Roles, Duties And Liabilities Of Directors In The Abu Dhabi

The Abu Dhabi Global Markets (ADGM) is a financial free zone in the United Arab Emirates (UAE), having its own Courts and legal system modelled on English common law. International businesses contemplating a presence in the ADGM can draw comfort from the fact that the company law framework in the ADGM is primarily based on UK Company Law subject to certain peculiarities. This article summaries the role, responsibilities, and liabilities of directors of companies incorporated in the ADGM.

Regulatory Framework

The Companies Regulation, 2020 (ADGM Companies Regulations) sets out directors' key duties and liabilities in the ADGM. In addition, the UAE criminal laws apply in the ADGM, and so criminal matters (such as fraud and embezzlement by directors) would be governed by the Federal Law No. 3 of 1987 promulgating the Penal Code (UAE Penal Code).

Who can be appointed as a director?

A company's director can be a natural person or a body corporate. In addition, directors must not be (i) under 18 years of age, (ii) disqualified from acting as a director, or (iii) an undischarged bankrupt.

A private company must have at least one director, while a public company must have two directors. In both cases, at least one director must be a natural person.

Role of the Director

The directors of a company are generally entrusted with the power to manage the company's business and day to day affairs under the company's articles of association. A company may also nominate non-executive directors or nominee directors who are not involved in the daily operations of a company. In this respect, it is worth noting that the ADGM Companies Regulations do not recognise the distinction between executive and non-executive directors, and the status of a director is essentially an internal matter of a company. As such, non-executive or nominee directors should be mindful of the provisions under the ADGM Companies Regulations relating to directors as their duties and liabilities are not diluted in any way owing to their non-executive status.

Shadow Director

The ADGM Companies Regulations recognise the concept of a 'shadow director' who is a person in accordance with whose directions or instructions the directors of the company are accustomed to act. It is important to understand that a shadow director is not regarded as a director merely by instructing the directors to act in professional capacity. In addition, a body corporate will not be regarded as a shadow director of any of its subsidiary companies by reason only that the directors of the subsidiary are accustomed to act in accordance with its directions or instructions.

A shadow director may be treated similarly as a director in connection with certain transactions with directors requiring shareholder approval such as directors' long-term service contracts, substantial property transactions, loans to directors, and any payments for loss of office. In addition, a shadow director may be treated as an officer of a company for certain contraventions of the ADGM Companies Regulations.

Directors' General Duties

Under the ADGM Companies Regulations, a director of a company is entrusted with the following general duties:

Duty to act within powers
Duty to promote the success of the company
Duty to exercise independent judgment
Duty to exercise reasonable care, skill and diligence
Duty to avoid conflicts of interest
Duty not to accept benefits from third parties
Duty to declare interest in proposed transaction or arrangement

Other Duties and Responsibilities

In addition to the above general duties, the ADGM Companies Regulations imposes a range of responsibilities and obligations on a director including (i) ensuring that the company complies with its obligations under ADGM laws, (ii) preparing and filing accounts along with the auditor's report (if applicable) and director's report, and (iii) complying with the conditions placed on transactions between a director and the company and loans made by the company to a director.

Consequence of Breach of Duties

Breach of directors' duties and obligations may result in the following consequences:

the company itself can take action against a director if there has been a breach of duty, including removing the director from the board of directors, filing an injunction, or instituting a claim for damages or compensation;
in certain cases, an individual shareholder or group of shareholders can bring a derivative action against a director on behalf of the company;
the director may be exposed to personal liability in the form of fines imposed by the ADGM or any regulator;
a director could face criminal liability or imprisonment for criminal actions such as fraud, embezzlement, or breach of confidentiality under the UAE Penal Code.

Disqualification of Directors

The Registrar of Companies in the ADGM may issue a disqualification order against a director in the following circumstances:

conviction of a criminal offence in the UAE;
persistent breaches of the ADGM Companies Regulations;
fraud;
where the director is a director of an insolvent company and his conduct makes him unfit to manage the company;
where it is satisfied that his conduct in relation to the company makes him unfit to be concerned in the management of a company and it is in the public interest to make the order; and
participation in wrongful trading in connection with the insolvency of the company.

Provisions Protecting Directors

Any provision under the company documents or any contract that exempts or indemnifies a director of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void. Certain exceptions apply, such as in the case of directors' insurance, qualifying third party indemnity provision, or a qualifying pension scheme indemnity provision.

This article was originally published in Mondaq - https://www.mondaq.com/shareholders/1325072/roles-duties-and-liabilities-of-directors-in-the-abu-dhabi-global-market