UNITED ARAB EMIRATES Law and Practice Contributed by: Francesco Bulleri, Beshoy Mounir, Sultan Bahriddini and Noora Al Doseri, ADG Legal
sue liability claims against board members or remove them from office. In regulated sectors, regulators may also take enforce - ment action against directors, including imposing fines, suspensions or disqualification from acting as a director, particularly where the breach involves regu - latory non-compliance or misconduct. The consequences of a breach can be significant. Directors may be held personally liable to compen - sate the company (or, in certain cases, shareholders or third parties) for losses arising from their breach. They may also be subject to removal from office and, in serious cases, disqualification from acting as a direc - tor in the future. In addition, certain breaches (particularly those involv - ing fraud or misappropriation of assets) may give rise to criminal liability, including fines and, in some cases, imprisonment. Liability exposure may also increase in situations of insolvency, where directors can be held accountable for wrongful or negligent conduct that prejudices creditors. 3.9 Other Claims/Enforcement Against Directors/Officers In addition to core breaches of directors’ duties, a range of other bases for claims or enforcement may arise under UAE law, depending on the nature of the misconduct and the company’s legal form. From a civil liability perspective, directors and offic - ers may be exposed to claims for negligence, mis - management or breach of statutory obligations (for example, failure to maintain proper accounts, unlawful distributions, or acting beyond the scope of authority). There is also potential exposure under insolvency and bankruptcy laws, where directors may be held liable for conduct that contributes to the company’s finan - cial distress, including wrongful trading, dissipation of assets, or failure to take appropriate action once insolvency becomes apparent. In regulated sectors – particularly financial servic - es – directors and senior officers may face regula - tory enforcement for governance failures, including
breaches of licensing conditions, risk management obligations or internal control requirements. Regula - tors may impose administrative penalties, including fines, restrictions on functions, or disqualification. As regards limitation of liability, UAE law generally pro - hibits the exclusion or limitation of liability for directors in respect of fraud, gross negligence, or breaches of core fiduciary duties. Any provision in a company’s constitutional documents purporting to exempt a director from liability for such acts is likely to be unen - forceable. Notwithstanding the above, in practice, companies may adopt mechanisms to mitigate (but not eliminate) liability exposure. These include obtaining directors’ and officers’ (D&O) insurance, as well as providing contractual indemnities in favour of directors, subject to legal limitations. Such indemnities typically exclude wilful misconduct, fraud or other non-indemnifiable acts. 3.10 Payments to Directors/Officers The approval and regulation of remuneration for direc - tors and officers in the UAE depend on the company’s legal form and whether it is subject to regulatory over - sight, with more prescriptive requirements applying to public and regulated entities. In joint stock companies, directors’ remuneration is subject to shareholder approval at the general assem - bly. The board may propose remuneration (includ - ing fees, bonuses or other benefits), but this must be approved by shareholders, usually on an annual basis. Additional compensation for executive roles (eg, where a director also serves as CEO) may be structured separately. In LLCs, there is greater flexibility. Remuneration of managers is generally determined by shareholders’ resolutions or contractual arrangements. While there are no statutory caps, remuneration remains subject to general duties (including acting in the company’s best interests and avoiding conflicts of interest). Failure to comply with applicable approval require - ments may result in a range of consequences. These include the invalidity or unenforceability of the rele -
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