In Review: Companies’ Spinoff in Kuwait

The Kuwaiti Minister of Commerce and Industry amended under Resolution No. 60/2023 (MOCI Resolution) specific provisions of the Kuwait Companies Law No 1/2016 (“Law No 1/2016”). 

By virtue of the MOCI Resolution, provisions addressing companies’ spinoff were introduced. Under this note, we will explain the purposes of the MOCI Resolution, its defined procedures and how would this benefit the Kuwait legal environment.

Intro. Generally, spinoffs occur when a company splits off a portion of its business into a separate company and distributes shares of the new entity to the parent company’s shareholders.

Major features of the MOCI Resolution.  Article 1 of the MOCI Resolution defines spinoff as the separation between the company’s assets or activities and the associated liabilities and property rights in two or more separate companies, each of which has an independent legal personality. This implies that the parent company establishes and capitalizes a subsidiary as a stand-alone independent business.

Standalone company. the new company resulting from the spinoff will follow the same standard procedures for establishing companies.

Inheritance of liabilities. the new company shall succeed the parent company within the limits of rights and obligations set out under the general assembly resolution which triggered the spinoff. The new company shall include a provision in its articles setting out the relationship between the new company and its parent.

Spinoff procedure. We summarize below the basic provisions of the MOCI Resolution.

1. Understanding the spinoff. The company may be divided into two or more companies, and each of the companies resulting from the same shall have an independent legal personality in accordance with the procedures prescribed for the incorporation of companies. The valuation of the in-kind shares, the procedures, and conditions prescribed in the Companies Law shall apply.
2. Planning the spinoff. a detailed spinoff plan should be put forth before the company’s extra ordinary general assembly. The plan will be prepared by the company’s board/manager, and should include details about the company’s assets and liabilities, the proposed and the purposes of the spinoff, an auditor’s report, the draft articles/bylaws of the new company, and third party agreements in place post spinoff.
3. Post spinoff activities. Based on the MOCI Resolution, the new company may not engage in the same activities as that of its parent. 
4. Regulatory approvals. MOCI will be the major regulator reviewing and supervising the spinoff process, but other regulators will be involved depending on the objectives of the parent company.
5. Publishing in Kuwait Alyawm. MOCI Resolution obliges the parent company to publish the spinoff decision with the Official Gazette. A thirty-day period must lapse from the publication date before it gets effective, during which the company’s creditors will have the right to challenge the spinoff resolution.
6. Rescinding the spinoff. Subject to there being no financial statements issued, [the parent company] may, within one year post spinning off, rescind the resolution and return to where it were prior to spinning off.

Generally, spinoffs tend to increase returns for shareholders because the newly independent companies can better focus on their specific products or services. Given the current economic climate in Kuwait in particular with companies busier going public, it remains to be seen how the resolution will benefit small and family businesses.