In a rare judgment that underlines the evolving jurisprudence surrounding corporate governance in the UAE, the Dubai Courts have issued a judgment that is expected to resonate across corporate boardrooms in the UAE. In this legal precedent with far-reaching implications, the Dubai Court of Cassation has decisively affirmed the joint liability of a limited liability company (LLC) and its managers in failing to distribute dividends. This ruling is a critical development for shareholders, clarifying their rights and highlighting managerial responsibilities within corporate structures.
The ruling obligates the company and its individual managers to jointly pay approximately AED 28 million to one of its corporate shareholders, after it was found that the managers had consistently failed to convene annual general assemblies and had withheld declared profits for almost two decades.
What sets this judgment apart is the court’s decision to extend liability beyond the corporate entity to include the personal responsibility of its managers.
From Silence to Settlement
This significant ruling emerged from a case involving a 34% shareholder in a Dubai based LLC who pursued legal action, seeking court intervention to rectify severe breaches of governance and financial transparency after years of silence from the company’s management. Over nearly two decades, from 2003 to 2022, the company managers failed in their statutory duties to convene annual general assemblies, meetings which are not merely formalities, but essential corporate governance checkpoints. This led to a prolonged period during which no dividends were declared nor distributed, effectively depriving shareholders of their rightful returns despite the company’s steady performance.
In response, the court appointed a financial expert to assess the company’s accounts and determine the value of unpaid dividends. The ensuing expert report confirmed the shareholders’ claims and provided compelling and definitive evidence of substantial unpaid profits.
The Dubai Court of First Instance delivered a clear and firm judgment. Breaking from historical precedent, the court not only ruled against the company but extended liability directly to the company’s managers. This groundbreaking decision pierced the corporate veil, a legal mechanism traditionally respected by courts to maintain separation between corporate liabilities and individual responsibilities, holding individual managers jointly accountable alongside the entity itself.
The judgment was vigorously contested by the company and its managers at higher judicial levels. Nevertheless, both the Dubai Court of Appeal and the Dubai Court of Cassation upheld the ruling, reinforcing a crucial principle: corporate governance is not an abstract concept but a binding set of obligations with tangible, enforceable outcomes. The appellate courts emphasized the fundamental fiduciary duties owed by managers to their shareholders, reinforcing that accountability extends beyond mere corporate structures.
A Turning Point in Corporate Governance
The decision signals a critical turning point in UAE corporate law, particularly affecting LLC structures which dominate the region’s commercial landscape. It introduces a new dimension of risk and accountability for managers, fundamentally altering the calculus behind managerial decision-making and compliance. Corporate boards across the UAE are now confronted with a stark reality, non-compliance with statutory duties is no longer solely a corporate concern; it can directly impact their personal financial and professional future.
This ruling reinforces the fiduciary responsibilities of managers under Federal Law No. 32 of 2021 on Commercial Companies, particularly those related to governance, financial reporting, and shareholder engagement.
Implications for Business Owners and Investors
This ruling serves as a cautionary tale for managers and board members across the UAE, particularly those operating within privately held companies. It sends a clear message: failure to comply with corporate governance obligations can have serious legal, and personal, consequences.
For minority shareholders and investors, traditionally vulnerable to managerial neglect, the judgment provides renewed confidence in the UAE’s judicial system and its willingness to uphold investor rights, even in long-standing and complex disputes.
By affirming the courts’ readiness to enforce individual accountability, this ruling empowers minority investors, offering them tangible legal leverage against corporate governance abuses. It serves as a powerful reminder that passive acceptance of managerial neglect is no longer a viable option, encouraging proactive engagement and vigilance among shareholders.
Looking Ahead
The enforcement stage of this case is already underway, and its outcomes will likely extend well beyond the immediate parties involved. The judgment sends an unequivocal message to corporate managers: compliance with governance obligations is non-negotiable, and the courts are fully prepared to hold individuals personally accountable for breaches.
As the UAE continues to evolve into a global business hub with stringent governance expectations, this judicial stance aligns closely with international corporate accountability trends. It positions Dubai as a jurisdiction committed to transparency, good governance, and protecting shareholder rights, qualities critical to attracting and retaining international investors. The impact of this judgment will likely resonate across boardrooms nationwide, emphasizing the essential truth that accountability begins, and ends, at the very top.
Seek Legal Counsel
This article was authored by Alia Al Mulla, Head of Commercial Disputes, Associate Amr Mostafa, and Paralegal Ahmed ElKhatib. For tailored advice on how this landmark judgment may impact your company’s governance obligations or shareholder rights, we encourage you to get in touch with our team.
