Company manager
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Manager accountable for company’s losses?

Legal action needed to liquidate company after incurring losses

Question:

I am a partner in a limited liability company (LLC) and I own 20% of the capital. Currently, the company is exposed to losses, and the company’s manager does not recognise these losses, and asks the partners to increase the capital to save the company, but all the partners refuse to increase the capital. My question: What is the legal action that must be taken in order to liquidate the company? Can the manager be held accountable for the losses incurred by the company? Please advise

Answer:

To answer this question, I would advise the following:

(1) As per Article 314, 316, 320 and 322 of the Companies Federal Law No. 32 of 2021, unless the Memorandum of Association or Statute of the Company provides for the method of liquidation or the partners agree otherwise upon the dissolution of the Company, the provisions of this Decree-Law shall apply to the liquidation of the Company. The liquidation shall be conducted by one or more liquidators appointed by the partners or under a decision by the general assembly or whomever is acting on its behalf, provided that the liquidator is not an auditor of the Company currently or has already audited its accounts within (5) five years preceding the appointment.

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If liquidation is based on a judgment, the competent court shall point out the method of liquidation and appoint the liquidator. In all cases, the task of the liquidator shall not be terminated by the partners’ death, declaration of bankruptcy, insolvency, or interdiction order, even if the liquidator is appointed by the partners.

The liquidator shall, forthwith upon his appointment, prepare an inventory of all the assets and liabilities of the Company. The managers or the chairman of the board shall provide the liquidator with the books, documents, and accounts of the Company.

The liquidator shall undertake any measure required to maintain the assets and rights of the Company and collect the debts of the Company from third parties and shall deposit the amounts collected in a bank for the account of the Company under liquidation forthwith upon such collection. However, the liquidator may not claim the partners to pay the balance value of their shares except as required for the liquidation process and provided that the partners are treated equally.

(2) Every manager in a Limited Liability Company shall be liable towards the Company, the partners, and the third parties for any fraudulent acts committed by such manager and shall also be liable for any losses or expenses it incurs due to abuse of power or violation of the provisions of any applicable law, the Memorandum of Association of the Company or the contract of his appointment or for any gross error made by the manager. Any provision in the Memorandum of Association or the contract appointing the manager in conflict with the provisions of this clause shall be deemed null and void.