Managers & Directors in the spotlight – Duties, Responsibilities & Liabilities of Managers & Directors
The global economy has faced several impacts because of the world-spread pandemic COVID-19! The steep fall in prices results in significant challenges across a multitude of sectors. These obviously, increase the duties of managing director of a company and they should pay attention than ever before to fulfill their duties under law and face the potential consequences of not fulfilling them!
Duties managing director sets out in generic terms is owed by particular company and entirely unique to them! Managing directors will have to consider, how to comply their duties in the context of present circumstances and also consider what the future may bring.
Duties and liabilities of managers depend on,
- Nature of the company and board of directors
- Internal corporate governance arrangements
- Market conditions and prevailing laws
- Financial circumstances
- Nature and extent of creditors
- Nature of cash flow and annual cycles
- Profile of its workforce
- Nature of shareholders
- Location of its operations
Liabilities of a manager are critical, while consequently they are likely to heightened scrutiny by corporate regulators, shareholders, and creditors. To ensure their decisions, managers should be aware of their obligations and responsibilities.
In UAE, the terms board of manager, manager, directors or board of directors are often used interchangeably in LLC on the UAE mainland. In most of the cases, extent of authority in favor with one or more individuals is often left for shareholders to decide!
In UAE, there are various sources that set out the liabilities of a company manager in the UAE mainland or companies incorporated in free zones.
Duties owed under applicable laws
As mentioned above, duties are drawn from a wide range of sources that include,
- UAE federal Law No-2 – regarding the commercial companies
- Federal Law No 5 civil transactions
- Federal Law No-3 – on promulgating the penal code
- UAE Federal law No-18 – on commercial transactions
The UAE commercial companies’ law, civil code, and commercial transactions law set out the legal responsibilities and liabilities of managers by combining the rules on what managers should do and shouldn’t do.
In most of the cases, managers and directors are generally required to,
- Act honestly with great faith to achieve the best interests of the company
- Exercise on the level of care, skill and diligence expected from a reasonably prudent person.
- Exercise their powers for the purpose for which they are conferred and make it in accordance with relevant regulations.
While determining the scope of authority, consider MoA, contract of employment, and power of attorney within the parameters of the law! In the absence of any particular restrictions, managers or directors have the full capacity to manage the company. So, it’s essential to be mindful on the duties and liabilities of managers, or they might be exposed to potential claim for breach of duty and personal liability!
The criminal and civil liabilities of managers in spotlight
CCL or criminal and civil liabilities sets out various penalties for the breach of legal responsibilities and liabilities of managers in a workplace! The liability usually covers any loss or expenses incurred due to improper exercise of power or any other provisions of law.
Some of the legal responsibilities and liabilities of managers and directors under CCL include,
- Manage and preserve the company rights
- To work within the objectives of the company and not to exceed the powers granted to the directors.
- Not to involve in any fraud act or misuse of power
- Not to breach the applicable law or any other provision connected with the company’s MoA!
- Not to make any ‘error in management’ or ‘gross error’
- Not to be in the position of conflict
In addition to the above given functions, duties of managing director of a company under CCL generally relates to exercising their reporting functions, share issuances, distributions, and general meetings.
Criminal liabilities of a manager
Regarding the criminal liability, there are heavy fines imposed for,
- Failing to invite general assembly to convene when the company’s losses reach 50% of the company’s share capital
- Rejecting to disclose mom of general meeting or company’s books to shareholders
- Failing to provide necessary documents to the auditors or authority’s inspectors to perform their duties.
- Concealing information or providing any misleading information.
- Violating any companies law or regulations
General duties of managing director of a company
A managing director must be prudent enough to perform his duties! They understand and operate within the remit of powers conferred by the company. Make sure to obtain the necessary internal approvals before entering into any arrangement to bind the company!
Some of the significant duties managing director include,
- Preparation of annual accounts in accordance with the international accounting standards.
- Be confidential! Never disclose any company secrets that may damage your company business.
- Do not undertake any activities that compete with the company’s line of business before obtaining approval from the company’s shareholders.
- Resignation timing – which wouldn’t cause any damage to the company
- Solvency of the company
Managing risk – significant liabilities of company manager
Before accepting the appointment, make sure to fully appreciate the responsibilities and duties to protect you from potential claims and liabilities. Have a look at the following recommendations in decision making and management duties,
- Appraise yourself of the duties you owe under law, company’s MoA, service contract, any power of attorney, and internal authority matrix.
- Careful considerations on circumstances and stakeholders.
- Nature of limits of your authority
- Close eye on financial performance of the company
- Always maintain well-documented records of meetings.
- Be up-to-date with the challenges, opportunities and latest developments in your sector!
Legal responsibilities and liabilities of managers and directors always act within the scope of their prescribed authority in an ethical manner which is reasonably believed to be in the best interests of the company. In most of the cases, duties and liabilities of managers are liable to the company, shareholders, and third parties for all sorts of abuse, fraud, mismanagement, and negligence. Most of the managers act safely with basic knowledge that their actions will not expose them to any sort of personal risk of criminal or civil sanctions!