Directors liability

C-level leaders, corporate directors, and company owners are given a great deal of power when running their organizations and divisions, both onshore and offshore, in the United Arab Emirates (UAE). Failing to follow the laws of the UAE can jeopardize the company as well as the director’s reputation, and may even lead to criminal liability. Therefore, it becomes important to understand the federal and local laws in the UAE. In this way, directors, owners, and C-level leaders can arm themselves with knowledge to protect themselves and the organizations they work for.

UAE’s Federal Court System

It is important to understand that the UAE has a federal court system comprised of civil, criminal, and Sharia law – the latter which is a legal code derived from the religious precepts of Islam.  These laws apply both to Muslims and non-Muslims, so directors must be vigilant that neither they nor their subordinates conduct dealings in a manner that violates the spectrum of local laws. Expatriates in particular, must be mindful of these factors when conducting operations, opening businesses, or hosting events in the country. For example, during the month of Ramadan, it is illegal to publicly eat, drink, or smoke between sunrise to sunset. (Source)

Duties Affecting Directors’ Personal Liability

There exist a number of documents and legislation that affect the personal liabilities of directors. These affect the leaders in both Joint Stock Companies and Limited Liability Companies. These legal frameworks include:

  • UAE Companies Law
  • The company’s constitutional documents (including bylaws, memorandum, and ethical guidelines)
  • Ministerial Resolution No. 518 of 2009 of the Emirates Securities and Commodities Authority (ESCA), which deals with government rules and corporate disciplinary standards

For more information on labor and employment law, click here.

Best Practices to Prevent Liability

Knowledge is power. It is crucial that directors have an open line of communication with their direct subordinates, regional managers, and middle managers. Keep in mind that the actions of these parties reflect back on the director and the company as a whole. Knowing when important hiring decisions, such as an executive decision to hire cheaper offshore workers without a thorough screening process, or workers in a new geographical region, are paramount. Directors cannot turn a blind eye towards shadowy practices operating under their supervision. Directors may be vicariously liable for the actions of their peers, employees, or board if they operate illegally. Therefore, we recommend a transparent approach that keeps you informed of the changes within your company – both onsite and offsite.

Worst Case Scenario

When possible, issues should be exposed when they are of a civil matter; if a director waits too long, or attempts to obfuscate the company’s dire situation, a civil issue may soon turn into an issue of criminal liability – which is much harder to defend in court.

Should potential criminal misconduct surface in your company, immediately conduct a comprehensive investigation. This will allow you and your lawyer to get on top of the facts, assess the company’s potential exposure, and decide on a best course of action moving forward.

For any legal help, turn to Fitchte & Co, one of the UAE’s leading law firms. Contact us today for legal representation.

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