LIABILITY OF DIRECTORS IN COMPANIES

Dr. AbdelGadir Warsama Ghalib

One of the main duties of the Ordinary General Assembly of the shareholders in a joint–stock company is to issue a very important decision (rule) to absolve members of the Board of Directors of the company from legal responsibility in relation to what they have done during that year.  This decision is normally issued, as part and parcel of the other decisions to be issued during the Ordinary General Assembly Meeting of the company.

This decision, we say, is a very important decision (rule) because it absolves all members of the Board of Directors of the company from all legal liabilities whatsoever. In fact the decision works as a Certificate of Good Conduct and Excellent Behavior issued by the owners of the company (shareholders) to the Board of Directors. However such a decision shall not give members of the Board of Directors full freedom and complete immunity in cases of gross negligence or criminal offences.

In relation to this decision, we have to distinguish at this juncture, between the civil liability of the members of the Board of Directors and likewise their criminal responsibility.

In relation to the civil liability, the decision absolves members of the Board of Directors from the responsibility in relation to all acts exercised during their work, except acts of gross negligence.

This means, legally speaking, this decision gives partial release and not full and complete release. Tort-feasors shall not rejoice and assume that they are not questionable for their tortuous wrongdoing and malpractice. I think this is very fair for the company and at the same time to members of the Board.

In connection to what we are saying here regarding the responsibility of  the members of the Board, an interesting question arises, that is to say for how long this responsibility follows and chases (the wrongdoing ) members of the Board of Directors ?

In other words can a shareholder or the company or a third party lodge a claim of negligence versus any member or all members of the Board of Directors after, say, five or six years ?

We need to mention that, the civil right to sue in cases of gross negligence is time- barred after one year from the date of the decision absolving members of the Board from legal liability.

This gives a privilege to members of the Board of Directors from being constantly under the dreadful impression that they can be sued at any time during their life. Nobody would like to be under such an impression, and I believe this is why the Legislature closes the civil right liability after one year from the date of that decision.

However, this is not the end of the matter. There are other points to be closely considered.

The one year limitation principle applies only if the shareholders issued the decision in a clear-cut way absolving members of the Board from the liability. In case there is no such decision, for any reason whatsoever, the limitation period shall be extended for a longer period of five years. As we can see, this indeed constitutes a big difference.

Now let us turn to the criminal responsibility of the members of the Board. We say this, as basically, the “absolving” decision cannot and shall not be taken as absolving the members of the Board from the criminal responsibility, if any. Having stated this basic rule, now, this question arises. Are they (the criminal responsibilities) time-barred also like the civil rights?

In brief, the answer is, No. This is because the criminal responsibility is a matter of public interest, whereas the civil right is a matter of personal interest. I have to stress here that, this is not the only reason or difference between the criminal responsibility and the civil right; however, discussing this issue in details will take me out of the issue under discussion. Therefore, due to the public interest and other reasons, the concept of time limitation is not applicable in criminal cases.

Any member of the Board of Directors could be prosecuted by any aggrieved person or the company or a third party, at any time, for any offence(s) committed by him during his membership tenure regarding criminal offences related to his membership. Offences to be committed by members of the Board of Directors, of course, are unlimited and uncountable. However, the most common offences in relation to membership could be criminal breach of trust, criminal  fraud, criminal negligence, counterfeit, forgery, false information.. etc.

According to the Law, criminal offences against members of the Board of Directors are not barred unless the “ Public Proceedings” lapse or fall or becomes of no existence. This means, as long as, the public proceedings are maintained, the criminal responsibility continues endlessly.

It would be interesting to mention that, in English Law, one of the ways and means of waving or ending the criminal responsibility could be through the process of what is called (The Nolle Prosequi) principle. This point has been raised in certain instances with reference to Board members representing the Government in Public companies.

Legally speaking and according to this rule, The Prosecutor General \ The Attorney General, could ask the concerned Court to stop any or all criminal proceedings against any person on the basis of public interest.

The law gives this unquestionable authority to The Prosecutor General \ The Attorney General who should exercise such authority only when public interest demands. This discretion should not be used to cover-up mistakes of certain individuals and to give them a room or opportunity to escape the law.

There should be certain balance between public interests and private interests and public interests shall always prevail when applying this golden rule.

From above, we conclude that, civil and or criminal proceedings could be taken at certain instances against members of the Board of Directors. The Board of Directors need to be aware of this and to alert all its members from such consequences.

Additionally, there are some, administrative penalties or professional steps that could be taken against members of the Board of Directors in case there is breach of certain administrative or professional duties related to their membership.