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Newsletter 09/2020

Sponsors Updates | CBD Corporate Services

 

The Art of Good Governance

The thing about corporate governance is that you don’t miss it until it’s too late.  You would think that the financial penalties of up to AED 100,000 and/or other legal sanctions would be enough of a deterrent not to ignore important legal duties and responsibilities, and yet many UAE companies still don’t practice good governance. 

In this Article, Helen Barrett, Partner, CBD Corporate Services provides insight into the art of good governance and core legal duties of a General Manager (also referred to as a Director) of a limited liability company (Company).   

There is a patchwork of laws that govern the management and operation of a Company, but the most common piece of legislation is Federal Law No (2) of 2005 on commercial companies (Companies Law).   In accordance with the Companies Law, a General Manager must:  

  • act in the best interests of the Company and its stakeholders;
  • demonstrate honesty and good faith in all its actions;
  • exercise reasonable care and skill when making decisions;
  • avoid or disclose conflicts of interest; and
  • maintain audited accounts. 

Information flow

In times of crisis, it is more important than ever for General Managers to review, update and/or adapt their internal governance framework to ensure that there are no barriers to information flow which will be required for a Board and/or stakeholders to make informed decisions.  

Record keeping

To demonstrate that a GM has upheld his core legal duties, key decisions and supporting documentation should be recorded in the Company Book.

Reporting losses

If the Company’s losses fall below 50% of its share capital it is the General Manager’s statutory duty to call a general meeting to mitigate exposure to personal liability.

Convene an AGM

The General Manager is responsible for preparing financial statements for approval by the shareholders at annual general meeting no later than four (4) months after the Company’s financial year end.  Failure to do so could be render a claim of mis-management which attracts personal liability for the General Manager and may devalue a company on sale. 

Seeking professional advice

While it is inevitable that General Managers needs to make tough decisions, it is important that they obtain professional legal advice when making decisions that could impact the Company financially or expose it to unnecessary litigation, such as, termination of staff.    

CBD Corporate Services provides expert nominee partner and professional sponsorship services to businesses throughout the UAE.   During the Holy month of Ramadan, we will continue to offer valuable business solutions and resources to our clients in response to the Covid 19 crisis.  For more legal and regulatory updates, please visit us at www.cbddubai.com or follow us on Linked In.

 

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