Legally speaking, the positions of chairmanship and membership of the board of directors of li-censed banks as public joint stock companies envisage burdens and liabilities. The appoin-tees may rejoice in such appointments and big titles for social purposes, but, as a matter of law and fact, they are sitting on “hot chairs”, if we could say, according to the provisions of the Commercial Companies Law all around.
Chairpersons and other members of the board of directors of licensed banks are advised to study the relevant commercial and business laws. However, the provisions of the Commercial Companies Law give a clear picture about the (heat) of such burdens and responsibilities.
The below mentioned instances give us some ex-amples, such as: The chairman and all members of the board of directors shall be liable to-wards the bank as a company, the shareholders and, also, third parties for all acts of fraud, abuse of authority, violation of the law or the Articles of Association issued by the company, and they shall also be liable for mismanagement that occurs due to all acts of negligence per-formed by them.
This legal liability clearly shows that every-one has the right to take legal action, on the occurrence of any of the above instances, against the chairman and all members of the board of directors. They are, as we can see, exposed to legal proceedings from within or without the bank as a company. This indicates that the chairman and other directors should perform their duties with utmost care, dili-gence and high standards of professionalism, failing which the company (as an institution) or any one of the shareholders or other third party may take legal proceedings against them jointly or separately.
Many shareholders, as a matter of fact, are not aware of this important legal right; this could be due to ignorance.
The chairman and other directors of the bank are jointly liable if a fault or negligent mis-take occurs as a result of a resolution or res-olutions passed and adopted unanimously by the board. However, if the resolution has been adopted by majority only, the dissenting direc-tors shall not be held liable, provided that they have recorded their objections in the minutes of the meeting.
This shows the importance of reporting all nec-essary details in the minutes for record pur-poses. Directors who have dissenting opinions or views shall insist on recording their dis-senting views in the minutes, otherwise they share the responsibility with other directors regarding the outcome of that specific resolu-tion. Moreover, it is important to mention here, that the mere absence, during the meeting wherein that specific resolution has been adopted will not automatically absolve that di-rector from the liability unless he has proved that he was not aware of the resolution or that he was aware of it but was unable to show or explain his objection for any reason whatsoev-er.
This point shows that the legal burden regard-ing resolutions of the board is following the director even during his absence at the time of that particular resolution. This is, we be-lieve, is very important because the intention of the legislature is to close the door for some directors who may prefer an “alibi” when they know that certain issues will be discussed and they don’t want to involve themselves.
A director should have a say in all the issues raised because he is responsible in all cases and mere absence will not absolve him of the liability.
The general assembly of the shareholders shall specify who should take the legal proceedings, if any, on behalf of the company versus the chairman and other directors. In case the bank is in liquidation, the liquidator shall assume the powers of the shareholders and initiate the legal proceedings on behalf of the bank.
A shareholder, by himself may initiate such proceedings if he thinks the bank has failed to do so but he should prove the occurrence of particular damage to him, and such shareholder should take all necessary steps to notify the competent management of the bank of his inten-tion to initiate the legal proceedings.
An additional burden or misgiving (if we could say) relates to the fact that neither the chairman nor members of the board of directors shall do or start any work/business that may cause any sort of competition to the bank. The conflict-of-interest rule shall be observed very carefully. This is to deprive the occur-rence of instances of malpractices, opportunism and importation.
All brains and hands of directors shall work towards one ultimate goal and direction, which is the interest of the bank and all sharehold-ers. This attitude and goal shall always pre-vail over personal interests of the persons elected or chosen to serve the bank.
However, the general assembly of the sharehold-ers may, in certain genuine circumstances, ex-empt a director from such limitation under cer-tain conditions provided, however, that this exemption shall not hamper or affect the inter-ests of the other shareholders.
Based on the legal provisions enumerated above the chairman and board directors of each bank shall perform their legal and other relevant responsibilities with utmost care, due dili-gence and lawfulness, otherwise they could face some legal proceedings from the shareholders or any other interested third party.
The directors are required to observe their le-gal and professional status all through their directorship otherwise they are supposed to re-tire and give the opportunity to other compe-tent persons
Dr AbdelGadir Warsama Ghalib is a corporate le-gal counsel. Email: [email protected]