The ADGM and the DIFC are financial free zones in the UAE with independent jurisdictions exempted from the UAE’s civil and commercial laws. For founders looking for a place to register a new business, both are great jurisdictions to choose from.
The DIFC was established in 2002. It has a solid track record and is highly ranked in the Global Financial Centres Index. Although the ADGM is a newer jurisdiction, it is very attractive for financial start-ups.
Both jurisdictions are recognised as world-class financial centres for major financial institutions and venture capital organisations. They both offer access to funds and a safe regulatory environment.
As a founder, how do you choose between the two?
This article will look at some of the key differences between the ADGM and the DIFC to provide some clarity when deciding which one to choose for your new venture.
Application of English Law
The ADGM adopted nearly 50 English statutes and applies English common law, subject to certain conditions, for example:
- It is only applicable if the law applies to circumstances existing in the ADGM.
- It can be modified if required by particular circumstances of the ADGM.
- Amendments made by the ADGM take precedence.
- UK legislation passed after the date of the ‘Application of English Law Regulations 2015’ will only be regarded if expressly adopted by the ADGM legislation.
ADGM courts generally recognise English equitable legal principles and the concept of trusts.
The DIFC does not directly incorporate English common law. Although primarily based on English law, they enacted their own laws and regulations. The applicable law is determined and applied as follows:
- If there is a DIFC regulation or law, it is the applicable law.
- If not, the law of the jurisdiction expressly chosen by any DIFC law is applied.
- If no such law is chosen in any DIFC law, the court applies the law of a jurisdiction agreed to by all the parties to the matter.
- If no such law is agreed on between the parties, the court will apply the law which appears to the court or an arbitrator to be the most related to the facts and the persons in the matter.
- Failing all else, the laws of England and Wales are applied.
So, whilst English law is the “last option” in DIFC courts, the ADGM courts almost “presume” that English law is applied.
The Court system
The DIFC courts do not follow English court precedents since they do not directly incorporate English common law. They have, however, created large amounts of case law and have a solid reputation.
DIFC courts can hear and decide civil/commercial disputes between parties who have expressly “opted into” DIFC jurisdiction, even if the parties have no connection to the DFIC.
DIFC judges are a mix of UAE civil-trained judges and judges from common law jurisdictions.
ADGM courts apply English law directly and may use English court precedents. It is not bound by decisions of the UK Supreme Court, but such judgements will be persuasive. The ADGM uses an end-to-end eCourt platform.
ADGM courts only have jurisdiction to hear and decide civil/commercial disputes connected to the ADGM.
ADGM judges are only from common law jurisdictions.
The DIFC companies’ regulations are partly based on the UK Companies Act 1985.
The ADGM companies’ regulations are partly based on the UK Companies Act 2006, making it more up-to-date and comprehensive.
The DIFC has an Arbitration Centre that administers commercial arbitrations for contracts that incorporate the DIFC Arbitration Rules. It has its own arbitration rules. The DIFC Arbitration Law is based on the UNCITRAL Model. A form that is easily recognisable to arbitration practitioners. The Rules are also familiar to arbitrators.
The ADGM does not have its own arbitration rules. Instead, it has an agreement with the International Chamber of Commerce, which established an ICC Court’s Representative Office in the ADGM to service the demand for arbitration in the region. The ADGM Arbitration Centre provides a venue and excellent facilities for ICC arbitration proceedings.
DIFC Insolvency law is similar to UK insolvency law. It includes concepts of liquidation, receivership, and company voluntary arrangements, but it does not have the concept of administration as a rescue tool.
Under Insolvency law, a foreign company registered in the DIFC may be wound up (but not voluntarily wound up) under DIFC Insolvency Laws regardless of any concurrent proceedings in its place of incorporation if:
- it cannot pay its debts;
- has been dissolved or deregistered in its place of origin;
- has ceased operations in the DIFC; or
- it has an address in the DIFC only for winding-up purposes; or
- the court believes that it is just and equitable.
The ADGM Insolvency Regulations are based on English insolvency law and include appointing an administrator or restructuring a company using a deed of company arrangement.
A foreign company registered in the ADGM may be wound up if:
- The company has “sufficient connection” to the ADGM.
- There is a realistic prospect that a winding-up order will benefit those asking for it.
- The court has jurisdiction over one or more persons interested in the distribution of the assets.
Although set-up costs depend on the company structure, business activity and premises, the ADGM is typically more cost-effective for start-ups. Set-up fees in ADGM are typically lower than in DIFC, with more flexibility.