Director’s Liability in a Company: OMAN
The liability of a director of an Omani company is determined as per the Company law of Oman. It applies to all joint-stock companies, which we have discussed in detail below. There is also a Code of Corporate Governance which is mandatory but applies only to the public companies which are listed on the Muscat Securities Market.
There is both civil as well as criminal liability that is imposed on the director of a company. Generally, the director is not held personally liable for debts or losses of the company.
But they are held liable personally when they breach the law or perform their duty negligently or fraudulently. We will further discuss in the article what are the liabilities of a director and to what extent he is liable for his action.
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Who is a director of a company?
He is the person who makes the final and key decisions of the company and how to control the business of the company. He is one of the employees within a group of managers who manages all the prolific roles within an organization. There are rules and regulations under Oman Law which govern the power and duties of a director.
With power comes liability because otherwise, they might perform such acts which are harmful to the company’s existence. Thus laws are made to fix the liability of the director so that they perform duties with certain restrictions. There are different types of companies, and liability is also different for different types of companies. So let’s first understand what are the types of companies in Oman.
Types of Company in Oman
Limited Liability Company
There are a minimum of 2 partners. It only has the issued capital, and there is no authorized capital. If a company has to increase or decrease the capital, it has to be unanimously decided by the partners. Specific rules of corporate governance are not applicable in this. Managers are liable to the company, shareholders, and third parties for damages caused by a breach of their duties.
Joint Stock Companies
There is a minimum of 3 partners in this company. Approval of the Board of Directors is not a prerequisite for the share sale. The board of directors has full authority to perform all acts for the management of the company except those which are explicitly barred by the law or reserved for the decision by the general meeting. Limited rule of corporate governance is applicable.
Closed Joint Stock Company (SAOC)- Minimum capital of OMR 500,000
Public Joint Stock Company (SAOG)- minimum capital of OMR 2,000,000
There is no minimum requirement for minimum capital. The partners shall be jointly and severally liable for obligations to the full extent of their assets.
It has no juristic personality and is not subject to registration with any government authority.
Sources of Director’s Liability
It is the primary duty of the director to perform all his duties in the good faith and best interest of the company. He should act in such a way that any prudent person would act with care in such a situation. The liability of the director is towards the company, shareholders, and third parties if any breach of law, statute of the company, fraud, negligence in the performance of duties, acting ultra vires, or failing reasonably.
It is covering the civil liability of the director. It is an assumption made that the director has all the knowledge about any resolution made at the company. In case he has not attended the meeting, then also his knowledge about the same is assumed while deciding the liability of the director. In cases where more than one director exists, all of them or part of them might be held jointly and severally liable for all or part of the damages.
The director must not get involved in competing for business simultaneously and must stay loyal towards the company. He shall not be making a profit at the expense of the company. There shall not be any undisclosed or unapproved personal conflict of interest from the director’s side.
The CCL also include criminal sanction to the director at fault, which ranges from custodial sentences of up to three years and/or fines of up to 500 for offenses such as:
Misrepresentation- it includes entering false or misleading information in the corporate documents or application to establish a joint-stock company
Falsification- distribution of dividends based on the falsified audited accounts or falsifying or omitting material information from company accounts willfully.
Directors of a trading company are liable for breach of wide-ranging responsibilities and obligations under Oman’s Consumer Protection Law. They must ensure that the product which their company is delivering must be genuine, properly licensed, and comply with the regulations of the government. It should also be according to the religious values, customs, and traditions of Oman.
Any information given to the consumer must be correct and must not be misleading in any way. In case of any breach of such obligation would result in fines and custodial sentences if it is established that the director knew about such breach.
In the case of Insolvency, if the director comes to know that there exists a risk of insolvency in the company, he shall take necessary action to rectify the situation. If he does not take such appropriate action, he will be held personally liable to the shareholders or creditors. In case a company is declared bankrupt and it does not have sufficient funds to pay off at least 20% of its debts, then the Court may hold all the directors jointly and severally liable to pay all or some of the insolvent company’s debts.
Fraud, embezzlement, disclosing confidential information for personal benefit, and writing a company cheque that bounces. Criminal liability is also imposed on the Directors in the case of Insolvency.
It is applicable to the public companies listed on the Muscat Securities Market. Such directors also have to comply with the Capital Market Authority Law and its executive regulations. The code deals with transparency, accountability, fairness, and responsibility, which forms the basis of the director’s responsibility.
The directors are obliged to comply with due diligence and transparency while dealing with the regulators, shareholders, and related parties. Directors shall be held accountable for any decision made by them to the shareholders.
Fair treatment shall be given to shareholders, employees, and related parties. There shall be no partiality and concealed interest towards them. The interest of the company shall always be above the personal interest of the director.
If the director doesn’t comply with the rules mentioned above and submits incorrect information intentionally, the penalty will be imposed upon them ranging from RO 10,000 to RO 50,000. Imprisonment can also be made not less than 3 months to such directors.
Who can initiate the proceeding against the Director?
Under Article 110 of the Commercial Company law, an action can be instituted by the company against the director for the damages caused by the director because of their acts which are in violation of law or beyond the scope of their powers or by any fraud or failure to act as a prudent man under certain circumstances.
If a shareholder proposes to the board of directors to file a case against the director, then they must agree to file such a case against the director and if they do not agree, a shareholder can file the case himself on the behalf of the company. The cost and expenses of the case made by the shareholder must be reimbursed by the company.
Any remedial action against the violation of law by the director can be made by any interested party and all such actions taken by the director in violation of law shall be held void. It shall be filed within five years.
Are the Insurance Policies Available to the Director?
Yes, there are various insurance companies in Oman that provide insurance policies to companies to cover the management liability. Management liability cover is one of the parts of the strategy of risk management of any successful business. There are many day-to-day decisions taken by the managers and directors and there are times when such decisions affect the company negatively.
Such decisions also incur criminal and civil liability to the directors who are alleged of wrongful acts. In those situations, these insurance policies act as financial protection available to the directors against the consequences of those bad decisions and financial loss incurred. These policies cover the director and officer’s liability.
For example, AXA Insurance company provides insurance for director’s liability.
Thus, the liability of a director is explained in the Commercial Company Law of Oman. There is both civil and criminal liability attached to the director on violation of law or other conduct which are in conflict of interest with the company.
Insurance companies do provide certain insurance cover to protect the interest of the director if they get into any problem due to their decisions taken for the company.