The role of General Manager in the UAE: time for a fiduciary duty?
The position of manager under UAE law vests the office holder with certain obligations and liability, in particular with regard to corporate compliance. As such the role is a key appointment for any business; comparable to that of a director and the name of the incumbent appears on an entity’s trade licence in some emirates, lending further authority to the appointment. However, the extent of a manager’s personal duty of fidelity and loyalty to a business as well as his duty to act in the company’s best interests is limited. This article examines the existing framework of duties and liabilities of managers in onshore companies in the UAE.
It is worth noting at the outset that the word in Arabic that is used in the UAE Companies Law to describe a manager can also be translated as 'director'. It is therefore perhaps unhelpful that in the English translation of the UAE Companies Law, the term is translated as manager in some instances but as director in others. However, it should be noted that regardless of the translation, the UAE Companies Law does not make a distinction between the position of director and manager, which may be regarded as having equal footing under the law. For the sake of consistency, the office holder of this position will be referred to in this article as a "manager".
The Corporate Framework
A manager can be regarded as the "face of the company" and is often presumed to have wide ranging authority to act on its behalf on day to day matters. It is not unusual for the authority of a manager to be specifically provided for in either the company's constitutional document (the memorandum of association for UAE onshore companies) or pursuant to a separate power of attorney from the company to the manager. If these documents make a distinction between the position of manager and director, then given that the UAE Companies Law does not make a distinction between the two, there is an argument that the liability of the director will be the same as the liability of the manager, albeit that the level of duties assigned to the different officers might be relevant when considering if a director or manager is at fault.
There are various provisions in the UAE Companies Law relating to a manager's liability such as a manager being liable towards a company, its shareholders or to third parties for all acts of fraud, abuse of power, violation of the company's memorandum of association and for mismanagement. The UAE Companies Law also provides that a prison sentence of between three months to two years and a fine of between AED 10,000 to AED 100,000 can be imposed on a manager in certain circumstances which include:
- signing documents in the company's name containing false information;
- inserting false information in a company's memorandum or in any other document or signing or distributing those documents knowing them to contain false information; or
- disclosing any confidential information belonging to the company which was obtained in the course of the manager's work or using such information for his or a third party's benefit.
The Employment Framework
A manager is an employee of the company, charged with its day to day operations. He will hold an employment contract in a form prescribed by the UAE Ministry of Labour and will be registered with it. This contract is likely to be supplemented by another contract setting out in greater detail the manager’s terms and conditions of employment. As a matter of contract, these terms can include a contractual obligation to act in the employer’s best interests, to reveal any wrongdoing by the manager or any other employee, and a duty not to place himself in a potential or actual position of conflict with the employer.
If a manager breaches these obligations, the employer could potentially terminate and claim damages for loss suffered. However, the weight placed on such provisions by any UAE Court may not be as strong as one may hope in the absence of provisions under the UAE Labour Law, Civil Code or Commercial Code providing for such fiduciary duties. It is worth noting that Article 120 of the UAE Labour Law, which sets out permitted reasons for which an employer may summarily dismiss an employee, without notice or the payment of end of service gratuity, does not include a situation where an employee acts in conflict with the interests of his employer or works for another employer (including a competitor) without his current employer’s permission.
The Criminal Framework: Abuse of confidential information and providing false information
UAE law does however provide special protection for confidential information. An employer may terminate employment without notice or payment of end of service gratuity if the employee reveals his employer’s confidential information, provided that the employer has clearly defined and notified the employee of which information is regarded as confidential. Further protection is provided by the Penal Code which makes it an offence for an individual to use another’s confidential information without consent in the pursuit of one’s craft, profession or art. The offence is punishable by a fine or imprisonment if the perpetrator is a public official.
In addition, a manager could be liable under the Civil Code and Penal Code if he discloses personal information in order to obtain a personal benefit, and could be liable for the crimes of his employees, third party contractors and other individuals or entities he supervises or controls when such individuals or entities act in their capacity as employees or contractors of the company when committing those crimes. These offences are punishable by a fine or imprisonment of up to a year.
Pursuant to the Commercial Code, criminal liability can also be incurred by a manager who is declared bankrupt in certain circumstances (for example, concealing information or assets, misappropriating assets, or providing false information regarding the company’s capital).
The Penal Code provides that if a company is declared bankrupt, a manager could be punished by imprisonment for a period of up to five years in certain circumstances, for example, if he concealed, destroyed or altered the company's books, embezzled or concealed any assets of a company to prejudice its creditors or knowingly admitted liability for debts which were not debts of the company. Furthermore, a manager could be liable for the criminal offences of fraud, embezzlement of property or if he in bad faith writes a cheque on behalf of a company in circumstances where the company does not have sufficient funds.
The Civil Code obliges a party causing direct harm to another to make good the harm; with the provision potentially covering the actions of a disloyal and competing employee as well as a third party inducing breach. This is a general tortuous liability. Any person who has actual control by way of supervision and direction over a person who caused the damage might also be liable for those acts.
In short, a manager's obligations under UAE federal law are fairly extensive and possibly more far reaching than people presume, but they do not include a general duty to act in the company's best interests or duties of loyalty.
Should you have any questions in connection with this article or the legal issues it covers, please contact Sara Khoja.