UNITED ARAB EMIRATES Law and Practice Contributed by: Stuart Paterson, Janine Mallis and Tania Forichon, Herbert Smith Freehills
shareholders. The company’s liabilities, wheth - er arising in contract, tort or otherwise, are the company’s liabilities and not the personal liabili - ties of any shareholder or officer of the company. Following common law generally and English law precedents, there are limited circumstances where the liability can be attributed to a share - holder by piercing the veil. This requires clear evidence of fraud, dishonesty or evasiveness in relation to existing liabilities through the misuse/ abuse of corporate structures. Under the ADGM’s legal framework, English common law directly applies, subject to the effect of any contrary provision of an ADGM enactment or “Applicable Abu Dhabi Law” (which would exclude UAE federal civil and com - mercial laws or any other laws of the Emirate of Abu Dhabi). To date, no authority from the ADGM courts or ADGM enactment has directly addressed the circumstances under which the corporate veil can be pierced. 3.3 Shareholders’ Claims Against Fraudulent Directors Onshore UAE Managers of a company have a statutory duty of care (CCL Article 22). Where a manager acts fraudulently or fails to act within the statutory duty of care (eg, by dissipating assets to evade creditor claims), the company’s sharehold - ers may bring claims against the fraudulent director(s). Article 84 of the CCL provides that every man - ager in a limited liability company (LLC) is liable to the company, the shareholders and third par - ties for any fraudulent acts by such manager and will also be liable for any losses or expenses incurred due to:
• improper use of the power or the contraven - tion of the provisions of any applicable law; • the memorandum of association of the com - pany; • the contract appointing the manager; or • any gross error by the manager. Similarly, the board of directors will be liable towards the company, the shareholders and third parties for all acts of: • fraud; • misuse of power; • violation of the law or the articles of associa - tion of the company; or • an error in management. Article 166 of the CCL states that shareholders may individually pursue a liability claim against the company’s board of directors if they have suffered harm as a result of any act carried out by any of them in violation of the provisions of the CCL. Under the Civil Code, directors may only act within their authority and will be personally liable In the DIFC, a director is considered a fiduciary. A person is the fiduciary of another if they have undertaken (whether or not under contract) to act for or on behalf of another in circumstances which give rise to a relationship of trust and con - fidence. Where a fiduciary breaches their obligation of loyalty, they are liable to: • pay damages to their principal in respect of any loss suffered by the principal in accord - for exceeding it. DIFC and ADGM
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