For over two months now, businesses in Oman have continued to operate as well as they can despite the global lockdown. This article examines the corporate governance aspects that directors, managers and shareholders in Oman should bear in mind when managing businesses, while continuing to uphold the social distancing mandates set out by the Government.
On 1 April 2020, Oman was placed on lockdown with closed borders and restricted movement within the country. The authorities directed the entire population to "stay at home" and observe stringent social distancing measures to flatten the curve of the spread of the novel coronavirus (SARS-CoV-2). The lockdown will continue until at least 29 May 2020.
Responsibility of directors and managers
Pre- lockdown, companies have been used to making decisions by meetings in-person, whether these were held by the board of directors or shareholders' meetings of joint stock companies (JSCs) or managers or partners' meetings of limited liability companies (LLCs). Today in-person meetings are no longer feasible although the responsibilities of management under the companies law to make the right decisions in the best interests of the company remain the same. This also holds true to the resultant potential personal liability of directors and managers if inappropriate decisions are made - or indeed if resolutions are passed which prove to be invalid because they were not passed in accordance with the requirements of the companies law or other applicable laws or official directions.
Correct and effective corporate decision-making is perhaps even more important during a time-critical period such as this. At the very least such decisions are likely to involve strategies to deal with the COVID-19 crisis while continuing to operate and sustain the business; management of employees working from home, including potential job losses; management of cash flow; management of contractual situations dealing with legal issues such as force majeure and insurance claims (e.g. for business interruption). If the management of a company is adequately supported by robust corporate governance procedures, then it is more likely that the business will survive and management will avoid potential personal liability issues.
So how can meetings be held if not in-person?
While technology offers solutions such as conducting meetings by electronic means and in certain circumstances the law permits written resolutions (i.e., circulated for signature without need for a meeting), it is important to determine for each company which solutions are available and whether there are any limitations to be considered.
In this regard, the recent promulgation by Sultani Decree No. 18/2019 of the new Commercial Companies Law (New CCL) has come at an opportune time. In this article, we have considered the position of LLCs and JSCs (both public JSCs (Societe Anonyme Omanaise Generale or SAOGs) which are listed on the Muscat Securities Market and regulated by the Capital Market Authority, and closed JSCs (Societe Anonyme Omanaise Close or SAOCs) which are not so listed and regulated by the Ministry of Commerce & Industry (MOCI)).
- Partners/shareholders of LLCs may hold virtual meetings, and pass resolutions, by using audio-visual technology. A few, often the most important, resolutions still require an in-person partners'/shareholders' meeting - e.g. resolutions concerning the distribution of dividends and approval of the balance sheet, profit and loss statement and the reports of the managers and auditor.
- The minutes of a partners'/ shareholders' meeting (excluding the resolutions mentioned above) may also be signed by circulation, without the need for partners/shareholders to meet in-person in the same location.
- However, for resolutions passed at virtual meetings, or by way of minutes signed by circulation, to be valid, such virtual meetings or minutes signed by circulation, must be permitted by the LLC's constitutive contract or a subsequent agreement between the partners/shareholders registered with the Secretariat of the Commercial Registry at the MOCI.
- Accordingly, where the constitutive contract of an LLC does not allow for virtual partners'/shareholders' meetings and/or minutes signed by circulation, the partners/shareholders should consider amending the constitutive contract to allow for the same.
- As regards management decisions, LLCs do not have boards or directors as such with collective responsibility for passing resolutions, and the decision making process is based upon decisions made by individual managers, subject to any limitation on their authority to sign for the company as registered on the Commercial Register.
- For JSCs, there is flexibility at board level as regards the decision making process. Provided there is unanimous agreement between the board members/directors, virtual board meetings may be held, again using audio-visual technology. The company secretary must be able to identify the participants and record the discussions.
- Board resolutions may be adopted by way of minutes being circulated to the directors without an in-person meeting; however this is subject to rules specified in the implementing regulations of the New CCL which are expected to be issued before the end of June 2020.
- The New CCL does not include any provisions concerning virtual
shareholders' meetings for JSCs; however:
- for SAOGs, the Capital Market Authority has introduced arrangements through Circular No. E/8/2020, put in place in a short space of time, for their general meetings, including AGMs, to be held by way of virtual meetings. The regulations mandate the use of a platform created in a collaboration between Muscat Clearing & Depositary SAOC, a national telecommunications company and a blockchain services company; and
- for SAOCs, the MOCI has done likewise through the promulgation of Ministerial Decision no. 65/2020 regulating general meetings through use of modern technology. SAOCs are asked to coordinate with Muscat Clearing & Depositary SAOC in relation to the platform they have developed to conduct e-AGMs (as mentioned above).
Finally, in the context of "written" minutes or resolutions passed by way of circulation, since 2008 and the Electronic Transaction Law, it has been possible for such minutes/resolutions to be signed electronically.
Most decisions and resolutions made by companies and their management are not challenged. However if they are challenged and it is found that a decision or resolution is invalid, the consequences, especially for management, may be severe. It is therefore essential to ensure that your company's constitutive documentation is fit for purpose in these challenging times and that the appropriate steps are taken to ensure that decisions are made correctly and in good time.
Please contact the authors if you have any questions or if you would like our assistance in reviewing your corporate documentation or corporate governance strategy during these different and difficult times.
Article originally published on 27 May 2020
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.