Manager liabilities in the UAE during covid-19

published on 10 August 2020 | reading time approx. 3 minutes

The legislation of the United Arab Emirates (UAE), including the Commercial Companies Law (CCL), contains and specifies the duties and obligations of managers and directors of local establishments. These liabilities and duties have again come into the spotlight during the time of covid-19 and will be thereafter as managements are facing additional significant legal difficulties. Such duties and liabilities may be of criminal or civil nature. The UAE legislation shall be a guideline to avoid violations while practicing business, since penalties arise if managers or directors violate the law or breach any contract.

At first, the liabilities and obligations of managers and director can be divided into civil and criminal nature. The civil liability is usually established if a manager or director breaches any of the duties or obligations prescribed in:

• any legislation, law or regulation;
• the Articles of Association (AOA) or Memorandum of Association (MOA) of a company;
• its general assembly's resolutions;
• or if they act outside the authorities granted to them therein;
• in their employment or management contracts;
• or their POA
• or any Rules of Management Procedures.

However, in some cases a breach can be specified as a crime under the UAE Commercial Companies Law. Thus, the liabilities and obligations will be defined under criminal nature.

Within the CCL, no clear distinction is made between a director or manager. However, despite of the title, the main duty of a manager or the director is the management of the business. Moreover, Article 22 of the CCL states that the person which has been authorized to manage the company shall preserve its rights and extend such care as a diligent person.  In general, the CCL can be considered as the main legislation which regulates the duties and obligations of the management of a company. The manager of a company is bound by laws and regulations, as well as the provisions of the company's MOA or AOA. Consequently, he is personally liable towards the company, partners and third parties if he violates his duties or conducts a breach, which also has been specified in Article 51 of the CCL. Additionally, he is also liable towards any losses or expenses occurred due to his inadequate use of power. Therefore, all managers must be aware of the described legislations.

In general, the UAE Commercial Companies Law divides all duties and obligations into general liabilities, which are applicable to all mangers of commercial companies; and specific liabilities, which mainly depend on the legal company form and can therefore differ widely. 

The duties and obligations of managers and directors in the UAE are based on several regulations. First, the several laws issued by state, namely the UAE Civil Transaction Law No. 5 of 1985, the UAE Bankruptcy Law, the Companies Law as well as the resolutions issued by the authorities and ministries.

These are further explained below:

The UAE Civil Transaction Law regulates the responsibilities of managers and directors described and specified in the contracts of the firm. These can be based on either an employment or management contract or a POA. The UAE Bankruptcy Law lists the responsibilities of the management if the company has been stated as bankrupt or an insolvency proceeding has been initiated. In this case, there are two types of applicable resolutions issued by the UAE authorities and ministries. The first ones are the resolutions issued by the securities and commodities authority in the UAE as well as Resolution No. 7 of 2016 on institutional discipline standards and corporate governance, which apply to public joint stock companies. The second ones are the resolutions issued by the Ministry of Economy on the corporate governance of private joint stock companies as well as Ministerial Resolution No. 10 of 2014 and other resolutions issued by many regulatory authorities such as the UAE Central Bank and Insurance Authority.

Furthermore, the duties and obligations can also be based on the contract which has been made for employment. Another profound base is the written Power of Attorney (POA).

In general, every manager shall comply with all legislation and laws issued by the UAE government, the provisions of the MOA and AOA, the employment contracts and the resolutions issued by the General Assembly. However, some further duties and obligations imposed on all managers and directors of limited liability and joint stock companies under the UAE Commercial Companies Law are the following:

• Article 15 provides the registration of the MOA of the company and all its amendments in the commercial register;
• Article 22 states that a manager shall preserve all companies' rights and shall act with the care of a prudent person, with respect to its objectives and the powers granted to them and shall avoid any fraudulent acts;
• Article 87 provides the preparation of the annual budget, calculations of profits and losses, the conduction of an annual report and its audition and the submission of the manager's recommendations on the distribution of the profits of the General Assembly, within the last three month of each fiscal year;
• Article 92 stipulates a general assembly meeting at least once within a year in accordance with the Companies' Law.

With respect to Article 86, the participation or involvement in any business in competition with the company represents a violation of the duties in general.

If managers fail to comply with the above-mentioned duties and obligations, the published laws of the UAE stipulate numerous and various fines and penalties and even imprisonment.

The respective penalties may include amongst others:

• Article 343 states a fine of at least AED 50,000 but limited to AED 100,000 if the chairman fails to invite the annual General Assembly of the company to convene within four months until the end of the respective fiscal year; and if the invitation has been published by him without the prior consent of the Ministry or any other person or institution which prevents the invitation or convention of the General Assembly;
• Article 345 imposes a fine between AED 100,000 and AED 300,000 for failure to invite the General Assembly on demand by the Ministry or the Authority;
• Article 344 stipulates a fine of at least AED 50,000 but not more than AED 1,000,000 if the company losses sum up to half of its share capital; and the board does not invite the General Assembly within the respective time frame regulated by law;
• Article 349 provides fines of at least AED 20,000 but limited to AED 100,000 if no accounting records were made within the prescribed time period.

In many cases, general managers in the UAE are not aware of their whole duties and obligations appointed to the highest position of a company. Therefore, it is advisable to manage all affairs of the company in a proper and diligent manner and to seek for legal consultation if questions or uncertainties arise.