Monday, August 15, 2011

Government Directors in a Joint Stock Company

Following the recent changes to the composition of the cabinet of Ministers in the Sultanate of Oman, a number of joint stock companies which are partially or fully owned by the government have been essentially paralysed, from the perspective of corporate action, by the lack of a functioning board; the existing government directors were removed without any new directors having been appointed.

It goes without saying that the board of directors plays a fundamental role in corporate governance. Where the joint stock company is partially or fully owned by the government, the government appoints directors to represent the government’s interests, objectives and goals on the board. Such joint stock companies specify in their articles of association the number of directors who represent the interests of the Sultanate of Oman or any of its administrative units that own shares in the company.

The procedure for appointing a government director is both simple and straightforward. Article 132 of the Commercial Companies Law requires that the appointment of government directors is a decision taken by the Council of Ministers pursuant to the nomination of the Ministry of Finance and the relevant minister.

Furthermore, the law specifies that government directors cannot be removed from their offices except by approval of the Council of Ministers. This clearly indicates that the government is the only party which is able to appoint or remove its directors, without any constraints. The appointment and removal of directors is effective once the ministerial decision from the minister supervising the Ministry of Finance is issued. Upon issuance of this decision, the company then can appoint or remove the director by submitting the ministerial decision to the commercial registry in the Ministry of Commerce and Industry along with the revised list of authorised signatories and other relevant documents.

As a final point, we note that the government directors’ powers are similar to the powers of any other directors. However, the law points out that acts performed by government directors shall not subject the government directors, the Sultanate of Oman or the public entity to liability under Omani company law.