08 Aug 2024
Despite a director’s pivotal role in the management of the company’s business or administrative function, there may arise situations where a director wishes to resign or a company requires the removal of such personnel for legitimate reasons like misconduct or neglect of duties. It becomes essential that the vacancy is effectuated in an appropriate manner and is in conformity with the regulatory norms of governing authorities. Accordingly, this article will illustrate the relevant regulations involved in the termination or vacancy of a director’s office with keen emphasis on limited liability companies as set out in the United Arab Emirates under mainland, Dubai International Financial Centre (DIFC), and Abu Dhabi Global Market (ADGM) laws.
Mainland Law: Commercial Law
A Limited Liability Company in mainland UAE, governed under federal law number 32 of 2021 on commercial companies, is defined to be a company consisting of not less than two (2) partners and not more than fifty (50) partners. A natural or juristic person is eligible to incorporate and own a Limited Liability Company, and the liability set on each partner is limited only to the extent of shares held and set out in the Memorandum of Association (MoA).
Management of such a company is generally undertaken by one or more managers (the directors) who are elected from among the partners or third parties and are determined by the partners in the MoA. If such managers are not determined in the MoA or under an independent contract, the general assembly of partners is vested with the responsibility of such appointment. Managers hold a significant position in the company and are granted full and extensive powers to manage the company. Therefore, all acts undertaken by such managers are fully binding upon the entity, unless such powers are limited by virtue of the appointing contract or MoA.
With the significant roles and responsibilities that such managers are in charge of, there is a corresponding and absolute liability that arises for them towards the company, partners, and third parties for acts undertaken in the implementation of their scope of work. Accordingly, such managers are also held fully liable for any fraudulent act committed by them and are also liable for any loss and expenses arising from abuse of power, violation of the Memorandum of Association or appointing contract, or any legal provisions, and for any gross error that may have been committed by the manager.
Therefore, if a manager is to be removed, they can be dismissed as below:
- By application of any procedure listed out in the MoA or appointing contract
- By a decision executed for such removal in the general assembly
- By a decision of dismissal, if deemed justified, issued by the court at the request of one or more partners of the company
Additionally, a manager may voluntarily resign by furnishing a written resignation to the general assembly of the company, and a notification of the same is to be made to the competent authority (the local authority that has jurisdiction over the affairs of companies in the particular Emirate). The general assembly shall then be under a duty to issue its decision within forty (40) days from the date of such request, failing which, the resignation is deemed final unless provided otherwise by the MoA or appointing contract. Further, the company is required to notify the competent authority of such termination within no later than (30) thirty days from the date of such termination and shall appoint a replacement of the manager during such a period.
The UAE Commercial Companies Law and several judgments pronounced by the Dubai Court of Cassation have asserted the possibility of removing managers by a majority, i.e., 75% of the shareholders present at the full quorum of the general assembly.
Dubai International Financial Centre: Capital Markets Law
According to Companies Law DIFC Law number 5 of 2018, every private company incorporated in the Dubai International Financial Centre is mandated to have at least one (1) director, and every public company incorporated in this zone is to have at least two (2) directors. Accordingly, the law has clearly stipulated that the eligibility of an appointment for a director shall be subject to the following restrictions:
Any person falling under the below categories is not eligible for directorship. Accordingly, Article 66 (2) quotes:
No person shall be a director who: (a) is under the age of 18 years; (b) is not a natural person; (c) is disqualified from being a director by virtue of:
- having been convicted of a criminal offense, involving dishonesty or moral turpitude, in any jurisdiction in the past 10 years;
- having been found guilty of insider trading or the equivalent in any jurisdiction at any time;
- having been judged disqualified by any court;
- having been disqualified by the DFSA; or
- a disqualification specified in the Articles of Association; or (d) is an undischarged bankrupt.
The first directors of a company shall be elected by the incorporators, and thereafter the shareholders shall elect directors by way of ordinary resolutions or as provided in the Articles of Association (AOA) and for such term as the shareholders may determine.
Every director holds tenure until his early death, resignation, removal due to disqualification or by removal by ordinary resolution, or until a successor occupies office or is as provided otherwise in the Articles of Association.
Any vacancy arising out of resignation, removal, or death of the director may be filled through an appointment by the remaining directors or by ordinary resolution, provided that: (a) any director appointed by the remaining directors shall be subject to reappointment by an ordinary resolution at the next general meeting; and (b) if no such ordinary resolution is passed at that next general meeting, shall cease to be a director at the conclusion of that general meeting.
Abu Dhabi Global Market: Companies Regulations Rules (2015)
An appointment of a director in an ADGM company is allowed in favor of an individual who is permitted by law and is willing to act as a director of a company. Accordingly, such appointment is executed by: (a) by ordinary resolution, or (b) by a decision of the directors.
Where the company has no directors or shareholders due to the death of such individuals, the personal representative of the last shareholder to have died has the right to appoint an individual as a director through a written notice evidencing such appointment. In the event, two or more shareholders die in circumstances making it difficult to determine who was the last to die, the younger shareholder is deemed to have survived the older shareholder.
A removal or termination of a director in the ADGM occurs when: (a) the individual ceases to be a director by virtue of any provision of the Companies Regulations or is prohibited from being a director by law, (b) the individual becomes bankrupt, (c) a composition is made with the individual’s creditors generally in satisfaction of the individual’s debts, (d) a written opinion is given by a registered medical practitioner stating that the individual has become mentally or physically incapable of acting as a director and could remain in such condition for more than three months, (e) by reason of the individual’s mental health, a court makes an order which wholly or partly prevents the individual from personally exercising any powers or rights which the individual would otherwise have, (f) the company receives a notification of resignation from the director and such resignation is in line with relevant terms.