LEGAL VIEWPOINT: Liability of Board of directors

By Dr AbdelGadir Warsama, Legal Counsel

Asia 728x90


At the end of the year commercial companies, are required by law, to call their shareholders for the Annual General Assembly. One of the main duties of the Assembly of a joint–stock company is to issue a very important “Resolution” absolving all Directors from any responsibility in relation to what they have done during the year. This “Resolution” is normally issued, as part and parcel of other Resolutions to be issued during the Annual Meeting of the company. This “Resolution”, we say, is an important Resolution because it absolves members of The Board from all legal liabilities. In fact, this Resolution works as a certificate of good conduct and excellent behavior issued by the shareholders to the Board.

However, such “Resolution” shall not give Members of the Board full freedom and immunity in cases of gross negligence or criminal offences. In relation to this “Resolution” we have to distinguish at this juncture, between the civil liability of Members of the Board and their criminal responsibility. In relation to civil liability, the Resolution absolves them from the responsibility in relation to all acts exercised during their work, except acts of gross negligence. This, legally speaking, means that the “Resolution” gives partial release or “pardon” and not full complete release. Tort-feasors shall not rejoice and assume that they are not questionable for their tortuous wrongdoing and malpractice.

In connection to what we say regarding the responsibility of the Board, an interesting question arises, that is to say for how long this responsibility follows (the wrongdoing) Members? In other words, can a shareholder or a third-party lodge a claim of negligence against a Member after, say, five or six years. Legally speaking, the civil right to sue in cases of gross negligence is time- barred after one year from the date of the “Resolution” absolving Members from liability. This protects them from being constantly under the dreadful impression that they can be sued at any time. Nobody would like to be under such an impression, and this is why the Legislature closes the civil right after one year from the date of that Resolution. But this is not the end of the matter. The one-year limitation principle applies only if the shareholders issue the “Resolution” absolving Members. In case there is no such Resolution, for any reason whatsoever, the limitation period shall be extended for a term of five years. As we can see, this indeed constitutes a big difference.