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February 26, 2020
A manager of a company is considered as its face bearing an extensive range of responsibilities despite the commitments and obligations mentioned in the Companies Law of UAE. Yet, the law does not highlight personal obligations of loyalty and constancy. This article by Best Corporate Lawyers of UAE will critically focus on the special obligations of the manager in Limited Liability Company along with liability of the company if the manager fails to perform his activities.
According to Article 84 of the Companies Law explicitly mentions that a manager of the limited liability company (LLC) will be held liable towards third parties under the following circumstances:a. Any fraudulent activities; b. Loses incurred due to misuse of power; c. Breach of Companies Law provisions of the Memorandum of Association of the company; d. Any other gross or negligent act.
Importantly, any provision in the employment contract of the manager or in the Memorandum of Association of the company inconsistent with Article 84 of the Law or any other provision of the Companies Law will be considered null and void.
In line with the foregoing, Lawyers of Dubai have entertained numerous cases where debtors file cases against the company or the manager for dishonoured cheques issued by manager through his personal account for paying off the debtors. In this regards, the courts always face dilemma regarding companys liability in such acts committed by the manager.
Similarly, in Dubai Court of Cassation Case number 359 of 2004, wherein, the plaintiff (a travel company) registered a case against the first and second defendant (the company and its manager respectively) for demanding AED 30,000 along with 12% interest as the cheques issued by the manager from his personal account was dishonoured.
The Court of First Instance held the second defendant (manager) liable towards the plaintiff in his personal capacity for issuing a cheque from his personal bank account along with 9% interest. However, the plaintiff again registered an appeal to order both the defendants pay them jointly along with 12% interest, which was rejected.
The matter was thereafter registered before the Court of Cassation on the grounds that the lower courts judgment contravenes with the law as it rejected the action against first defendant. Wherein, the court overturned and stated that the cheques issued by the manager were for the benefit of the company. Thus, the commercial institution was responsible for the activities done under his name either by an employee appointed by him personally or by the manager who he appointed.
Whereas, in another case of Federal Supreme Court case number 471 of 2009, the court reviewed the legal questions like the liability of the manager/director of the LLC in cases of fraud and misrepresentation and the liability of the company in the cheques issued by the manager.
In this case, the plaintiff filed a case for the payment of cheques issued by the company (first defendant) and signed by the managing director (the second defendant). The plaintiff explicitly sought compensation from the second defendant in his personal capacity, arguing that the director had clear knowledge of the financial position of the company and still issued a cheque which was ought to be bounced. The Court of First Instance and Appeal rejected the claim stating that there was no element of fraud or misrepresentation.
The matter was registered before Federal Supreme Court wherein the Court held that the director was personally liable for the dishonoured cheques and critically stated that a director of an LLC company will still be held liable for the actions taken on behalf of company even if such actions were not taken in bad faith. Irrespective of the fact that the director was unaware that the cheques would be dishonoured, he will still be liable towards the action taken on behalf of the company.