The entrenchment of absolute power in the statutory managers of UAE LLC companies entrenches. All over the world, corporate governance is highly concerned with limiting managerial entrenchment and ensuring that management acts to benefit the firm’s shareholders. When management power is absolute and extremely difficult to take back, the Company is run by a dictator – not a manager and not the shareholders.
In UAE law, corporate entrenchment is a deeply ingrained feature of UAE companies with roots dating back 5 decades. Moreover, it met the cultural, social, and economic needs of the country and the UAE’s national shareholders, many of whom believed that an expat, educated, and experienced manager could better run the company than they could.
Maybe it was even true 30 or 40 years ago. To vest full managerial power in experienced, hard-working expats served the interests of commerce. Shareholders provided the capital, and the manager managed the company. In order for any manager (of a company or country) to do a good job, their governance must be stable and not prone to being easily dismissed. The difficulty in removing managers in UAE laws was somewhat offset by the chaos that would ensue if management was changed based on shareholders’ whims.
Firstly, the Emirati shareholder is more knowledgeable, but he also wants to, and he is capable of managing the company just as well as anyone else. Two, the expats who have invested sweat equity and promised not to question the passive shareholders’ right to profit from an investment that was made decades ago are neither silent nor satisfied with the arrangement.
The law is both socially and economically outdated.
When statutory managers are appointed under the Articles of Association, removing their service contract will require an amendment to the articles of association – which means super majority voting, if not unanimous, and lots of hindrances.
Three factors solidify the manager’s dictatorship:
This state of the law is unacceptable for two reasons:
When a Company abandons shareholders, doesn’t report profits, or doesn’t earn profit, the author witnessed the following destructions:
To the banks, they had given personal guarantees. The manager, however, refuses to repay his debt, so the shareholders have two options:
Some shareholders wish to sell their shares, but how are they to do this? There is no way to purchase and sell these items on the open market, so a private buyer will assume the warranty from the seller. The buyer’s due diligence and eventual disclosure of the company’s state will only expose the shareholder to a legal action for fraudulent sale
1. The shareholders are ready to give up on the business and take a loss. They want the company to be liquidated. However, the manager refuses to allow this to happen because:
Because the cure is an expensive legal battle, prevention is the best solution. My general recommendation is:
While shareholders may have limited liability, a poorly run company becomes a liability to them.
Should his actions shift from self-serving to illegal, seek the assistance of a criminal lawyer in the manager’s home country and have him extradited.