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General Managers' liabilities under UAE Regulations

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Published June 2016

The General Manager of a legal entity that is incorporated in the UAE, whether located on-shore or within one of the various free-zones, is generally entrusted with the sole responsibility for all executive decision making and day-to-day operations of that legal entity. As such, the General Manager of a UAE entity generally acts as a “one-man” board of directors. This is in contrast to the role of a General Manager in common law jurisdictions, where the entire board of directors is often collectively responsible to exercise executive control. The powers and authority of a General Manager are provided for in the constitutional documents of the legal entity, which may be as broad or as restrictive as the shareholders desire, and which can be supplemented by way of a power of attorney from the shareholders or partners if necessary.

Although the shareholders of a limited liability company (“LLC”) in the UAE are generally protected by the company as they are in common law jurisdictions pursuant to the concept of the “corporate veil,” very little protection is afforded to the General Manager of a UAE-based LLC. Rather, due to the extensive powers and authorities afforded to a General Manager, the laws in the UAE impose both civil and criminal liability on the General Manager as regards to the business, including for matters that were beyond the General Manager’s control (e.g. market forces, third party actions). Some examples of exposure a General Manager has, include:

  1. In the event that a cheque, issued by the company to a third party and signed by the General Manager, is not honoured by the bank due to a lack of the necessary funds within the company account, the General Manager, as the signatory on the cheque and indeed as a named signatory on the company account from which the cheque was issued, would be held criminally liable. The General Manager would also expose himself to a potential civil claim by the third party alongside the company. Criminal cases are accompanied by a travel ban on the concerned individuals.
  2. Non-payment of judgments issued by the Labour Courts may, inter alia, lead to a travel ban being imposed on the General Manager until the matter is settled.
  3. In the event that a legal entity is declared insolvent and a liquidator is appointed by the Courts during bankruptcy proceedings, often the court-appointed liquidator is instructed to investigate the manner in which the company was managed. Should the liquidator conclude that the bankruptcy of the company was, in part, due to mismanagement and ‘poor decision making,’ the General Manager may be held liable for all or some of the debts of the company in addition to potential criminal proceedings against him.

In view of the above, and in order to assist General Managers in mitigating their exposure to potential liabilities and legal actions against them, General Managers are often advised to ensure that they adopt certain measures which include:

  • not acting outside the scope of his/her powers and authority as prescribed to him/her by the Memorandum of Association or granted Power of Attorney;
  • to only issue payments of cheques when certain that sufficient funds exist within the company account and to avoid the provision of post-dated cheques in the market; and
  • at all times, manage the affairs of the company in a proper and diligent manner and, where unsure as to potential exposure, to seek legal counsel.

More often than not, General Managers in the UAE are unaware of their full responsibilities and the associated liabilities when appointed to what is considered the highest post of the company.  These risks only become apparent when the liabilities begin to arise, at which point, it becomes difficult to manage the exposure.

If you are interested in discussing the content of this article, please contact: Ziad Choueiri, Partner (zchoueiri@ach-legal.com) or Devvrat Periwal, Associate (dperiwal@ach-legal.com) . You may also visit: www.ach-legal.com.

Authors:
Ziad Choueiri
Partner
Email: zchoueiri@ach-legal.com
&
Devvrat Periwal
Associate
Email: dperiwal@ach-legal.com
AC&H
Tel: +9714-4529091