ARTICLES & UPDATES

The claim that delisting listed companies is a workaround for the board due to the absence of legislation granting regulatory authorities the power to dismiss the board conflicts with the Authority’s right to dismissal under Paragraph (14) of Article 146 of Law No. 7 of 2010 concerning the establishment of the Capital Markets Authority and regulation of securities activities. This provision allows the Disciplinary Board to dismiss a member of the board of directors or a manager in a licensed company or a listed company if they fail to perform the responsibilities stipulated in the law, regulations, or the company’s Articles of Association, as a disciplinary penalty, in addition to other penalties mentioned in that article. This is separate from other relevant laws and legislation.

Given that delisting a company causes harm to shareholders, it also opens the door to dismissing the board and holding them accountable for the damages and losses resulting from non-compliance with regulatory instructions and rules.

The board of directors is the strategic mind of the company, responsible for setting policies and strategies that ensure the company’s success and achievement of its objectives. If the board fails to perform its duties, disregards regulatory instructions, and causes the company to be delisted or its shares’ trading to be suspended, it is accountable to the shareholders for any resulting damages. The chairman and members of the board are responsible to the company and its shareholders for any acts of fraud, abuse of authority, legal violations, breaches of the company’s contract, or managerial errors, as provided in Article 201 of the Companies Law. Such liability may be personal to individual board members or joint among all members, and both the company and shareholders have the right to file claims for damages arising from managerial errors.

In addition to claims for managerial errors, shareholders holding at least one-quarter of the company’s capital may request a general assembly meeting with the authority to dismiss the chairman, one or more board members, dissolve the board, and elect a new board.

The Court of Cassation has consistently held that a board of directors does not enjoy organizational or administrative immunity, and that membership is not an absolute privilege but a responsibility conditioned upon good governance, compliance with the law, and protection of the company’s and shareholders’ interests. In another ruling, the court stated that board members are personally and jointly liable for damages to the company or shareholders if such damages arise from managerial errors, legal violations, or breaches of the articles of association or the duty of care.

This principle establishes liability not only for positive acts but also for negligence, inaction, or failure to make timely decisions. This applies fully to situations where a company reaches suspension or delisting: failure to cooperate with regulatory authorities, refusal to correct violations, or obstruction of general assemblies constitutes a clear breach of the company’s interest and justifies intervention to dismiss the board to protect the company.

The principle of proportionality requires that sanctions be directed at the wrongdoer, not at others. Accordingly, dismissing a board responsible for violations that led to the company’s suspension is an appropriate sanction because it targets the source of the wrongdoing. In contrast, suspension or delisting affects the company and shareholders, which is contrary to justice and the purpose of regulation.

In conclusion, the board of directors is accountable and not immune from prosecution, and protecting shareholders is a legal obligation. The penalty should target the perpetrator of the violation, not the corporate entity. Therefore, dismissing the board of directors and appointing a competent one is the right that shareholders should pursue by activating Article 212 of the Companies Law, which grants them the right to dissolve and replace the board.

Furthermore, activating and implementing paragraph (14) of Article (146) of Law No. 7 of 2010 concerning the establishment of the Capital Markets Authority and the regulation of securities activities, by referring the matter to the Disciplinary Board with a request for dismissal.

This article was recently published in Arabic in Al-Jarida newspaper. You can view the original newspaper clipping here-https://www.aljarida.com/article/119884

Attorney / Abdulrazzaq Abdullah E-mail: azq@arazzaqlaw.com