SAUDI ARABIA Law and Practice Contributed by: Saud AlRomi, Mostafa Ihab and Saleh Elbadry, Mohammed AlDhabaan & Partners Eversheds Sutherland
3.3 Shareholders’ Claims Against Fraudulent Directors Company Action Under Article 29 (1) of the Companies Law, the com - pany may bring a derivative action against its manag - ers or board members for any damage resulting from a violation of the law, the company’s constitutional documents or a wrongful act, negligence or omission in the performance of their duties. The decision to bring such action is made by the partners, general assembly or shareholders, as the case may be. Minority Shareholder Action Where the company fails to act, Article 29 (2) of the Companies Law allows partners or shareholders rep - resenting at least 5% of the capital – or a lower thresh - old if provided in the constitutional documents – to bring a derivative action on behalf of the company. Under Article 30 (1) of the Companies Law, a prior shareholder resolution relieving managers from liability does not bar the action. Personal Claims Under Article 29 (4) of the Companies Law, a partner or shareholder may also bring a personal action against managers or board members where the wrongful act causes damage personally to them rather than to the company as a whole. Limitation Period Derivative actions generally lapse five years from the end of the fiscal year in which the act occurred, or three years from the end of the manager’s term, whichever is later. Crucially, this limitation period does not apply to cases of forgery and fraud under Article 30 (2) of the Companies Law. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims Civil Jurisdiction Joining an overseas party to Saudi civil proceedings requires first establishing a jurisdictional basis. Saudi courts have jurisdiction over cases filed against Saudi citizens regardless of their place of residence under Article 24 of the Civil Procedure Law, and against non- Saudis resident in the Kingdom under Article 25 of
offence faces a fine of up to SAR50 million and may be prohibited from certain activities, closed down or liq - uidated. Under Article 23 of the Forgery Penal Code, a private entity whose manager or employee commits forgery offences in its favour and with its knowledge faces a fine of up to SAR10 million and a ban on con - tracting with public entities for two to five years. Under Article 19 of the Anti-Bribery Law, a company faces fines and a government contracting ban where a man - ager or employee commits bribery for its benefit. In all cases, the criminal liability of the company does not exclude the personal criminal liability of the individuals who acted on its behalf. 3.2 Claims Against Ultimate Beneficial Owners Saudi company law establishes clear separation between a company and its partners or sharehold - ers, who are not liable for company debts beyond their capital contributions under the Companies Law. Where a person standing behind the company acts as a manager or board member, Article 28 of the Com - panies Law exposes them to personal liability directly. Where such a person has directed, incited or assisted in the commission of fraud through the company, Arti - cle 3 of the Anti-Financial Fraud Law extends criminal liability to them. Where the company has been used as a vehicle for money laundering, Article 3 of the Anti-Money Laun - dering Law provides that the criminal liability of the legal person does not exclude the personal crimi - nal liability of those who participated in the money laundering – including owners, board members and employees. On the enforcement side, Article 46 of the Enforce - ment Law empowers the enforcement judge to order disclosure of assets belonging to any person to whom circumstantial evidence suggests assets may have been transferred, providing a practical route to reach assets placed in structures designed to conceal the identity of those who stand behind the company.
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