CmaBoardReleases
Title: Awareness Press Release: The Shareholder’s Role in Holding the Shareholding Company’s Management Liable and Canceling the Listing on the Securities Exchange Does Not Mean the Company’s Termination
Kuwait, March 30, 2022 – Within the framework of the Capital Markets Authority’s (CMA) continuous endeavor to achieve its goals stipulated in Article (3) of Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its Amendments, which include enhancing public awareness in securities activities.
And based on the fact that the management of the shareholding company is entrusted to a board of directors, which consists of members assisted by a number of employees. Those in charge of this department are subject to the oversight of shareholders through the general assembly, as it is the first and most important measure to activate the rights of the shareholder through participation in the meetings of the general assembly.
Legal responsibility (civil, penal and disciplinary) arises in case of committing a misconduct or violation of the provisions of the relevant laws, regulations, the company’s contract, articles of association etc.- during their tenure at the company, especially if the shareholder is harmed by that. The reasons for the responsibility of the members of the board of directors are numerous, as this is not the place to count them.
It is possible to review the provisions that determine such responsibility, including what is considered an application of the general rules as in the provisions of the civil law that establish offence and contractual liability, the responsibility of the one who by his wrongful act causes harm to others. If the board or one of its members commits a wrongful act in the management of the company, such act may be a reason for comprehending the responsibility of the board or its member, so that the responsibility can be personal or joint among all members of the board of directors.
Accordingly, the shareholder in the company has the right to take measures that guarantee him his rights against the harm inflicted on him, if the responsibility of the members of the board of directors is comprehended through committing wrongful acts and violations in the management of the company.
Based on Article (201) of the Companies Law No. 1 of 2016 and its amendments, A shareholder may file a liability lawsuit against the chairman and its members if they commit fraud, misuse of power, for any violations of the law, regulation, and company contract, and any management errors, as it stipulates that the chairman and the members of the board of directors are responsible towards the company, its shareholders and any third party for any acts of fraud or misuse of power, for any violations of the law and the company contract and any management errors.
A lawsuit for liability may not be precluded by a resolution of discharge of the members of the board of directors by the general meeting. The members of the board of directors may not participate in the vote of the general meeting regarding the discharge of their responsibility for their management or in decisions that pertain to a special benefit for them or their spouses or relatives of the first degree or relating to any dispute between them and the company.
In addition to Article (220) that allows any shareholder to file a claim on the invalidity of any resolution of the board of directors, that aimed at harming the interests of the company. In addition, compensation can be requested when filing such claim, the article stipulated that each shareholder may file a claim on the invalidity of any resolution of the board of directors, ordinary general meeting or extraordinary general meeting that is in violation of the law or the company contract or if its aimed at harming the interests of the company. In addition, compensation can be requested when filing such claim. The invalidity claim shall be time-barred two months from the date of the resolution of the general meeting or the date on which the shareholder gained knowledge of the resolution of the board of directors.
Resolutions of the ordinary general meeting and extraordinary general meeting that prejudice the rights of minority shareholders, may be challenged before the court. The challenge can be made by shareholders holding at least fifteen per cent of the issued capital of the company and who have not agreed to such resolution. The lawsuit challenging such resolutions shall be time-barred two months from the date of the resolution of the general assembly. The court may uphold, modify or repeal the resolution or postpone the execution of the resolution until an appropriate settlement for the purchase of the shares of the dissenting parties is reached, provided that such shares shall not be purchased from the company's capital.
It should be noted that the general assembly of the company’s shareholders is the first supervisory body over the work of the board of directors and the executive management, as it appoints and elects the board of directors and entrusts it to carry out its duties towards their rights and has the right to hold them accountable. Thus, Article (211) of the Companies Law stipulates that subject to the provisions of the law and the company contract, the ordinary general meeting at its annual meeting shall be able to resolve on any matters falling under its competencies and in particular the following:
1. The board of directors' report on the company's activities and its financial position for the last financial year.
2. The auditor's report regarding the financial statements of the company.
3. Report on any violations noted by supervisory authorities and in respect of which the company were penalized.
4. The financial statements of the company.
5. Proposal of the board of directors on the distribution of profits.
6. Discharge of the members of the board of directors.
7. Election and removal of members of the board of directors and determination of their remunerations.
8. Appointment of the company's auditor and determination of his remuneration or authorization of the board of directors to determine the remuneration.
9. Appointment of the Sharia supervisory board for companies that operate in accordance with the provisions of Islamic Sharia and hearing the report of such board .
10. Report on the transactions that have been or will be carried out with related parties, and identification of the relevant parties in accordance with international accounting principles.
Moreover, Article (212) of above-mentioned law stipulated that the ordinary general assembly of the company may by resolution remove the chairman or any one or more members of the board of directors or dissolve of the board of directors and elect a new board of directors on the basis of a proposal made by shareholders owning at least one quarter of the company's issued share capital.
If a resolution is issued to dissolve the board of directors, and the election of a new board of director fails at the same general assembly meeting, the general assembly may choose to either order the current board of directors to continue to manage the company's affairs until the election of the new board or appoint a temporary administrative committee, whose main objective is to invite the general assembly to elect the new board, within one month of its appointment.
- The case is similar where the criminal responsibility of the members of the board of directors is established as stipulated by Article (304) of the Companies Law, which stipulates that without prejudice to a more severe penalty provided for in any other law, any of the following shall be punished with imprisonment for a term not exceeding one year and a fine of not less than five thousand Dinars and not exceeding ten thousand Dinars or either of these two penalties:
1. Any member of the board of directors or manager who deliberately or fraudulently commits acts that would prevent one of the partners or shareholders from participation in the general assembly meeting or the partners' meeting.
2. Any member of the board of directors or manager who deliberately and without reasonable excuse, after one month from being officially warned, refrains from holding a general assembly meeting or partners' meeting that is required by law.
3. Anyone who prevents the auditor, a member of the supervisory board, judicial receiver, liquidator or any person entrusted with the task of inspecting the company, from accessing the company's books and documents, and anyone who refrains from providing information, documents and clarifications requested by them.
4. Any member of the board of directors, manager or liquidator who in such capacity exploited with mala fide intent the company's assets or shares to gain directly or indirectly a personal benefit for himself or for a third party.
The court in the crimes stipulated in this article and the preceding article may dismiss the board member or the manager of the company.
Article (296) of the same law stipulates that the Ministry shall investigate any complaint made by any party with an interest regarding the implementation of the provisions of this law according to the next article.
Additionally, Article (297) of the same law stipulates that if the Ministry becomes aware of violations of the provisions of this law or the company contract or that the managers or the incorporators of the company have acted in a manner detrimental to the interests of the company, the partners or shareholders or that affects the national economy, it must call an ordinary general meeting or a partners' meeting to remedy such violations within fifteen days from the date of the meeting. It shall further notify the competent investigative authorities.
The executive bylaws shall set out the procedures for bringing forth complaints by concerned parties and the manner of their investigation by the Ministry.
Article (137) of the Executive Bylaws of the Companies Law stipulates that a register called the Complaints Register shall be established at the Ministry, in which complaints submitted by stakeholders are documented. Any stakeholder may submit a complaint to the Ministry, with documents indicating the validity of the facts contained therein. The ministry addresses the relevant authorities it sees fit to reach the facts of the complaint and prepare a report on this regard.
The Ministry shall notify the company complained against and the competent regulatory authorities with a copy of the complaint and its attachments, provided that the company responds within the period specified by the Ministry.
In the event that the complaint is related to a professional company, the Ministry may seek the opinion of the legally competent authority to supervise the organization of the profession’s affairs.
If the Ministry finds that there are violations of the provisions of the law or the company’s contract, or its management or its founders have acted in ways that harm the interests of the company, partners or shareholders, or affect the national economy, the Ministry shall invite the Ordinary General Assembly or the partners’ meeting - as the case may be - to convene to correct these violations within fifteen days from the date of holding the meeting and notifying the supervisory authorities and the relevant investigation authorities.
Article (298) of the aforementioned law stipulates that the shareholders or partners who hold at least five per cent of the capital of a company can request the Ministry to appoint an auditor to conduct an inspection of the company in respect of violations they attribute to the manager, members of the board of directors, the auditor or the chief executive officer of the company in the performance of their duties, if grounds exist to justify such a request and after paying the fee prescribed by the executive bylaws. The applicant shall pay the costs of the auditor.
In the event the company fails to provide the auditor appointed by the Ministry with the required data, the persons mentioned in the previous paragraph shall have the right to resort to the courts to oblige the company to provide the auditor with the required documents according to the rules provided in the law of evidence obliging an adverse party to deliver a document in its possession.
Article (138) of the Executive Bylaws of the Companies Law stipulates that any of the shareholders or partners who own at least five percent of the company’s capital to appoint an auditor to conduct an inspection on the company, must submit a request to the Ministry stating the justifications for this request and the facts they attribute to the director, members of the board of directors, the auditor, or the CEO of the company and the violations they committed in performing their duties. The request shall be accompanied by indication of payment of a fee of two hundred Dinars that is non-refundable and a written undertaking to pay the costs of the auditor who will be appointed for this purpose.
The competent department shall examine the request and if it deems it acceptable, it shall appoint an auditor to conduct the inspection of the company and notify him to carry out the task, with the notification of the applicant and the company and notifying it to provide the appointed auditor with the required data.
In the event the Ministry rejects the application, the applicant shall be notified of the rejection by registered letter or by hand, indicating the reasons for rejection.
If it was found from the inspection that the facts mentioned in the application are incorrect, the results of the report are published - at the request of the defendant - in two daily newspapers and on the company's website, if any, at the applicant's expense.
If, however, it appears from the report that there are violations, the competent department shall take the measures stipulated in the law and these Bylaws.
Article (299) of the same law stipulates if the Ministry or any of the supervisory authorities become aware through the inspection that the violations attributed to the members of the board of directors, the auditor, the manager or the chief executive officer are incorrect, it shall, based upon the request of the concerned party and at the expense of the person requesting the inspection publish the conclusions of the inspection report in two daily newspapers and the website of the company, without prejudice to their liability for compensation where applicable.
Article (300) stipulates that if the Ministry rejects the request of the shareholders or partners to carry out the inspection of the company referred to in Article (298) of this Law, those whose request has been rejected may petition the President of the Court of First Instance to order that the inspection is undertaken and to delegate an expert to carry out this task and determine his fees. Those who request the inspection or are proven to be liable for the violations indicated in the request shall bear responsibility for these fees.
Similarly, Law No. 7 of 2010 Regarding the Establishment of the Capital Markets Authority and Regulating Securities Activities and its Amendments, included the procedures to protect the rights of the shareholder, through the provisions of the law, in particular Chapter Nine (Acquisition and Protection of Minority Rights) of the guaranteed right to object to resolutions of the General Assembly of Article (73) as follows:
“The Authority shall include in the Executive Bylaws the rules that regulate the operations of a Persons’ ownership of a percentage not less than 5% and not more than 30% of the shares of any Listed Company in the Securities Exchange. Any shareholders referred to in the previous paragraph may challenge the decisions of the General Assembly, if such decisions harm the interests of the minority. They may also appeal to the Board of Commissioners within fifteen days from the date of issuing the challenged decision or knowledge whereof, which is further. The Authority may revoke the decision of the General Assembly if proved harmful; and each party of interest may file an appeal against the decision of the Authority before the Competent Court as per this Law and its Executive Bylaws. If the Authority does not reply to the appeal of the challenged decision within twenty days, it shall be considered as rejected.”
As well as the provisions of Module Three (Enforcement of the Law) of the Executive Bylaws, which granted the concerned parties (including the shareholder) to submit to the CMA a (complaint - report ... etc.) about misconducts and violations committed by the company's management (Board of Directors - Executive Management ) The CMA, in turn, will undertake all necessary actions in this regard.
It is worth noting that the Executive Bylaws also included important rules and obligations appointed to the board of directors that shall be followed while taking over the management of the company, as in Module Fifteen (Corporate Governance), in addition to providing for the implementation of the responsibilities of the board of directors in some positions, for example Article (2-4-2) of Module Twelve (Listing Rules), which explicitly decided to take disciplinary action in the event of their breach of the obligation contained therein. Article (4-14) of the Module Six (Policies & Procedures of Licensed Persons), which holds the board of directors responsible for approving the internal policies and procedures for managing the licensed person's risks. And Article (17) of the “Application Form for the Memorandum of Association of a Special Purpose Vehicle Company” as in Appendix No. 20 of Module Eleven (Dealing in Securities), which granted shareholders in special purpose companies the ability to issue a decision to replace the board of directors with another at any time.
Finally, the decisions of the CMA’s Disciplinary Board are successively based on the penalizing one or more chairman, member or more of the company’s board of directors or its chief executive, in addition to the penalty issued against the company in its corporate entity.
It should be noted that cancelling the listing of the company from the Securities Exchange or Delisting does not mean the termination of the Company, but rather it becomes an unlisted company, where the shareholder may sell his shares through the Securities Exchange through the OTC system, and the company may make corrections or restructure the company in order to be listed again in the Securities Exchange, this means that cancelling the listing from the Securities Exchange does not result in the loss of the shareholder’s share in the company’s capital, but rather his share remains in the company’s capital, as it is an unlisted company.
In conclusion, the CMA confirms that it will continue its awareness- raising role in protecting public investors, which will increase public awareness to create a sound investment environment in the State of Kuwait based on the application of the law in accordance with the principles of justice, transparency and integrity to keep pace with international best practices.
Ends-
Notes to Editors:
The Capital Markets Authority was established pursuant to Law No. 7/2010, approved by the Kuwaiti Parliament in February 2010. Pursuant to the Law, the CMA shall regulate and supervise the securities activities, achieve transparency and fairness, observe listed companies’ execution of Corporate Governance regulations, and protect investors from unfair practices which violate the CMA's Law.
Furthermore, the Law's provisions stipulate the supervision of mergers, acquisitions, and disclosure operations. The CMA also aims to provide awareness programs related to securities activities.
For further information, please contact:
Public Relations & Media Office
Tel: 22903062
Fax: 22903505
Email: pr-media@cma.gov.kw