LEBANON Law and Practice Contributed by: Joseph Nasrallah, Jad Skaff and Yasmina Ballout, HNS Legal
8.3 Business Judgement Rule Lebanese law does not expressly recognise a “busi - ness judgment rule”, but courts adopt a similar approach. In takeover or merger situations, courts generally defer to the board’s commercial judgment and do not reassess the economic merits of the transaction, pro - vided the directors acted within their authority, com - plied with the law and the articles of association, and made an informed decision. Judicial intervention occurs only where the directors commit a legal violation or a management fault, such as fraud, conflict of interest, self-dealing, or a mani - festly unreasonable decision. Under Article 167 of the Code of Commerce, directors may incur personal lia - bility toward the company or third parties for breaches of law, breaches of the articles of association, or errors in management. As a result, Lebanese courts do not review whether the transaction was a good business decision, but whether the decision-making process was lawful and made in good faith. 8.4 Independent Outside Advice In Lebanese business combinations, independent out - side advice is primarily provided through the financial and expert reports required in the merger process. The statutory auditors of the merging companies prepare a unified report analysing the financial aspects of the operation, including the valuation of the companies, the proposed share-exchange ratio and the adequacy of the assets transferred. This report is made avail - able to shareholders before the extraordinary general meeting that decides on the transaction. In addition, the Code of Commerce requires the judge supervising the Commercial Register to appoint one or more supplementary financial experts to review the merger documentation and the auditors’ findings and to submit observations. The judicial appointment is intended to ensure neutrality and provide sharehold - ers with an independent technical assessment of the transaction.
Under Lebanese law, directors’ duties are owed pri - marily to the company itself rather than directly to indi - vidual shareholders or to broader stakeholders, such as employees or creditors. The system remains largely shareholder-oriented, as the corporate interest is gen - erally assessed by reference to the collective interest of shareholders. However, in assessing the corporate interest, directors may consider the transaction’s impact on employees, key contractual relationships and business continuity, particularly to support the company’s sustainability following completion. This is reflected in the merger regime, where proce - dural safeguards, including independent valuation and reporting requirements, are primarily intended to protect minority shareholders. Where one com - pany already holds all the shares of the other, certain reports may be waived and the procedure simplified. 8.2 Special or Ad Hoc Committees In Lebanon, boards of directors do not typically estab - lish special or ad hoc committees when a business combination is considered. The board usually acts as a whole, and the legal framework governing joint- stock companies does not organise merger decisions around independent committees in the way seen in some other jurisdictions. Although a board may form internal committees if per - mitted by the company’s articles of association, such committees are advisory in nature and do not replace the board’s collective responsibility. Conflicts of interest are addressed directly by stat - ute. If a director, senior executive or significant share - holder has a personal interest in the transaction, that interest must be disclosed and the interested person must abstain from the deliberations. His or her vote is disregarded, and the transaction must be reported to the auditors and submitted to the shareholders for approval. The safeguard therefore lies in transparency and shareholder oversight rather than in delegation to a special committee. As a result, even where conflicts exist, the creation of a special committee is not standard practice in Leba - nese M&A transactions.
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