Liability of Managers: When Corporate Decisions Become Personal Responsibility

Managing a company in the UAE carries significant responsibility, not only for the company’s success but also for personal legal accountability. Under Federal Decree-Law No. (32) of 2021 on Commercial Companies and Federal Decree-Law No. (50) of 2022, managers can face both civil and criminal liabilities if they breach their duties, engage in fraudulent behaviour, or fail to adhere to the legal frameworks governing companies. The law draws a clear line between corporate and personal responsibility, making it crucial for managers to fully understand their obligations.

Let’s explore how managerial actions can result in personal liability under UAE law, using real-life examples to demonstrate both civil and criminal consequences.

Civil and Criminal Nature of Liabilities

In UAE law, a manager’s liabilities are typically divided into two categories:

Civil liability:This arises when a manager breaches their duties under legislation, the Memorandum of Association (MOA), the Articles of Association (AOA), or internal company resolutions. It often involves compensation for damages or losses caused to the company or its shareholders. Civil liability can result from negligence, breach of fiduciary duty, or exceeding authority.

Criminal liability:In certain cases, breaches by managers may constitute crimes under UAE law. Fraud, deliberate misrepresentation, embezzlement, or falsification of records can lead to criminal prosecution, imprisonment, and fines.

Fraud and Misuse of Power: Civil and Criminal Liability

Consider the case of a finance manager at a UAE company who manipulated financial records to inflate the company’s profits. His actions were intended to attract new investors, but the fraud was uncovered. This situation falls under Article 84, which holds managers personally liable for fraudulent acts committed during their tenure.

In such cases, the manager faces both civil liability (compensation to shareholders and the company) and criminal liability. Fraudulent manipulation of records is a crime under UAE law, leading to potential imprisonment and substantial fines. The manager could be sued personally by the company or its shareholders and also face criminal charges.

Improper Exercise of Powers: Civil and Criminal Consequences

In another scenario, a manager at a UAE-based logistics company entered into a high-value contract with a supplier without obtaining proper approval as required by the company’s MOA and his appointment contract. The deal ultimately caused significant financial losses for the company. The shareholders sued the manager, arguing that his actions amounted to an improper exercise of powers.

Similarly, a real estate company in Dubai suffered significant losses when a manager entered into a land purchase deal without securing approval from the board of directors. The manager’s failure to follow company procedures resulted in significant financial harm.

Under Article 84, managers are personally liable for any losses or expenses incurred due to the improper exercise of powers, violation of laws, or breach of their MOA or appointment contracts. In both cases, the managers were exposed to civil liability for financial damages caused to the company. Though there is no criminal element in these examples, gross errors or intentional breaches of duty could also lead to criminal prosecution.

Violating the Law: Criminal and Civil Implications of Oversight

If a compliance manager fails to ensure the company adheres to anti-money laundering regulations or fails to report suspicious transactions, both the company and the manager can face serious consequences. Article 84 holds managers liable for violating laws, even if those breaches result from oversight rather than deliberate wrongdoing.

In such cases, civil liability arises as the manager can be sued by the company for any fines or damages incurred due to the violation. However, if the failure to comply with regulations was intentional or involved concealment, the manager could also face criminal charges, including imprisonment and significant fines.

Fictitious Profits and False Financial Statements: Criminal and Civil Repercussions

A manager in a struggling company may feel pressured to distribute profits to maintain investor confidence, even when those profits are fictitious. Article 30 prohibits such actions, and any manager who authorises the distribution of fictitious profits or deliberately provides false financial statements can be held personally accountable.

In this scenario, the manager faces both civil liability (for reimbursing shareholders and creditors) and criminal liability for providing misleading financial information.

Issuing Bounced Cheques: Personal and Criminal Liability

One of the most significant liabilities managers face is issuing a bounced cheque. Managers should ensure that all cheques issued on behalf of the company are backed by sufficient funds to avoid legal repercussions.

Additional Legal Considerations for Managers: Civil and Criminal Risks

1. Conflict of Interest:Managers must disclose any conflicts of interest in transactions. Failure to do so could result in civil liability, and if fraudulent intent is proven, it could also lead to criminal prosecution.
2. Confidential Information:Misuse of confidential company information for personal gain is punishable by imprisonment (up to six months) and/or fines. This breach results in both civil and criminal liability.
3. No Waiver of Liability:Any contractual attempts to waive personal liability for managerial decisions are null and void under UAE law, meaning managers cannot escape personal liability through waiver clauses.

How Managers Can Protect Themselves

Managers in the UAE can face both civil and criminal liability for their actions. To protect themselves, managers should:

1. Stay Within the Law:Comply with all relevant laws, including anti-money laundering, tax, and corporate governance regulations.
2. Follow Internal Procedures:Adhere strictly to the company’s MOA, AOA, and internal governance policies to avoid personal liability for exceeding authority.
3. Document Dissent:If you disagree with a decision, document your opposition to avoid liability.
4. Avoid Conflicts of Interest: Always disclose any conflicts of interest in transactions and abstain from voting on resolutions where personal interests are involved.
5. Act with Prudence:Managers are expected to act with the care of a “prudent person.” Weigh the risks and benefits of each decision carefully.

Conclusion

In the UAE, being a manager comes with significant responsibilities, but with the right knowledge and adherence to legal frameworks, these challenges can be effectively managed. By staying informed about both civil and criminal liabilities and making decisions within the boundaries of the law, managers can safeguard their positions and contribute to the success of their companies. The key is to act diligently, follow internal protocols, and seek professional advice when necessary. With careful planning and prudent management, personal liability becomes less of a concern, allowing managers to focus on leading their companies confidently.