Tuesday, March 17, 2020

The Commercial Companies Law One Year Later

The Commercial Companies Law promulgated by Sultani Decree 18/2019 (“CCL) was published in February 2019 and came into force 60 days after publication.  Please refer to our previous articles on this topic:
The CCL provides that the Minister of Commerce and the Chairman of the CMA will issue executive regulations within a year of the CCL’s implementation in addition to any decisions required to enforce the provisions of the CCL.  Currently, the draft executive regulations appear to be at an advanced stage and due for timely publication. 
Companies must comply with the requirements of the CCL within one year of its implementation – which means the deadline of 18 April 2020 is approaching fast.
For the first time, annual general meetings of joint stock companies, which must take place before 31 March each year, will be held under the new regime.  Many joint stock companies will take the opportunity to organise an extraordinary general meeting (“EGM“) on the same day and at the same venue to reduce the administrative burden of convening two separate general meetings.
The EGM will approve the amendments to the articles of association (“AoA”) required to be made to comply with the CCL.  This may also be an opportunity for companies registered many years ago to undertake a full review of their constitutional documents and make further amendments to align them with best practice and corporate governance.
Please note that the CMA has issued model articles that listed joint stock companies are expected to adopt, subject to the inclusion of additional clauses.
Please find below a summary of the most relevant changes introduced by the CCL in respect of the organisation of general meetings:
  1. The new deadlines mandated by the CCL apply.  The invitation to attend a general meeting must be published 15 days prior to the date of the meeting and must include both the date of the first and the second meeting (to be held within seven days from the date of the first meeting).  If the quorum is not met at the first meeting, the second meeting shall be held as provided in the invitation.
  2. General meetings must be attended by the directors (but their absence will not affect the validity of the meeting).
  3. Members of the board may not attend general meetings on behalf of the shareholders.
  4. The company must constitute an auditing committee from among the members of the board and  appoint  a  legal  advisor  and  an  internal auditor.
  5. Minutes of the general meetings must be signed by the secretary, the chairman, the auditor and the legal advisor and lodged with the competent authority within seven days calculated from the date following the date of the meeting.  The deadline under the previous law was 15 days.
Of course, the sections of the AoA regulating general meetings will have to be revised to reflect the provisions above.  Further changes may or will relate to:
  1. The number of directors of the company:   as the CCL provides for an odd number of directors, companies which currently have an even number of directors will have to decide whether they wish to add or remove one seat on the board of directors (subject to compliance with the minimum and maximum number of directors allowed for each type of company).
  2. The inclusion of more stringent provisions in respect of related party transactions and conflicts of interest.
Where changes are required, failing to comply with the provisions of the CCL within the deadline may result in the company, its authorised managers and/or directors being exposed to sanctions.