The Company Director Checklist. United Arab Emirates

Transcription

1 The Company Director Checklist United Arab Emirates Contact: Ibrahim Elsadig BKHP/RA/IES/ /

2 Item Section Check Item Section Check Understand Understand directors duties 5 9 Contribution expected 1 Give notice of potential conflicts 9, 11 Appropriate remuneration 1 Give notice of shareholdings in other companies 9, 11 Appropriate corporate governance procedures 1, 18 Understand reporting and disclosure obligations 11, 12 Meet Appropriate compliance/due diligence 18 Chairman and Vice-chairman 2 Indemnity clause in the Company s constitutional documents and indemnity agreement 19 Other directors 2 Insurance in place 20 Senior management team 2 Assets structured 22 Company s auditors 2 Company s lawyers 2 Review Historical accounts 3 The Company s Constitution 3 Board papers and minutes 3 ESCA/ADX/DFM announcements and press 3 BKHP/RA/IES/ /

3 TABLE OF CONTENTS INTRODUCTION... 1 SCOPE... 1 APPLICABLE LAW... 2 BEFORE APPOINTMENT BY A COMPANY... 4 ONGOING DUTIES... 6 TO WHOM ARE DUTIES OWED... 7 DUTIES... 8 CONFLICTS OF INTEREST DEFENCES MARKET DISCLOSURE STATUTORY FILINGS OTHER SOURCES OF LIABILITY SPECIAL CIRCUMSTANCES SELF-DEFENCE BKHP/RA/IES/ / Page (i)

4 INTRODUCTION The United Arab Emirates (UAE) is a union of seven Emirates. Its legal regulation is broadly comprised of federal laws, which generally apply in all of the Emirates, and local laws, which apply to specific Emirates only. In addition, each Emirate contains a number of different free zones. Certain UAE laws (local and federal) do not apply in the free zones; typically, for example, each free zone has its own rules and regulations concerning the regulation of companies registered in such free zone. There are many types of company in the UAE. The most common of which is a limited liability company (an LLC). Many of the free zones have adopted the model of an LLC in creating their own Free Zone Company and Free Zone Establishment regime (typically Free Zone Establishments will only have one shareholder whereas Free Zone Companies will have more than one and, as a consequence, there are differences in their operation and powers). The most advanced free zone (in terms of legal regulation) is the Dubai International Financial Centre (the DIFC). The DIFC has adopted (in relation to civil and commercial matters only, other matters, including criminal law, are outside the DIFC s jurisdiction) a common law system, including in relation to the regulation of companies, and has its own court system and stock exchange (see below). Only shares in the following types of company can be publically traded in the UAE: (a) (b) UAE Public Joint Stock Companies (PJSCs) (or equivalent companies established outside the UAE). Shares in PJSCs can be listed on the UAE s two stock exchanges called the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) (each of which is regulated by itself and the Emirates Securities and Commodities Authority (ESCA)); and DIFC Companies Limited by Shares (a DIFC Company) (or equivalent companies established outside the UAE). Shares in DIFC Companies can be listed on the DIFC s stock exchange called NASDAQ Dubai (regulated by both the exchange itself and the Dubai Financial Services Authority (the DFSA)). This Company Director Checklist (this Checklist) has been designed as a practical guide to the main duties and obligations of a director of a UAE PJSC listed on DFM or ADX. We have produced a similar checklist in relation to the directors of DIFC Companies listed on NASDAQ Dubai. While this Checklist refers to regulations produced by the UAE Central Bank and ESCA, it does not cover the authorised firms or authorised individuals regime. Certain firms and individuals are authorised to carry out financial services under the authority and supervision of the UAE Central Bank and ESCA. You should seek specific advice about the increased obligations that are imposed on directors of such firms. SCOPE Due to the large number of free zones, this Checklist does not provide a comprehensive outline of directors duties in all of the jurisdictions that comprise the UAE. Although the most common corporate entity in the UAE is an LLC, this entity does not have a board of directors in the same manner as, for example, a private limited company does in the UK or a PJSC does in the UAE. In addition, the partners of an LLC have a greater involvement in the management and day-to-day operation of such LLC than is found in private limited companies in many common law jurisdictions. Typically the partners of an LLC only delegate administrative duties to a general manager either in the constitutional documents (the Company s Constitution) or under a power of attorney (or both). Notwithstanding, many partners who are familiar with common law jurisdictions have contractually implemented boards of directors through the Company s Constitution and/or a shareholders agreement and set out the responsibilities and powers of such directors therein. BKHP/RA/IES/ / Page 1

5 Under the Commercial Companies Law (UAE Federal Law 8 of 1984) as amended (the Companies Law), both mangers and boards of directors (or boards of managers as more commonly translated from the Arabic) of LLCs have the same responsibilities as the board of directors of a PJSC. However, if a contractually established board of directors of an LLC is considered a board of managers under the Companies Law, then each of the directors names ought to be stated on the licence of the LLC, but this is rarely the case. In addition, due to the practice of specifically setting out the capacity and powers of a board of directors in the Company s Constitution, it is not clear to what extent the courts in the UAE would construe and balance the board of directors limited powers (from the Company s Constitution) against the broader powers and duties as set out in the Companies Law for managers. Neither, as a matter of practice, are counterparties willing to rely on implied powers. Consequently, as mentioned above, this Checklist focuses on the duties and responsibilities of directors of UAE PJSCs listed on DFM or ADX. Which would, save for the duties and responsibilities that are only applicable to directors of a PJSC by reason of the listing of its securities, apply to the directors of an LLC if the scope of the law as described above is applied to its full extent. Many of the laws in the UAE have been issued in the recent past and consequently have not been considered before the UAE courts. As a result of this and the fact that the prior judgements that do exist are not binding, due to the UAE being a civil law jurisdiction, it is difficult to provide a definitive interpretation of many aspects of UAE law. This Checklist has been drafted in light of these facts. An director of a listed company and the listed company itself should always obtain specific advice in regard to disclosure and other obligations they may be subject to as a result of such listing. APPLICABLE LAW The primary pieces of relevant legislation are: The Companies Law; Establishing Law for the Emirates Securities and Commodities Authority and Market (Federal Law No. 4 of 2000) (the ESCA Law); Disclosure and Transparency Regulations (ESCA Board Decision No. 3 of 2000) (the Disclosure Rules); Regulations as to the Listing of Securities and Commodities (Ministerial Decision No. 12 of 2000) (the Listing Rules); and Corporate Governance Rules (UAE Ministerial Resolution 518 of 2009) (the Governance Rules). BKHP/RA/IES/ / Page 2

6 SNR Denton: Middle East offices in Dubai, Abu Dhabi, Manama, Cairo, Doha and Muscat. Associate offices in Amman, Kuwait and Riyadh. Associate firm in Beirut. This Checklist does not constitute legal or other advice. The information in this Checklist is not specific and by using it you agree to accept the terms and limits of liability available on You should not rely or act on any of the information contained in this Checklist without getting specific professional advice. You are solely responsible for any actions taken in connection with this Checklist. To the extent permitted by law, SNR Denton, its partners, employees and agents accept no liability and disclaim all responsibility for the consequences of your or anyone else s reliance on any information contained in this Checklist or for any decision based on it or by any reference to this Checklist. This Checklist was issued on 14 July Any person proposing to become a director of a PJSC listed on DFM or ADX should be aware they are relatively new exchanges in international terms. Many of the laws, rules and regulations of the UAE, ESCA, DFM and ADX have not been tested by the courts of the UAE, and the principal companies law in the UAE, the Companies Law, pre-dates the establishment of DFM and ADX and does not contain a sophisticated corporate governance or codified directors duties regime. In this regard, the Companies Law has been supplemented by ESCA and other federal regulations, which is bridging the gap in governance of public companies in the UAE. However, ESCA and the courts of the UAE are interpreting and enforcing several of the laws and rules for the first time and, as such, the position and criteria are subject to change. SNR Denton is the collective trade name for an international legal practice. SNR Denton & Co. is registered with the DFSA and regulated by the Solicitors Regulation Authority of England and Wales. The SNR Denton & Co. partnership comprises SNR Denton Middle East Partners LLP and SNR Denton Middle East Limited. Any reference to a partner means a partner, member, consultant or employee with equivalent standing and qualifications in one of SNR Denton s affiliates. Please see snrdenton.com for Legal Notices. BKHP/RA/IES/ / Page 3

7 Before Appointment by a company (the Company) 1. Understand why you have been approached and what you are expected to contribute; the remuneration package on offer; and any existing corporate governance procedures. The prerequisites to accepting an appointment should be that: you have something worthwhile to contribute; you can meet the expectations for your contribution; you are not expected to be a passive director; the remuneration package meets your expectations and satisfies the requirements of Article 118 of the Companies Law and Article 7 of the Governance Rules (broadly speaking, such remuneration for all directors must not exceed 10 per cent of the net profits of the Company, after deducting depreciation, statutory reserves and the distribution of a dividend equivalent to not less than five per cent of the Company s capital to the shareholders); and adequate corporate governance procedures are in place to ensure you can perform and are protected (see section 18). 2. Meet the Chairman and Vice-chairman; other directors (including recently retired directors); the senior management team; the Company s auditors; and You should obtain a briefing on the history and strategy of the Company; understand the major drivers of performance and key performance indicators; get a SWOT (Strengths, Weaknesses, Opportunities and BKHP/RA/IES/ / Page 4

8 the Company s lawyers. Action/Issue Threats) analysis of the Company; get a background/resume on the other directors and key members of the management team; understand relationships and roles within the management team; understand who are the key suppliers or customers; understand the status of relationships with employees and unions; obtain an industry briefing; get the auditors input and perceptions on historical accounts and disclosure issues; and understand key legal relationships, any past or current litigation and issues with compliance and regulators. 3. Review the past five years historical accounts; the Company s Constitution; the Company s licence (commercial/industrial/professional, as appropriate); the Company s commercial registration; board papers and minutes for the prior year; announcements to ESCA and ADX or DFM, as appropriate; and You should: have any abnormal losses explained; review accounts for trends; establish whether valuations of intangible assets are realistic; review the Company s Constitution for any restrictions on your power as a director or any shareholder-specific provisions (such as a power to veto board decisions); BKHP/RA/IES/ / Page 5

9 press clippings for the prior year. review the Company s Constitution to see if it removes restrictions placed on directors powers by Article 103 of the Companies Law (concerning loans for periods in excess of three years, sale of the Company s real estate or place of business, mortgage of those assets, forgiveness of the Company s debtors and the agreement to settlements or arbitration); review board papers and minutes to get a feel for current issues; and review the Company s announcements to ensure the Company has made full and timely disclosure to the market. Ongoing Duties 4. Think About: the information provided to you by the Company, and the quality of that information; the information you have obtained from independent sources, and how it compares with the information provided by the Company; whether there are any gaps in the information you have been provided with or you have obtained; and your impressions of the Company s team of officers and In particular, watch out for: The dominant director does any director (or officer) exercise undue control over the Company s assets or affairs? Inactive non-executive directors do the non-executive directors act as a check on the actions of management and executive directors? Lack of independence for example, does the Company have independent directors, an audit committee and/or an independent auditor? BKHP/RA/IES/ / Page 6

10 advisers. Inadequate internal controls for example, does the board function effectively, are reporting procedures adequate, are each of the directors and the Company s shareholders sufficiently informed about the Company s operations and financial status, and are concerns dealt with in a timely and effective manner? To Whom Are Duties Owed 5. To whom are duties owed? In the UAE, the duties arising from: See the following sections of this Checklist. Article 111 of the Companies Law are owed to: the Company; the shareholders; and interested third parties (including relevant government authorities in relation to certain breaches of the Companies Law); and the Listing Rules, the Disclosure Rules and the Governance Rules are owed to: the market on which the Company is listed (ADX or DFM the Relevant Market); and ESCA. BKHP/RA/IES/ / Page 7

11 Duties 6. What duties are imposed by the Companies Law? (Articles 108, 111 and 322 of the Companies Law) It is generally accepted that a director should not commit the Company to transactions that are illegal or outside the boundaries as set out in the Company s constitution. Although not specifically defined, the general duties expected of a director are: to abide by the Company s Constitution; not to disclose confidential information about the Company; to act with loyalty towards the Company; and to avoid any conflict of interest between a director s personal interests and those of the Company. Under the Companies Law there are a number of specific duties that you should bear in mind while acting as a director, including duties: not to participate in any business in competition with the Company; not to commit fraud, abuse your authority, violate Companies Law or the Company s Constitution or to engage in mismanagement; and to provide truthful information within Company documents, distribute dividends in line with Company constitutional documents, provide true and complete data for Company balance sheet and profit and loss accounts, keep Company Understand the skills of your fellow directors among the board of directos do you have the right mix, given the requirements of the Company? If not, consider replacing directors or adding to the board. Consider the: size of the Company; composition of the board; and distribution of work within the board. You should take a diligent interest in the information available and the information you should reasonably be reviewing. If this is not being provided, require it to be. Turn up to board meetings unless you truly cannot attend (you will be retired if you fail to attend three times in a row without an excuse acceptable to the rest of the board) and organise special meetings if an urgent decision needs to be made. On important decisions, or where there are strong reasons to scrutinise a decision, a board discussion may not be enough. You may need: a written report from management and the opportunity to question them; or BKHP/RA/IES/ / Page 8

12 information confidential and not use such information for the an independent report to the board. 7. What duties are imposed by the Governance Rules? (Articles 3, 4, 5 and 12 of the Governance Rules) benefit of yourself or others. In the course of their duties and running the Company, the directors will need to have regard to the Governance Rules, which are a federal corporate governance code. Some key provisions from the Governance Rules are that: upon appointment, a director must disclose any other positions held in PJSCs and, in the event of any change with respect to their directorships, the director must disclose that change; the board of directors must meet at least once every two months; shareholders rights must be protected in the Company s Constitution and internal regulations and by the directors; each director must when exercising their powers and duties: ESCA is empowered under Article 2(a) of the Governance Rules to ensure the supervision, control and verification of compliance by companies with the Governance Rules. In event of breach of the Governance Rules, ESCA can, under Article 15 of the Governance Rules, impose: a warning notice on the Company; a suspension of the Company s listing; delisting upon the Company; or a fine upon the Company up to the maximum limit as set out in the ESCA Law. act with honesty and loyalty; consider for the Company s and shareholders interests when taking decisions; make the best possible endeavours; and comply with applicable laws, regulations, decisions and the Company s Constitution; the chairman has additional duties above those of the other directors, including: BKHP/RA/IES/ / Page 9

13 ensuring efficiency of the board s discussions and performance; having prime responsibility for the drafting of agendas for board meetings; maintaining good communication between the board and the shareholders; and promoting positive relations between the non-executive and executive directors and ensuring the former s participation; and non-executive directors have specific duties, including those requiring them to: show independence in board meetings; give priority to the interests of the Company and shareholders in the event of a conflict of interest; participate on the audit committee of the Company; follow up on the Company s performance, monitor achievement of performance objectives and draft associated reports; and enhance the performance of the board and committees through use of their individual skills and diversity. 8. To what extent is delegation The board of directors may delegate some of its authority in relation In all cases, we recommend that reliance on the delegate must be BKHP/RA/IES/ / Page 10

14 possible? (Article 11 of the Governance Rules; see also the Company s Constitution) Action/Issue to administrative issues to a particular director or the executive management. However, such delegation may not transfer liability for acts done pursuant to such delegated powers from the board of directors to such delegate. in good faith, after the directors make individual independent assessments of the delegation to the delegate having regard to their knowledge of the company and the complexity of the matter delegated. When any authorities are delegated, clear instructions must be provided setting out the authority provided and when, for example, recourse must be made to the board. The board of directors must maintain a written list of tasks and authorities as delegated to the management. Each delegation must specify its subject and duration and a date for management to forward its results back to the board. Conflicts of Interest 9. What is the position on conflicts of interest in the UAE? (Article 109 of the Companies Law and Article 3(10) of the Governance Rules) You must give the other directors notice of any personal interest you have in a matter that relates to the affairs of the Company. A director with a conflict of interest (a Conflicted Director) may not vote on such matter. The Companies Law provides a general provision with respect to conflicts of interest such that a Conflicted Director must declare that interest and cannot vote in relation to it Under the Governance Rules, if there is a Conflicted Director, the board must decide whether the matter is material and, if so, the matter in question must be decided at a meeting of the majority of the directors at which the Conflicted Director cannot vote. In exceptional circumstances, an ad-hoc committee may be formed by the decision of the board of directors to decide the matter in question. BKHP/RA/IES/ / Page 11

15 As a matter of good order, a Conflicted Director may also ask to excuse themselves from any relevant meeting in whole or in part. Defences 10. Why turning a blind eye will not relieve you of any potential liabilities. (Article 112 of the Companies Law) A director who is absent from a board meeting at which a resolution was made that later leads to any liability has no defence arising from their absence unless they were unaware of the resolution or unable to object to it. If a resolution or decision of the board of directors is being made in relation to which a director dissents, they should ensure that their dissent is formally noted in the minutes of such meeting. Market Disclosure 11. Understanding your disclosure obligations as a director of a PJSC. (Article 19 of the Listing Rules and Articles 3 to 5, 33, 34 and 36 to 38 of the Disclosure Rules) Directors should be aware of the following ongoing obligations: any natural person who owns, or together with their minor children owns, five per cent or more of the Company must notify the Relevant Market immediately; any natural person who solely owns, or in conjunction with their minor children owns, at least 10 per cent of a group company or a company that has entered into a cooperation agreement with the Company must notify the Relevant Market immediately; the board must ensure disclosure via press releases to ensure market transparency; the chairman and directors must disclose their dealings in the Company s shares and obtain approval from the board of directors of the Relevant Market prior to said dealings. You should seek specific legal advice in relation to your disclosure obligations. Breaches of a director s and the Company s disclosure obligations can result in criminal and civil penalties for: any person that: provides false information that affects the value of the Company s shares; deals in securities on the basis of unpublished information; spreads tendentious rumours regarding the sale or purchase of shares; and exploits unpublicised information that could affect the BKHP/RA/IES/ / Page 12

16 Further disclosure obligations are the responsibility of the board as a whole and include a requirement for the Company to, for example: notify the Relevant Market of significant developments affecting the prices of the Company s shares; disclose any additional information affecting the price of its shares or relating to its circumstances and activities that is necessary to secure the integrity of transactions and the confidence of investors; and disclose various information, including: price of securities for personal benefit; any member of the board of directors, its general manager or employee who deals in the Company s shares without prior disclosure to the Relevant Market and the approval of the board of directors of the Relevant Market for such dealing; and any member of the board of directors who utilises inside information in relation to the Company in the purchase or sale of the Company s shares. data requested by the Relevant Market or the Authority; details of each director s share holdings in the Company within 15 days of such director s appointment and again at the end of every financial year; all directors dealings in the Company s shares; the details of the sale or purchase of major assets affecting the position of the Company; amendments to the Company s Constitution; changes to the management structure at executive and board levels; and accounting reports and filings. BKHP/RA/IES/ / Page 13

17 Statutory Filings 12. Understanding what the company must do to comply with its statutory obligations. (Articles 100, 108, 133, 134, 141, 191 of the Companies Law and various provisions of the Disclosure Rules) Understand the Company s obligations to, for example: prepare and file the board of directors yearly report, balance sheet and profit and loss account; provide a list of all directors names, capacities and nationalities to the Ministry and DED before 1 January every year and to provide an immediate update if there is any change to the list; hold an annual general meeting; You may be civilly liable, in certain circumstances, for a breach by the Company of these disclosure obligations. You may also be criminally liable for: intentionally inserting false particulars or provisions that breach the Companies Law into the Company s: Constitution; prospectus of shares or debentures; or keep minutes of all board of directors meetings; other corporate documents; or keep minutes of all general assemblies of the Company; have the chairman notify the Ministry and DED of any extraordinary general assembly resolutions within 15 days of their being passed; and carry out disclosure and filing obligations to the Relevant Market, signing or distributing the documents mentioned above with knowledge of such false particulars or provisions. Directors should obtain specific accounting advice in relation to the preparation and approval of accounts. Many of the large accounting firms publish guides in this regard. for example in relation to material information affecting the share price. Other Sources of Liability 13. Understand your potential liability under other legislation and the systems adopted by the Company to Civil Transactions Law The Civil Transactions Law sets out a general duty of care to third parties in respect of their person and property. This includes, in BKHP/RA/IES/ / Page 14

18 minimise breaches. (Articles 299 to 313 of the Civil Transactions Law (Federal Law No. 5 of 1985), Articles 64 to 70 and Article 644 of the Commercial Transactions Law (Federal Law No. 18 of 1993), the Penal Code (Federal Law No. 3 of 1987) and the Environment Law (Federal Law No. 24 of 1999)) relation to the Company, vicarious liability for its employees for acts done in their course of employment. The Company may be able to mitigate its liability for such vicarious liability, as it may pursue an action to recover its loss from the employee concerned. This liability of the Company can lead to the directors being liable to the shareholders of the Company if their error or mismanagement permitted the employee s tortious acts. Commercial Transactions Law The Commercial Transactions Law prohibits unlawful competition, which encompasses a wide variety of fraudulent and other behaviour that causes damage to the Company s competitors. It is also a criminal offence to bounce a cheque in the UAE. This can result in liability for a director who writes a cheque on the Company s behalf. Penal Code Under the Penal Code, directors may be fined or imprisoned for a wide range of acts, including fraud, embezzlement, disclosure of the Company s confidential information for their personal benefit or the issuance of cheques in bad faith when funds are not available to satisfy them. Environment Law The Environment Law establishes a scale of penalties for various BKHP/RA/IES/ / Page 15

19 actions that damage the environment. These provisions apply to any person who intentionally or by way of negligence causes damage to the environment or to others as a result of the breach of the provisions mentioned herein. Special Circumstances 14. What is the position if the Company may be insolvent in the UAE? (Articles 645 to 900 of the Commercial Transactions Law (Federal Law No. 18 of 1993) and Articles 417 to 422 of the Penal Code (Federal Law No. 3 of 1987)) 15. What special responsibilities and liabilities are associated with a float? (the Listing Rules and the Disclosure Rules) In certain circumstances where the Company has continued to trade whilst insolvent and is later declared insolvent, the directors of that Company can be held personally liable for its debts. In addition, in certain circumstances (typically in relation to fraudulent, frivolous, negligent or speculative activities) directors can be imprisoned for concealing an insolvent company s financial status or misappropriating an insolvent company s property. The directors of the Company, among others, are responsible for the accuracy of the Company s listing application and prospectus, which must contain a variety of disclosures about the Company. An initial public offering is a detailed process and separate advice should be sought. In circumstances where you have a mere suspicion that the Company is insolvent, you should immediately take legal advice. The UAE s insolvency regime is unsophisticated and rules that directors may be familiar with from other jurisdictions concerning continued trading may not exist. To minimise the liabilities, a company that is about to be listed usually conducts a due diligence process, which is an exhaustive review of its operations usually carried out by professional advisers such as accountants and lawyers. You do not need to be involved in the detail of the due diligence or prospectus drafting but, at a minimum, you should: understand the methodology being applied for the due diligence (usually by reading the due diligence planning BKHP/RA/IES/ / Page 16

20 16. What special responsibilities and liabilities are associated with a takeover in the UAE? (Article 6 of the Disclosure Rules) 17. What special responsibilities and liabilities are associated with a joint venture? There is currently no explicit Takeover Code that regulates the takeover process in the UAE. However, directors should be aware of their ordinary duties and disclosure obligations. There are also further disclosure obligations in relation to the purchase of certain thresholds of shares in listed companies. When working in a joint venture company do not forget that your duties are primarily to your company and not to any party who nominated or appointed you to your position. memorandum); read a draft of the prospectus early enough to ensure that your comments can be taken into account; read the final prospectus before you approve it; and ensure you get sign-offs from the accountants and lawyers addressed to you, stating how the due diligence was conducted and signing off on the prospectus. You should also seek specific legal advice on your position. A potential bidder should seek legal advice at an early stage in considering any takeover, and a target company should seek advice immediately on becoming aware of a potential takeover. Be particularly aware of situations that may give rise to conflicts of interest (see section 9). Due to minimum local ownership requirements in UAE companies (typically 51 per cent), joint ventures with non-uae counterparties are common in the UAE. Arrangements to ensure that each joint venture party contributes to the cost and receives its share of the profits of a company can be complex. A company should seek specific legal advice before entering into a joint venture. BKHP/RA/IES/ / Page 17

21 Self-defence 18. Good corporate governance processes The risk of liability arising is minimised if you have good corporate governance processes in place. At a minimum: the structure and composition of the board should be appropriate and in compliance with the Governance Rules; the functions and roles of the board and its members should be clear; the information systems should be adequate; and the processes and practices should be appropriate. Structure and composition: consider issues such as the size of the board, its mix of skills, the proportion of executives and independents and committee structures. The Governance Rules mandate certain proportions of non-executive to executive and independent to non-independent directors and the existence of an audit committee and a follow-up and remuneration committee. Functions and roles: the principal tasks of the board, the level of the board s involvement (as opposed to management involvement), appropriate time allocations for tasks, and the relationship with the management team should be clearly understood and responsibility for due diligence recorded. Information systems: format for monthly reports and minutes, mechanisms for directors access to information and key performance indicators should be clearly defined. Processes and practices: meeting practices, decision-making mechanisms, reporting lines and processes for directors performance evaluation should be clearly understood. 19. Indemnities Make sure that the Company has granted you a deed of access and indemnity, which will: indemnify you for liabilities you incur as a result of your position as a director; agree to keep insurance in place for your directors and officers The Company cannot indemnify you for: acts of fraud; misuse of powers; any violation of the laws of the UAE or the Company s BKHP/RA/IES/ / Page 18

22 liability while you are a director and for 15 years after you resign; and Constitution; or mismanagement. agree to give you access to the Company s records while you are a director and after you resign for the purposes of defending yourself in proceedings. 20. Insurance Ensure the directors and officers (D&O) liability insurance is strong and from a reputable broker or insurance provider. Review the D&O liability insurance policy and make sure it covers you for all the positions you hold in the group and for liability after you have retired. Understand the exclusions and the level of cover available. Most insurance policies are on a claims made basis, which means that you will obtain cover if the policy is in force when the claim giving rise to the liability is actually made as opposed to when the act giving rise to the liability occurred. This means it is important to ensure that insurance remains in place after you have resigned. Insurance cannot cover you where the conduct involves wilful breach of duty, improper use of information or improper use of position or for penalties. 21. How do I resign? Review the requirements in the Company s Constitution; otherwise deliver your resignation in writing to the Company. Your resignation will be effective at the end of the day stated in the resignation or, if none, the day the notice is given. It does not need 22. Can I structure my assets to minimise losses? It is common for directors to structure their assets so that while they personally have few assets, assets are held by their spouse or in a family company. to be accepted and cannot be rejected. You should get specific professional advice on this. BKHP/RA/IES/ / Page 19