Legal Perspectives: Company directors can be questioned

The positions of chairman and board members of a public joint stock company have got liabilities.

They may rejoice in such positions, but, as a matter of fact, they are sitting on 'hot chairs'. The provisions of the commercial companies law give a clear picture about the weight of such responsibilities, such as: The chairman and all members of the board of directors shall be liable towards the company, the shareholders and third parties for all acts of fraud, abuse of authority, violation of the law or the Articles of Association issued by the company. They shall also be liable for mismanagement due to all acts of negligence.

This shows that everyone has the right to take legal action. They are exposed to legal proceedings from within or without the company. The chairman and directors should perform their duties with utmost care and diligence and high standards of professionalism. Many shareholders are not aware of this legal right, due to their ignorance, or carelessness.

The chairman and directors are jointly liable if the fault or negligent mistake occurs as a result of a resolution or resolutions adopted unanimously. However, if the resolution has been adopted by majority only, the dissenting directors shall not be held liable provided that they have recorded their objections in the minutes of the meeting. This shows the importance of reporting all necessary details in the minutes.

The mere absence of a director, during the meeting wherein that specific resolution has been adopted will not absolve that particular director from the liability unless he has proved that he was not aware of the resolution or that he was aware of it but was unable to show or explain his objection for any reason whatsoever.

The intention of the legislature is to close the door for some directors who may prefer an 'alibi' when they know that certain issues will be discussed and they don't want to involve themselves. A director should have a say in all issues raised because he is responsible in all cases and mere absence will not bar him from the liability.

The general assembly of the shareholders shall specify who should take the legal proceedings, if any, on behalf of the company versus the chairman and directors. In case the company is in liquidation, the liquidator shall assume the powers of the shareholders and initiate the legal proceedings on behalf of the company.

A shareholder, by himself may initiate such proceedings, but he should prove the occurrence of particular damage to him as a shareholder, and such a shareholder should take all necessary steps to notify the competent management of the company of his intention to initiate the legal proceedings.

Neither the chairman nor board members shall do or start any work/business that may cause any sort of competition to the company.

The conflict of interest rule shall be observed very carefully. This is to prevent occurrence of all instances of malpractices, opportunism and importation.

However, the general assembly of the shareholders may, in certain genuine circumstances, exempt a director from such limitation under certain conditions provided, however, that this exemption shall not hamper or affect the interests of the other shareholders.