board should apply, reviews the wording of the articles against the statutory default, and assesses the exposure a specific director carries on a specific transaction. It does not include acting as a director of the company, supplying or introducing anyone to act as a director, secretary or nominee shareholder, or performing any function for which a trust or corporate service provider licence is required in the Centre.

The boundary is not a matter of preference. Acting as a director for a company outside one's own group, or arranging for another person to do so, is a licensed activity in the Centre and in the wider United Arab Emirates, and this firm does not hold that licence and does not arrange for a licensed party to fill the role. The distinction matters most at exactly the point a related-party question arises, because the person who signs a disclosure and the person who advises on what the disclosure should say cannot be the same person without collapsing the safeguard the protocol exists to provide.

What the engagement produces instead:

A checklist of what a board should have on file before it relies on its own conflicts record is set out in a companion note on the evidence to keep after a conflicts review. A parallel version of this protocol, drafted for a jurisdiction that shares much of the same common-law inheritance but not the same register or forum, is set out for England & Wales.

A board that is still relying on a policy document rather than a minute showing the policy was actually applied is not in a position to wait for the next transaction to test the gap. Personal exposure attaches to the individual director from the moment an undisclosed interest is acted on, not from the date it happens to come to light.

Assess your director exposure. Write to info@hreithlaw.com with the jurisdiction and the structure.

Frequently asked questions

How often should conflicts and related-party protocol in the Dubai International Financial Centre be reviewed?
There is no fixed review cycle set by the Centre's own company law; the trigger is event-based rather than calendar-based. A board should reconsider its protocol whenever the group's ownership structure changes, whenever a director takes on an interest in a counterparty, and at minimum whenever the articles are amended, because the disclosure test is drawn from the articles, not from a separate policy document.
Does conflicts and related-party protocol in the Dubai International Financial Centre change for a foreign-owned company?
The duty itself does not vary according to who owns the company, but the practical difficulty of applying it often does. A foreign parent's own governance policy may assume a different legal test, and a subsidiary in the Centre that simply imports the parent's template without checking it against the Centre's own articles is applying a policy that was never designed to answer the question the Centre's courts will actually ask.
What does conflicts and related-party protocol in the Dubai International Financial Centre require in practice?
In practice it requires three things done in a fixed order: the director identifies and states the interest before the board votes, the board records that disclosure in the minute of the meeting, and the resolution notes whether the interested director voted or abstained. Reversing the order does not just weaken the record. A disclosure made after the vote answers a different question than one made before it, and treating the protocol as a formality to be completed afterwards defeats the purpose it serves.
Who inside the company is responsible for conflicts and related-party protocol in the Dubai International Financial Centre?
The disclosure obligation sits personally with the individual director who holds the interest, not with the company secretary or with the board as a collective body. The board's own responsibility is to record the disclosure correctly and to decide, on the terms its articles set, whether the interested director may vote. Failing to do either is a separate failure from the director's own failure to disclose, and the two are assessed independently.
What evidence should the board keep on conflicts and related-party protocol in the Dubai International Financial Centre?
The minimum file is the board minute recording the disclosure, the resolution approving or rejecting the transaction, and a note of which directors voted and which abstained. A protocol that exists only as a written policy, with no minute showing it was actually applied to a specific transaction, is not evidence of compliance. It is evidence that a policy was drafted, which is a different thing entirely.

Maren Solberg, expert author. Focuses on director duties and conflicts protocols across common-law free zones and their onshore counterparts, with particular attention to how disclosure tests and enforcement forums diverge between the two. Advises on the interaction between constitutional documents and statutory conflict-of-interest duties in cross-border group structures. Writes on the governance consequences of related-party transactions where a group operates through more than one legal system.

By Amara Diallo