The General Manager of a legal entity, incorporated in the UAE, whether located within the on-shore jurisdiction or within one of the many free-zones, is generally entrusted with the sole responsibility for all executive decision making and day-to-day operations of that legal entity. The position of a General Manager in the UAE can be contrasted with the position in common law jurisdictions, where the entire board of directors would often be responsible to exercise executive control collectively. The General Manager or a UAE entity therefore unilaterally acts as a “one man” board of directors. The powers and authority of a General Manager are provided for in the constitutional documents of the legal entity, which may be as broad or as restrictive as the shareholders may desire, however these may be supplemented by way of a power of attorney from the shareholders or partners if necessary.
While the shareholders of a legal entity are protected from liabilities generated by the company during the course of its business and/or obligations of that legal entity due to the limited liability nature of LLCs in the UAE, very little protection is afforded to the General Manager. Given the extensive powers and authority that are enjoyed by a General Manager, the laws in the UAE impose both civil and criminal liability on the General Manager for circumstances in which the company may find itself through no direct fault of the General Manager but rather as a victim to market forces or third party actions. Examples of such liabilities that a General Manager may be exposed to would include the following:
In the event of a cheque issued by the company to a third party and signed by the General Manager is not honoured for payment by the bank due to a lack of the necessary funds within the company account, the General Manager as the signatory on the cheque and indeed as a named signatory on the company account from which the cheque was issued, would be held criminally liable and expose himself to a potential civil claim by the third party alongside the company. Criminal cases are accompanied by a travel ban on the concerned individuals.
Non-payment of judgments issued by the Labour Courts may, inter alia, lead to a travel ban being imposed on the General Manager until the matter is settled.
In the event a legal entity is declared insolvent and a liquidator is appointed by the Courts during bankruptcy proceedings, often the court appointed liquidator is instructed to investigate the manner in which the company was managed. Should the liquidator conclude that the bankruptcy of the company is in part due to mismanagement and ‘poor decision making’, the General Manager may be held liable for parts of the debts of the company in addition to potential criminal proceedings.
In view of the above liabilities and in order to assist General Managers in mitigating their exposure to such actions, General Managers are often advised to ensure that he or she adopt certain measures which include: (i) not acting outside the scope of his/her powers and authority as prescribed to him/her by the Memorandum of Association or granted Power of Attorney; (ii) to only issue payments of cheques when certain that sufficient funds exist within the company account and to avoid the provision of post-dated cheques in the market; and (iii) at all times manage the affairs of the company in a proper and diligent manner and where unsure as to potential exposure to seek legal counsel.
More often than not, General Managers in the UAE are unaware of their full responsibilities and the associated liabilities when appointed to the highest post of the company. These risks only become apparent when the liabilities begin to arise at which point, the management of their exposure becomes increasingly difficult to administer.
For further details, contact Ziad Choueiri at zchoueiri@ach-legal.com or Devvrat Periwal at dperiwal@ach-legal.com.