Business | Analysis

Assigning blame could get lost in translation

A manager’s role is yet to be clearly defined in new UAE company law

  • By K. Raveendran, Special to Gulf News
  • Published: 12:09 July 8, 2013
  • Gulf News

After several goalpost shifts and missed deadlines, the ‘new and improved’ UAE company law is going through the final stages and is expected to be made operational by the end of the year. A number of improvements in the existing provisions have been included, but it is still not clear how the problematic role of a manager in a company is being addressed.

As things stand, the position of the manager will become even more vulnerable in the proposed new law.

The UAE company law has never made a distinction between manager and director, although the relationship of the two with the company can be as widely different as an employee and owner. The problem is further complicated by the fact that the two terms in Arabic, which is the language in which the original law is framed, carry the same meaning and are freely interchangeable.

This makes the manager accountable for all the omissions and commissions of the company although he or she may have acted under instructions from the owner. The liability of the owner automatically becomes the liability of the manager, while the reverse is not true.

This has been most glaring in cases such as the bouncing of cheques. A manager who had signed a bounced cheque while in the service of the company would be liable to be criminally prosecuted even when the person is no longer associated with the company. A manager could be liable for various criminal offences, including fraud, embezzlement of property or issuing a cheque on behalf of the company without sufficient funds in its accounts.

Vindictive owners

Most ironically, the responsibility of the manager does not cease to hold even if the person has been sacked by the business owner. This clause has been freely used by vindictive owners to persecute their managers, with the result that thousands of them have had to go behind bars for no fault of theirs. This is particularly true of small businesses where there is no corporatisation of the management.

In the corporate framework that is applicable to large companies, the role of the general manager, for instance, is quite well-defined, pursuant to specific powers of attorney conferred on the manager, which lends the role a certain independence. Unlike the proprietary small businesses, managers in corporatised set-ups can refuse to be a party to dubious dealings and decisions and successfully defend their action by invoking corporate governance norms.

Large corporates are much more committed towards corporate governance than small businesses, but here too the main problem stems from the fact that the vast majority of businesses are small establishments.

There may be some relief for the bounced cheque issue in the new initiatives currently under way to de-criminalise the occurrence and consider most of such cases within the ambit of civil procedures, which will take care of a major worry. But there are still many other issues that make the manager’s role vulnerable.

As per the draft of the new UAE company law, voted by the Federal National Council (FNC), misrepresentation of a company’s true financial position carries a jail term of up to three years, or a fine of Dh500,000 or both.

Powers of scrutiny

For offences relating to market manipulation or transactions which create artificial price increases for the company’s tradeable securities, the bill carries a prison term of up to six months and a fine of up to Dh10 million. Under the new law, boards of directors, managers and auditors can be held accountable for transparency in the management of the company, giving the regulators more powers of scrutiny.

But this concerns mostly large corporates and, therefore, is not a major issue for the managers of small businesses. In fact, the FNC is expected to debate another draft law later this year, which will deal with protection of competition and prevention of monopoly practices.

Small and medium businesses also get some relief in their exclusion from the provisions relating to Emiratisation of management, including the board of directors.

But overall, managers in small businesses will continue to face threats of abuse by unscrupulous owners unless some specific provisions are added to the draft to govern the relationship between the two parties.

— The writer is a journalist based in the UAE.

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