United Arab Emirates: A Manager's Removal From The Limited Liability Company

Occasionally, shareholders in Limited Liability Companies resolve to terminate a manager previously appointed according to the company's Memorandum of Association and decide to appoint a new manager through a shareholder's resolution in a General Assembly Meeting.

THE POWERS OF THE NEW APPOINTED MANAGER

The powers of the newly appointed manager are determined either by referring to the same powers mentioned in the company's Memorandum of Association previously held by the dismissed manager or by mentioning new powers of the appointed Manager in the Shareholders Resolution. The shareholders follow the necessary process to notarize the Resolution before the Notary Public. They then execute it at the Department of Economic Development for the mainland companies or the free zone authorities for the free zone companies by updating the Commercial License of the company, which involves removing the name of the dismissed Manager and adding the name of the newly appointed Manager. At this point, the shareholders may be satisfied that the company's Memorandum of Association that includes the name of the previous Manager is not amended.

IT IS PREFERRED TO ADD THE NAME OF THE NEW APPOINTED MANAGER AND AUTHORITIES TO AN AMENDED MEMORANDUM OF ASSOCIATION

 Suppose the new Manager is appointed through a resolution of shareholders, and the memorandum of association is not updated; in such case, some banks in the UAE might refuse to allow the newly appointed manager to carry out financial transactions on behalf of the company. The newly appointed manager will not be allowed to represent the company even though the appointed Manager holds a commercial license that includes his name as a manager and a duly attested shareholders resolution that contains his name and powers, which include representing the company in financial transactions before the commercial banks.

Local and or international banks in the United Arab Emirates refuse to deal with the appointed manager according to the shareholders' resolution and require his name to be included in the company's Memorandum of Association through an Amended Memorandum of Association or an addendum to the Memorandum of Association to allow him to represent the company and carry out financial transactions on behalf of the company. Therefore, this disposition of commercial banks to refuse the representation by a manager appointed through a shareholder's resolution obliges the shareholders to update the company's Memorandum of Association to reflect the shareholders' resolution.

PERCENTAGE OF SHARES REQUIRED TO REMOVE AND APPOINT A NEW MANAGER

In accordance with the provisions of the UAE Commercial Companies Law, the shareholders' absolute consent – 100% – is required in a single case only to amend the Memorandum of Association of the Limited Liability Company, which is the case of the amendment that results in increasing the obligations of the shareholders.

Accordingly, the law has permitted the amendment of the clause related to the company's management. This includes the removal and appointment of managers with the same majority required to amend the company's Memorandum of Association, which is 75% of the shareholders present at the General Assembly Meeting, as long as the legal quorum required by law to hold the meeting is complete. This quorum is 75% of the shareholders present in the first meeting and 51% at the second meeting, and any percentage in the third meeting, taking into account the terms and the notification of invitations to meet by sending the same to the shareholders under the law.

THE PRACTICE IS COMPLETELY DIFFERENT REGARDING THE REQUIRED PERCENTAGE OF SHAREHOLDERS FOR APPOINTING AND REMOVING A MANAGER

Although the UAE companies' law is clear, and several judgments of the Dubai Court of Cassation have confirmed the possibility of removing and appointing managers with the same majority required to amend the company's Memorandum of Association, i.e. 75% of the shareholders present at the full quorum of the general meeting, the Notary Public in the United Arab Emirates may refuse to attest to the resolutions of the shareholders or minutes of the General Assembly Meetings, whatever their content, including resolutions to remove and appoint managers if less than 100% of the shareholders in the company sign before the notary.

The Notary Public in the United Arab Emirates or the competent authority to attest to the shareholders resolutions or amendments of the company's Memorandum of Association, requires the presence of and the signing by all shareholders of the company and does not attest to any shareholders resolutions, minutes of general meetings or amendments of a Memorandum of Association in the event of the absence of one of the shareholder, no matter how small the share percentages of the absent shareholders in the company.

HOW TO SOLVE SUCH AN ISSUE

 The only way for the shareholders to attest and execute a shareholder's resolution that has a legally defined quorum but lacks the consensus of 100% of the shareholders is to recourse to the competent court and file a case to obtain a judgment of the validity and enforcement of the resolution on the bases it fulfills the enforcement requirements. This means delaying the implementation of resolutions and imposing financial burdens on the shareholders.

Originally Published 07 August 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.