Especially in cases of limited liability companies on the UAE mainland and in circumstances where express authority for a particular ‘position’ is not specified
In the UAE, the use of the terms ‘manager’, ‘board of managers’, ‘director’ or ‘board of directors’ are often used interchangeably. In most cases the extent of authority in Favour of any one or more individual(s) is often left for the shareholders to decide.
Managers and Directors in the Spotlight
In the UAE, there are various legislative sources that set out the responsibilities and liabilities of managers and directors which are applicable to companies located in the UAE mainland as well those companies incorporated in free zones.
At the best of times managers are required to make difficult business decisions. In times as testing as these, such decisions become critical and consequently are likely to be the subject of heightened scrutiny by corporate regulators, creditors and shareholders. To ensure their decisions stand up to such scrutiny managers must be aware of their responsibilities and obligations.
Duties under Applicable Laws
The UAE Commercial Companies Law (2015) (‘CCL’), the Civil Code and the Commercial Transaction Law set out the responsibilities of managers and directors via a combination of rules stating what managers and directors should do as well as what they may be personally liable for (and hence what they should not do), rather than simply relying on a general concept of fiduciary duties being owed by a director or a manager of a company.
In all cases, managers and directors are generally required to:
- act honestly and in good faith with a view to achieving the best interests of the company.
- exercise the level of care, diligence and skill expected from a reasonably prudent person in similar circumstances; and
- exercise their powers for the purposes for which they are conferred and in accordance with the relevant regulations.
While determining the scope of authority, consider MoA, contract of employment, and power of attorney within the parameters of the law. In the absence of any particular restrictions, managers or directors have the full capacity to manage the company. So, it’s essential to be mindful on the duties and liabilities of managers, or they might be exposed to potential claim for breach of duty and personal liability!
The criminal and civil liabilities of managers in spotlight CCL or criminal and civil liabilities sets out various penalties for the breach of legal responsibilities and liabilities of managers in a workplace! The liability usually covers any loss or expenses incurred due to improper exercise of power or any other provisions of law.
Some of the legal responsibilities and liabilities of managers and directors under CCL include,
- Manage and preserve the company rights
- To work within the objectives of the company and not to exceed the powers granted to the directors.
- Not to involve in any fraud act or misuse of power
- Not to breach the applicable law or any other provision connected with the company’s MoA.
- Not to make any ‘error in management’ or ‘gross error’
In addition to the above given functions, duties of managing director of a company under CCL generally relates to exercising their reporting functions, share issuances, distributions, and general meetings.
Criminal Liabilities of a Manager
Regarding the criminal liability, there are heavy fines imposed for,
- Failing to invite general assembly to convene when the company’s losses reach 50% of the company’s share capital
- Rejecting to disclose mom of general meeting or company’s books to shareholders
- Failing to provide necessary documents to the auditors or authority’s inspectors to perform their duties.
- Concealing information or providing any misleading information.
- Violating any companies law or regulations
How to Reduce Personal Liability
Directors and managers should always act in what they reasonably believe to be the best interests of the company and within the confines of the instrument granting such authorizations.
In the event that such a person finds themselves in a position where he or she is uncomfortable with a course of action being proposed by a fellow officer, his or her objections should be recorded in writing either by a letter addressed to the other officer or evidenced in the minutes of meeting.
It would be prudent to ensure that issues pertaining to related party transactions and conflicts of interest are closely considered and monitored, as participation in a business in competition with another company is generally prohibited, and conflicts of interest in relation to transactions of those companies should be disclosed, in order to mitigate the prospect of any criminal proceedings at a later stage.
Conclusion
Managers and directors are liable to the company, its shareholders and third parties for all acts of fraud, abuse, negligence and mismanagement. Thus, it is essential that they always act within the scope of their prescribed authority, in a transparent and ethical manner and in what they reasonably believe to be in the best interests of the company. If they do so, they should be able to act safely and with the knowledge that their action(s) will not expose them personally to the risk of civil or criminal sanctions.
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