The Code of Corporate Governance
The Code of Corporate Governance (the “Code”) issued by the Capital Markets Authority and the Commercial Companies Law of Oman (promulgated by RD 4/74, as amended, “Company Law”) outlines the responsibilities of ‘Directors’ in Omani Companies and the liabilities which extend to them in this position. The Company Law applies to all joint stock companies and the Code is mandatory but only applies to public companies listed on the Muscat Securities Market.
The Code stipulates the principles of corporate governance and details the requisite composition of the Board of Directors, and provides a definition of both an ‘Independent Director’ and a ‘Non-Executive Director’. Furthermore, the Code outlines the characteristics that a board must strive for in its Directors which includes: possessing a high ethical standard and intellect; showing potential to contribute to the stewardship of the company; and the ability to consult with employees to attain high standards of management, among other factors.
It goes further to outline core competencies that a Board of Directors must collectively possess. The board must: encourage innovation to enable the organisation to challenge its vision through strategic insight; provide expertise in financial accounting and corporate finance; and apply appropriate industry specific knowledge.
The details of Directors’ responsibilities are discussed extensively in Ministerial Decision 137/2002 (“Ministerial Decision”). It stresses that Directors will be jointly liable for acts which violate the provisions of the Company Law or, those that are to the detriment of the company or shareholders’ rights as a result of failing to assume their responsibilities listed in this Ministerial Decision.
Directors’ liabilities under the Company Law include:
- Directors can be held jointly, and severally responsible for any damages that arise from the non-registration of the company within one month of the Constitutive General Meeting.
- Any interested party may warn a company of the need to amend any fault that occurred within the procedures to establish a joint stock company within five years from a company’s establishment. Directors’ liability then arises if the company fails to take necessary action within one month of the warning; said interested party may then claim the dissolution of the company and the members of the first Board of Directors shall be held jointly and severally liable. These directors will be liable for the damages arising from the dissolution of the company which are attributable to their illegal acts and/or negligence and/or omission in establishing the company.
- Directors will be liable to the company, its shareholders and third parties for the damages caused by their violation of the law; and/or by acting beyond their powers; and/or for conducting fraud; and/or for negligence in performing their duties.
- Breach of the Company Law is considered to occur if:
- a Director participates in the management of a competitor company, except by approval in a general meeting; and/or
- a Director utilises the information accessible to him/her within their capacity as a Director to benefit themselves, their family, or relatives; and/or
- a Director has direct or indirect interest with anyone who intends to affect the prices of the company’s securities.
- If there is more than one Director liable under the preceding point, the provisions of the Company Law will apply and each Director can be held liable for all, or part of the damages, to be decided by the competent court.
- In addition to the liability that a Director in breach of the Company Law will owe to the company, they will also be penalised with a fine of ten to five hundred Rials Omani. This financial penalty also extends to Directors when managing a commercial company that has Auditors but the Director seriously interferes with the Auditor’s functions.
- Furthermore, if a Director is entrusted with the management of a company and he/she intentionally uses or includes false information in Company documents or omits any essential facts which conceal the true financial condition of the Company, they will be penalised with imprisonment from three days to three years and/or a fine of ten to five hundred Rials Omani.
Directors’ liabilities under the Law of Commerce
The Commercial Law (RD 55/90) creates a further liability on directors in the event of bankruptcy. After the company has been declared bankrupt by an Omani Court, if there are insufficient assets to discharge at least 20% of its debts, the Court then has the power, upon application of the administrator in bankruptcy to order some or all of the members of the Board of Directors to jointly or severally pay some or all of the debts of the company. They will be liable unless they can prove that they exercised the appropriate care while conducting business of the company.
Directors’ liabilities under the Penal Code
The Penal Code (Royal Decree 7/74) creates an additional liability for Directors under the provisions of the organisation of Clubs and Associations. If a prohibited body, one that is in defiance of the basic political, economic or social systems of the Sultanate is created within a company, the founders and directors shall be liable to imprisonment for three to ten years.