Civil and Criminal Liability of Board Members of Public Shareholding Company in Light of the License Issued by the General Assembly

Dr. Fahad Al-Shammari, Attorney at Law

Professor of Commercial Law, Kuwait University

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Many legal professionals are confused between the discharge of liability granted to members of the board of directors of a public shareholding company by the general assembly, and the license issued by the general assembly to a board member to engage in transactions involving a conflict of interest between the board member and the company. While the discharge of liability granted to board members by the general assembly does not preclude filing a liability lawsuit against a board member, as explicitly stated in Article 201 of the Companies Law, the license issued by the general assembly to a board member to engage in transactions involving a conflict of interest or competition with the company (according to Articles 197 and 199 of the Companies Law) will preclude the liability of board members, for the following legal reasons:

First: Kuwaiti Companies Law No. 1 of 2016 does not stipulate that this license issued to board members according to Articles 197 and 199 will not This prevents the filing of a liability claim, as was done with the discharge of liability issued by the general assembly. If the legislator did not intend to give this discharge of liability issued by the general assembly any legal value, as was done with the regulation of the discharge of liability for board members by the general assembly, then the text would not have been lacking in this regard. It could have stipulated that this discharge would not prevent the liability of a board member, as was done with the regulation of the discharge of liability issued by the general assembly.

Secondly, no legal professional can interpret a legal text contrary to the rules of interpretation, the most important of which is the interpretation of a clear and unblemished text, namely, the implication of the text. If the Companies Law stipulates in Articles 197 and 199 that a board member may not compete with the company or have an interest in contracts concluded by the company except with a license issued by the general assembly, then the implication of this text means that the legislator has permitted such actions provided that a license is obtained from the general assembly in accordance with the conditions required by law.

Third: Some might argue that the general assembly may have granted a board member a license through fraud, deception, and collusion with shareholders due to the board member's majority control. Therefore, such a license issued by the general assembly would have no legal validity.

However, we can counter this by stating that Kuwaiti company law stipulates a two-month period for appealing general assembly resolutions. If the resolution granting a board member a license is not appealed, it becomes immune from judicial review, thus ensuring the stability of legal positions. (Cassation Appeal No. 501 of 2015 Commercial/1). The failure to appeal the general assembly's resolution granting a board member a license means that the license becomes immune from judicial review and cannot be subsequently examined by the court once the appeal period has expired.

Fourth: We would like to pose the following scenario: Shareholders may approve a license for a board member whose interests conflict with the company's interests, knowing that this action is unfair to the company, and without any fraud or misrepresentation on the part of the board member. They may not challenge this license within two months of its issuance. The question then arises: Can it be said that this license has no legal value? Can the court re-examine the general assembly's decision after the two-month period has elapsed? Can the court intervene in the company's management by amending the general assembly's decisions, despite the shareholders' approval of this license?

Fifth: Regarding the criminal aspect: This license issued by the general assembly to the board member will be considered a justification under the penal code, which will shield the board member from criminal liability. This is because the company—the victim—issued its approval for this transaction in accordance with the provisions of the Companies Law. Furthermore, the use of this license can be characterized as an exercise of a right granted to the board member by the Companies Law.

Some may argue that this license may be issued for unfair conduct and dealings with the company, therefore it is not considered one of the justifications mentioned in the penal code. In reality, such an opinion lacks accuracy due to a lack of familiarity with the provisions of the Companies Law. This is because Kuwaiti Companies Law No. 1 of 2016 does not stipulate fairness in the transaction, which is the subject of a conflict of interest, for the General Assembly to approve such a transaction. Nor does it impose any specific conditions regarding the disclosure that the board member must provide to the General Assembly to ensure shareholders are fully aware of the nature of the transaction. Furthermore, it does not require that the vote for this approval be cast by shareholders who have no connection whatsoever with the board member seeking this approval. This leads to a crucial point: even if there are some legislative shortcomings in Kuwaiti Companies Law No. 1 of 2016 when the General Assembly grants this license to a board member, this does not mean that the license will preclude the civil and criminal liability of the licensed board member. This is because, as long as the Companies Law – according to its existing provisions – grants this license significant weight and authority, unlike a mere discharge of liability, this license will protect the board member. To argue otherwise would lead to a problematic outcome. It is illogical to suggest that the provisions of the Companies Law would have no value, that there would be no benefit or advantage in obtaining a license from the General Assembly, and that the legislator included these provisions in the Companies Law merely as a formality, without any purpose or benefit. This contradicts legislative logic.

In conclusion, the provisions of Companies Law No. 1 of 2016 must be amended in order to...