What do you think happens when there is a case of mismanagement in the company? Is the manager liable? What do you think the penalties are? If you come across a similar scenario, the article below will enlighten you. In the UAE, the use of the terms’ manager ‘,’ board of managers, ” chairman ‘or’ board of directors ‘is used interchangeably, particularly in cases of limited liability companies in the mainland of the UAE and in situations where express authority is not defined for a specific role or position and in most cases the scope of authority is often left for the shareholders to decide in favour of any one or more individuals. Different legislative sources set out the liabilities and responsibilities of managers and directors that relate to businesses situated on the mainland of the UAE, as well as those businesses located in free zones.
The UAE Commercial Companies Legislation (2015) (‘CCL’), the Civil Code, and the Commercial Transaction Law set down the roles and responsibilities of managers and directors in a combination of laws that state what managers and directors can do as well as what they might be personally liable for, rather than merely relying on a general notion of the fiduciary obligations owed by a company director or manager.
The management and directors shall be fully capable of managing the company in the absence of any specific restrictions or authorizations in the law or otherwise, and any such action shall be binding on the company. Therefore, it is important to always be aware of the limits on the extent of the powers that can subject a manager/director to a possible lawsuit for breach of duty and hence personal liability.
The CCL provides for numerous penalties for breach of its provisions that will be borne by anyone who legally represents the business. Liability would be extended to cover any losses or expenses incurred by a manager or director as a result of any improper exercise of power or infringement of the provisions of any law, company articles, fraud, or negligence.
To an extent that limitations on the scope of powers have been exceeded or misused in such a way that the company suffers damage as a result, the manager or director in question may be personally liable. Furthermore, a civil claim can be filed against a manager (or director) who breached his/ her duties, that has resulted in losses to the company.
In line with the provisions of Article 84, the CCL lays down the liability of the managers of the company responsible or held accountable for the actions taken by the manager during the activities of the company. A manager in a Limited Liability Company (LLC) shall be personally liable for all such fraudulent or deceitful acts committed by the manager against the company, partners, and third parties. The manager without the proper consent of the general assembly of the company shall not undertake on his account or on behalf of third parties, to operate a competing company or a company with similar objectives.
Managers shall be strictly responsible for any acts which contravene the provisions of the CCL and for committing any unfavourable acts which lead to fraud or deceit. On account of committing acts against the company, such a manager shall be subject to penalties. Consequently, because the rules applicable to directors in a Joint-Stock Company (JSC) apply to managers in an LLC (Article 84 of the CCL), the liability of directors in a JSC is similarly applicable to managers in an LLC.
Directors and managers should always behave in what they reasonably consider to be the company’s best interests. In the case that such a person is in a position that he or she is dissatisfied with the fellow officer’s suggested course of action, his or her complaints should be reported in writing, either in a letter addressed to the other officer, or in the minutes of the meeting. It will be wise to ensure that matters or issues pertaining to the transactions of related parties and conflicts of interest are carefully recorded and monitored, as participating in a business competition with another company is usually prohibited. Thus, the directors and managers must behave within the limits of their prescribed jurisdiction, clearly and ethically, and in what they fairly consider to be in the best interests of the organization.