KUWAIT Law and Practice Contributed by: Michel Ghanem, Patrick Obeid and Michel Ata, Meysan
Kuwaitis with respect to the scope of their powers. For instance, a non-Kuwaiti national may not, inter alia, make donations, sell real estate, or borrow. While weighted voting rights are not a statutory fea - ture under Kuwaiti corporate law, contractual arrange - ments may provide for super-majority voting thresh - olds on key decisions. In practice, some joint ventures require a two-thirds board majority for strategic reso - lutions. This contractual structuring helps safeguard the interests of minority strategic investors while rein - forcing collective governance. 7.2 Duties and Functions of JV Boards and Directors Directors appointed to the board of a Kuwaiti joint- venture company owe fiduciary duties to the company itself, including duties of loyalty, care, and diligence, irrespective of the fact that they are typically nomi - nated by a specific shareholder. Under Kuwaiti law and prevailing practice, these duties require directors to act in the best interests of the company as a whole, even where this may diverge from the interests of the appointing shareholder. To address the practical challenge between share - holder nomination and fiduciary responsibility, joint- venture agreements often include detailed conflict-of- interest provisions. In one example, directors and committee members are expressly required to disclose any actual or poten - tial conflicts and to abstain from voting on matters in which they or their appointing shareholder have a conflicting interest. Where disagreement arises over whether a conflict exists, the matter may be esca - lated to the OGC or ultimately to the shareholders for resolution, often with the support of independent expert advice. The board is typically charged with setting the strate - gic direction of the company, overseeing senior man - agement, and monitoring performance, in accordance with the powers defined in the shareholders’ agree - ment and the accompanying authority matrix. Day-to-day operational oversight is often delegated to executive management, and in some structures,
an OGC is established to assist the board in reviewing business plans, financials, and operational execution. The OGC’s role may be advisory or decision-making, depending on the agreement and authority structure. Directors are also responsible for ensuring compliance with statutory reporting obligations under Kuwaiti law. These include the preparation and approval of annual financial statements, the convening of general assem - blies, and the submission of filings with the Ministry of Commerce and other relevant regulators. While the legal duties of directors are grounded in statute, joint-venture agreements often expand and clarify these obligations to suit the specific govern - ance and oversight needs of the parties. 7.3 Conflicts of Interest Conflicts of interest are a recognised risk in joint ven - tures, particularly where directors are aligned with, or employed by, one of the shareholders. To manage this, well-structured joint-venture agreements often estab - lish formal mechanisms for identifying and resolving conflicts, beyond mere abstention from voting. In one Kuwaiti joint venture, the agreement sets out a multi-layered process for dealing with potential con - flicts at both the board and committee levels. Where a director or committee member is believed to have a conflict, the matter is not left to the individual’s dis - cretion. Instead, a third-party determination process is trig - gered: if the existence of a conflict is disputed, the issue may be referred to a body within the joint-venture governance structure, such as the OGC, or ultimately escalated to the shareholders for a final decision. The agreement also allows for the appointment of an external expert to provide non-binding advice on whether a conflict exists, offering an objective check where internal consensus is lacking. This mechanism ensures that allegations of conflict do not paralyse decision-making or devolve into shareholder disputes. Notably, the shareholders retain the power to remove and replace their nominated directors without cause, which serves as an additional means of ensuring that
82 CHAMBERS.COM
Powered by FlippingBook