The General Manager (GM) under UAE law is a corporate officer, charged with a number of legal duties and liabilities. A GM must be resident in the UAE and his or her name must appear on the company’s trade licence.
The role of GM will frequently be referenced in the company’s constitutional documents with reference to specific corporate functions. However, the incumbent may be unaware of the extent of these obligations and believe that the role is purely administrative in nature. As the company’s representative “on the ground” in the UAE, it is important for the GM to understand the full extent of his or her responsibilities and potential liabilities.
Is the General Manager a director?
There is often confusion as to the nature of the GM’s role and whether he or she is a “director” as that concept is understood in Western jurisdictions. This confusion is partially caused by the fact that the Arabic word used in both the former UAE Companies Law 1984 and the new Companies Law 2015 (the CCL) translates into English, interchangeably, as "manager" or "director".
It is possible to differentiate between a GM and a director in a limited liability company’s (LLC) memorandum of association (MoA) by carving out the scope of each role. The GM may be charged with day to day management and running of the business (and be named on the commercial licence as such), while a board of directors is responsible for setting overall strategy, risk management involving compliance and governance, and succession planning. A GM may also be a board member, but does not need to be.
Alternatively, and indeed frequently, there is no board of directors. A LLC can operate either with a single, usually corporate, director (which typically delegates operational control to the GM), or simply with a GM alone who acts as the sole director.
CCL Obligations and Liabilities
The CCl includes a number of obligations which may apply to the GM, including the following:
- A “person authorised to manage” the company must protect its rights and exercise the diligence of a “prudent person” and must act in accordance with the objects of the company and the powers granted to him. This duty will clearly extend to the GM even if he or she is not also a director. A “prudent person” is someone who has sufficient experience and demonstrates the necessary commitment to his duties. The duty is objectively framed but specific to the circumstances, such as the type and size of the business.
- There is a specific restriction on LLC directors competing with the LLC without the consent of the shareholders. Directors are also required to notify the board of any common or conflicting interest in any transaction which is referred to the board for approval. Although these provisions are unlikely to extend to a GM who is not a director, the GM may be subject to other noncompete restrictions, for example under his contract of employment.
- There are numerous obligations in relation to accounts and record keeping, company correspondence, the provision of information to the auditors and relevant authorities and the requirement to call a shareholders’ meeting in certain circumstances. Failure to comply may result in substantial fines and possibly even imprisonment.
A GM who is also a director of a LLC may be liable to the LLC itself, the partners and third parties for:
– fraudulent acts;
– improper use of powers;
– breach of law or the provisions of the MoA;
– breach of his or her director service contract; and
– gross error.
The term “gross error” is not defined. It seems likely, however, that claims could be based on a failure by an individual director to meet the standard of care expected of “persons authorised to manage” as described above.
Any provision of the MoA or other contract which seeks to avoid the personal liability of the directors is void. In addition, the CCL prohibits a company from authorising itself or any of its subsidiaries to agree to exempt an officer (current or former) from liability. Any such provision in its MoA is void.
Other potential liabilities
Liability may arise for the Gm under a range of other UAE laws and regulations, such as:
Tortious acts: the GM may be liable under the Civil Code, either individually or vicariously, for acts carried on in the course of the business which cause harm to others.
Breach of confidence: under the Penal Code, it is a criminal offence for a person to breach the confidence of another where the confidential information is held by the person as a result of his profession or employment and the disclosure is designed to benefit them or a third party.
Particular concerns arise where the company is in financial difficulty. Criminal liability may attach to the GM of a bankrupt company who commits “fraudulent business activities” (such as making untrue statements about the company’s capital or distributing fictitious profits), or who carries on activities which may prejudice all or some of the company’s creditors (such as preferential repayment of certain debts). There is also the much publicised civil and criminal liability which may attach to a GM who has signed bounced company cheques. Where the shareholders and any board directors reside overseas, in practice it will be the UAE-resident GM who is the most exposed in these circumstances.
Free zone companies
The specific obligations of the GM of a free zone company will depend on the regulations which apply in the particular free zone in question. There is often a range of specific obligations which arise, for example, in respect of accounts and record keeping. The Civil, Commercial and Penal Codes also apply within the free zones * .
Make sure you understand your role and responsibilities. Review the MoA, your contract of appointment and any powers of attorney. Ask for further legal advice if necessary.
- Ensure that key corporate decisions are recorded in writing and that the interests of the company as a separate legal entity are carefully considered.
- Be particularly careful where you may have a conflict of interest with the interests of the company or where the company is in financial difficulty. Take independent legal advice if appropriate.
- Consider requesting that the company or its shareholder(s) put in place indemnities and/or D&O insurance policies to cover any personal financial loss you may incur as a result of your role.