Monday, August 13, 2018

The Liability of Managers in Limited Liability Companies in Oman

1. The general overview 

The starting point for ascertaining the general powers and obligations of a manager in a limited liability company (“LLC”) is to look at the provisions of the constitutive documents of the company.
There are, however, express provisions under Omani law that impose penalties and liabilities on managers and authorised signatories of LLCs in certain circumstances.

2. Liabilities of managers under the Commercial Companies Law No. 4 of 1974 and its amendments (“CCL”)

In case of managers of an LLC, the CCL imposes penalties and liabilities where managers have failed to discharge their statutory obligations, where obligations have been discharged negligently, or powers have been misused contrary to law.

Article 155 of the CCL provides that the managers of an LLC may be liable towards the company, the shareholders, and other parties should they act outside the scope of the authority conferred upon them.  Specifically, the managers of an LLC may be held liable to the company and third parties (a) for damages resulting from their acts in contravention of the law; (b) for their acts which exceed the limits of their authority; (c) for any fraud or negligence committed by them in the performance of their duties; and (d) for failing to act prudently in the given circumstances.

If liability attaches to more than one manager, pursuant to Article 155 of the CCL, the Primary Court of Oman shall be entitled to make any of the managers liable for all or part of the damage as the Court may deem fit and proper in view of the circumstances of the case.  Such manager may be held personally liable for damages arising from any of the offences referred to above.
If any of the managers commits any of the offences referred to in Article 155, then either the shareholders or the affected third party may have a claim against the manager.  Such third party or the shareholders may have the right to sue the manager, as opposed to the shareholder who may have nominated such manager, as the manager’s liability under Article 155 is personal and may not be attributed to the shareholders who have recommended or appointed such manager.

As is clear from the relevant law set out above, any manager registered as such with the Ministry of Commerce and Industry is obliged to act, at all times, within the scope of his authority.  Therefore, the authorised signatories/managers of the Company will only be personally liable (and such liability will be civil and/or criminal) for actions or debts incurred where they have acted in contravention of the law, outside of their authority, committed fraud or negligence, or failed to act prudently in the given circumstances.

3. Liabilities of managers under Sultani Decree No. 55 of 1999 promulgating the Commercial Law (the “Commercial Law”)

Article 695 of the Commercial Law provides that where it is evident, after the company is declared bankrupt, that it has insufficient assets to pay at least 20% of its debts, the Omani Courts may, at the request of the trustee in bankruptcy, order all managers of the company, or some of them jointly or severally, to pay all or some of the debts of the company save where it is established that they have exercised the necessary care in organising the affairs of the company.
Managers of the company may be held liable criminally for any misrepresentation made by them in the preparation of the company’s accounts or towards third parties who are expected to place reliance upon their representations.

4. Liabilities of employees under Sultani Decree No. 7 of 1974 promulgating the Penal Code (the “Penal Code”) 

Article 155 of the Penal Code provides that any employee (including a manager) who receives a bribe, for himself or for others, be it money, gift, promise or any other benefit, in order to perform, stop or delay a task originating from his job responsibilities shall be sentenced to imprisonment from three months to three years, a fine, at least equal to what has been given or promised to be given to him, and dismissal from work.  Similarly, if the manager or a senior employee accepts or demands a bribe for performing a task contrary to the duties of the job, he shall be sentenced to imprisonment for up to ten years and a fine equal, at least, to the amount of the bribe and dismissal from work.
Article 160 of the Penal Code also provides that, if an employee misuses his job by merely benefiting or harming others, or refuses to carry out his job duties in pursuing a person who has committed a crime, the investigation of which or arresting the actor of which lies within the limits of his responsibilities, the employee shall be sentenced to imprisonment of three months to three years and to a fine of OMR 20 to OMR 100.
Article 162 of the Penal Code further provides that any employee who intentionally neglects to perform the duties of his job shall be fined from OMR 5 to OMR 100.  If the negligence results in harming the interests of the State, the actor shall be jailed from one month to one year.

5. Liabilities of managers under Sultani Decree No. 28 of 2009 promulgating the Income Tax Law and its amendments (the “Income Tax Law”)

Under the Income Tax Law, managers of LLCs may face certain penalties, fines and/or imprisonment if they fail to discharge compliance or reporting obligations.  Managers may face such punishments in various cases, including failure to submit information requested by the relevant authority such as returns, financial statements, statements of income and any other documents requested.  Other instances where penalties may be imposed include failure to answer questions and attend meetings in relation to the tax returns of the company, interference with the authorities’ work and failure to obtain the relevant tax files needed for the company.
The relevant provisions for the penalties mentioned above are stated in Articles 179 to 185 of the Income Tax Law, and include heavy fines of up to OMR 50,000 and jail sentences that could reach up to three years.  Generally, the tax authority endeavours to provide adequate notice to companies to comply with such regulations.  However, the Law allows them to levy heavy penalties in case of non-compliance.

6. Other liability provisions

In the event that a judgment has been enforced against a company, the enforcing party may pursue all measures available to it under the law.  This includes travel ban and arrest warrants against certain individuals, primarily the authorised signatories and managers of the company.
Criminal actions in this jurisdiction can be brought only against individuals and not against companies.  Therefore, any detention penalties arising (e.g., from the Consumer Protection Law or certain provisions under the Omani Labour Law) can only be imposed on the authorised signatories and managers of the company.  This, however, may vary on a case-by-case basis.