Egypt: Liabilities of Shareholders and Directors

user Youssry Saleh & Partners calender 21 May 2018 views 4095 Views

The companies, its shareholders, directors and partners are regulated in Egypt by the Companies Law No.159 of the year 1981, it’s executive regulations and amended provisions of Law No.4 of the year 2018.

According to the abovementioned, the shareholder’s liability in the shareholding companies, is limited to the paid amount equivalent to the value of shares in which he subscribed; hence, he will not be liable for any debts, obligations or liabilities related to the company except to the extent of the value of shares he subscribed thereto.

As per the Companies Law No.159 of the year 1981, the Joint Stock Companies in Egypt shall be managed by a board of directors comprising at least 3 members, the Directors shall be selected by the General Assembly and may be appointed from the founders of the company.

Directors are entrusted with all the management and operation aspects of the company as they manage the company with the up-to-date operations, holds the full authority to represent the company vis-à-vis third parties, and act on behalf of the company under the supervision of the shareholders. It is required that the directors hold a clear criminal record as a condition for the directors to remain in the office.

As a general rule, the directors shall be headed by a chairman. The directors appoint a chairman from among the directors and they may assign to the chairman the managing duties, the chairman may appoint a vice-chairman in order to act on his behalf during his absence. The chairman shall represent the company before the courts whereby he holds  criminal and civil liabilities such as declared in the New Investment Law No.72 of the year 2017 (Article 92) which promulgated that: “in cases where the crime is committed in the name of the legal person and for its account, the official in charge of the actual management may not be punished unless it is proved aware of the crime and attempted to commit it for his benefit or the benefit of others, without prejudice to the provisions of the civil liability…”

Mainly, the board members will not be liable for losses borne by the company under their management, except if it was proven that such losses were a subsequent to the board members actions due to their negligence or failure in their prescribed liabilities such as issuing false balance sheets, distributions of the dividends without the shareholders’ approval, or negligence in maintaining and keeping the company’s commercial books, nevertheless, the directors will be held liable for their actions and criminal behavior.

Statutory Duties

Directors of the company are obliged to run the company’s business and affairs in order to achieve the required target in a strict compliance within their determined powers. However, the statutory duties of the directors stated by the Companies Law No.159 of the year 1981 and its Executive Regulations, state that an imprisonment penalty for not less than two years or a fine not less than two thousand pounds and not exceeding ten thousand pounds will be imposed in the event of the following circumstances:

  1. In case a director resolved matters of distribution of dividends in a manner contradicting the Law or the Statues of the company or;
  2. A director intentionally committed an act of forgery in the company’s documents, presented misleading documents or provided a false date in the company’s report to the General Assembly.

The Director will be imposed on a fine sanction not less than two thousand Egyptian pounds and not exceeding ten thousand Egyptian pounds in the following matters:

  1. In case a Director failed in observing the standards of directorships and scope of work; or
  2. Whoever in the board of directors who place false data in the company’s reports or willfully overlooks certain data;
  3. Intentionally impede the invitation of the General Assembly.

Fiduciary Duties

In addition to the statutory duties, a director owes a fiduciary duty to the company and its shareholders to act honestly, diligently and in the company’s best interest.

The Egyptian Council D’Etat has issued a ruling that the directors deemed to be agents of the shareholders owning fiduciary duties to act in an honest manner for the interest of the company and the shareholders.

The director also shall not work for his account or for the account of any other company practicing the same activities without obtaining the permission of the General Assembly.

Any breach by the directors to their fiduciary duties, will raise a liability vis-a-vis the shareholders and the company.

Directors Liability for Personal Trading In Case Of Company Insolvency

Pursuant to the Commercial Code, a director who practices commercial activates for his own benefit under the name of the company with the company’s funds and property apparently, as if they were his own, may declare bankruptcy along with the company and the court may undertake an action towards the directors and oblige them – jointly or severally – to pay the debts of the company except if the directors proved that they have been managing the company according to the standards of a reasonable person.

Directors of the company shall fulfill their duties within the scope and powers vested to them and shall carry their managerial duties for the interest of the company and shareholders in order to prevent being subjected to legal accountability as per the Egyptian Laws.