On Governance Restrictions and Corporate Discipline Standards
Number: Ministerial Decision No. 518/2009
Issued On: 29 Oct 2009
Type: Ministerial Decision
Ministerial Decision No. 518/2009
On Governance Restrictions and Corporate Discipline Standards
Ministerial Decision No. 84/2010 dated 07/03/2010;
Ministerial Decision No. 239/1/2012 dated 31/05/2012;
Ministerial Decision No. 250/2014 dated 01/05/2014;
Ministerial Decision No. 225/2015 dated 09/04/2015
The Minister of Economy and the Chairman of the Board of Directors of the Authority,
Pursuant to the perusal of the provisions of the Federal Law No. 8/1984 on Commercial Companies and its amendments, and
Civil Procedural Law issued by Federal Law No. 5/1985, and
Federal Law No. 22/1995 on the Regulation of Auditing Profession, and
Federal Law No. 4/2000 on Emirates Securities and Commodities Authority and Market and its amendments, and
Federal Decree No. 18/2009 on the Formation of the Council of Ministers of the United Arab Emirates, and
Decision of the Council of Ministers No. 12/2000 on the Regulation for the Listing of Securities and Commodities and its amendments, and
Decision of the Council of Ministers No. 13/2000 on the Regulation for the Functioning of the Securities and Commodities Authority, and
Decision of the Council of Ministers No. 194/15/2006 on the Formation of the Board of Directors of the Securities and Commodities Authority, and
Decision of the Ministerial Council for Services 3/3/2007 on the Delegation of the Securities and Commodities Authority to receive Applications for the incorporation of Public Joint-Stock Companies, complete and supervise all relevant procedures.
Decision of the Board of Directors of the Authority No. 3/2000 on the Regulation for Disclosure and Transparency and its amendments, and
Decision of the Board of Directors of the Authority No. 7/2002 on the Regulation for the Listing of Foreign Companies
Decision of the Board of Directors of the Authority No. 43/R/2008 on the Dual Listing, and
After consulting and coordinating with the concerned authorities in the State,
Has decided to adopt the Governance Controls and Institutional Discipline Criteria:
Article 1 - Definitions
In applying the provisions of this Decision, the following words and terms shall have the meanings assigned opposite to each unless the context indicates otherwise:
Law: Federal Law No. 4/2000 on Emirates Securities and Commodities Authority and Market.
Authority: Securities and Commodities Authority.
Board: The Board of Directors of the Authority.
Market: Securities and Commodities Market licensed in the State by the Authority.
Corporate Governance: A set of controls, criteria and procedures that achieve institutional discipline in administering the company pursuant to the international criteria and methods through determination of the responsibilities and duties of the members of the Board of Directors and the Executive Management of the company taking into consideration protecting the rights of the shareholders and stakeholders.
Company: Joint-Stock Company of which securities were listed in the Market.
Board of directors: The Board of Directors of the company
The Management: The executive management which comprises the Director-General/Executive Director and Chief Executive Officer, or the Deputy Member empowered by the members of the Board of Directors to manage the company, and their representatives.
Managing Director: The Director-General, the Executive Director or the Chief Executive Officer of the company appointed by the Board of Directors.
Member of the Board of Directors: The physical or juristic person selected to be a member of the company's Board of Directors.
Executive member of the Board of Directors: A full time manager or who is paid a monthly or annual salary by the company.
Non-executive member of the Board of Directors: A member not dedicated to company management neither is paid a monthly or annual salary by the company.
The remuneration paid to the member of the Board of Directors shall not be considered a salary.
The Independent Member of the Board of Directors: The member who neither himself, his spouse nor any of his relatives up to the first degree were members of the executive management during the last two years, or had any type of a relation that resulted into financial dealings with the company, the mother company or any affiliated, sister or related companies during the last two years should these dealings in total in excess of 5% of the company's paid capital or the amount of 5 million Dirhams or in any equivalent foreign currency whichever is less.
The member of the Board of Directors shall not be considered independent; particularly, in the following instances:
If he has been employed by any of the related parties during the last two years
If he is directly related to a company which renders advisory or consultancy services to the concerned company or to any of the related parties
If he has concluded any personal services contracts with the company or any of the related parties or the executive management staff.
If he is directly related to any of the non-profit organizations that receive great amount of financing from the company or any of their related parties
If he has been related to or employed by any previous or present external auditors or any of their related parties.
If he, his minors or both of them own at least 10% of the company's capital
First-degree Relative: A father, mother, children, spouse, father or mother in Law and the spouse children.
Compliance Officer: A person appointed by the company to ensure that the company and staff are in compliance with the provisions of the law, regulations, decisions issued there-of, and the policies and internal procedures.
Listing Requirements: Listing rules and requirements mentioned in the Law, regulations and decisions issued there-of and the by-laws as regards the Market
Disclosure Rules: Disclosure rules and requirements mentioned in the Law, regulations and the decisions issued there-of.
Material Information: Any incident, fact or information which has direct or indirect impact on the security price, volume of circulation, or may affect the person's decision to purchase, retain, sell or dispose of the security.
Stakeholders:Any party that has an interest in the company such as shareholders, personnel, creditors, clients, suppliers and possible investors.
Mother company: A company which owns more than 50% of the capital of any other company.
Affiliated Company: A company which owns less than 50% of the capital of another company.
Sister Company: A company which affiliates to the same group of another company.
Related Company: A company that is connected with another company by cooperation and coordination contract.
Cumulative Voting: The case where every shareholder has number of votes equal to the number of his shares, which he can use to vote for one nominee to the membership of the Board of Directors or may distribute among number of nominees of his selection provided that number of votes which he grants to the nominees selected by him and under no circumstance may not be in excess of the number of votes he own.
A new definition was added by virtue of Article 1 of Ministerial Decision no. 239-1 of 2012 dated 31/05/2012, and then was amended by virtue of Article 1 of the Ministerial Decision No. 250/2014 dated 01/05/2014, to read as follows:
- The Chairman and members of the Board of Directors, the members of the company's Senior Executive Management, the companies within which said parties own control shares, mother companies, subsidiaries, affiliated, sister or allied companies.
- First degree relatives of the Chairman, the Board's member, or the Senior Executive Management.
- Physical or legal person who was, within the year preceding the deal, contributing in the company by 10% or more or was a member in its Board of Directors, its mother company or its affiliated ones.
- The person who has control over the company.
Two new definitions were added by virtue of Article 1 of Ministerial Decision No. 250/2014 dated 01/05/2014, as follows:
Conflict of interests: The situation within which the impartiality in decision-making is affected due to a material or moral personal interest where the interests of all the concerned parties overlap or seem to overlap with the interest of the whole company. Interests' conflict is also implied upon exploitation of the professional or official capacity, in any way, for personal benefit.
Control: The capacity to affect or control- directly or indirectly- the appointment of most of the Company's Board members or the decisions issued by them or by the Company's General Assembly, and that through the ownership of shares and equities, or through an agreement or arrangement leading to the same result.
Article 2 - Scope of Implementation of this Decision
Article 2 was replaced by virtue of Article 1 of Ministerial Decision No. 84/2010 dated 007/03/2010 to become as follows:
a- The Securities and Commodities Authority shall be charged with the supervision, control and verification of compliance by companies with the rules and provisions set forth in the present Decision.
b- The provisions of the present Decision shall apply to all companies and institutions for which securities have been listed in a securities market in the State and to the members of the boards of directors thereof.
c- The following shall be excluded from the scope of application of the present Decision:
1- Companies and institutions that are wholly owned by the Federal Government or a local government.
2- Banks, financing companies, financial investment companies, money exchange companies, money brokerage companies that are subject to the control of the Central Bank.
3- Foreign Companies listed in a securities market.
Article 3 - The Board of Directors of the Company
Clause (1) of Article (3) was amended by virtue of Article 1 of Ministerial Decision No. 225/2015 dated 9/04/2015 to become as follows:
1- The company shall be administered by a Board of Directors, of which the composition, the number of members and the term of membership shall all be determined in the company's Statute, provided that at least one of the candidates for the membership of the board is a female. The company shall disclose the reasons which prevented the candidacy of any woman as well as the rate of representation of women on the Board of Directors in its annual report on governance.
2- The members of the First Board of Directors shall be elected by the founders. The successive members of the Board of Directors shall be elected by the shareholders for a fixed term, provided that an adequate balance between executive, non-executive and independent members is observed for the formation of the Board of Directors so that at least one third of the members are independent members, and the majority of its members shall be non-executive members who must have technical skills and expertise that will inure to the benefit of the company. In all instances, and when selecting non-executive members, it is required for the member to be able to dedicate sufficient time and attention for his membership and that such membership do not be inconsistent with his other interests.
3- It is not allowed to combine between chairmanship of the Board of Directors and the position of a managing Director and/or the deputy member.
4- Each member of the Board of Directors shall serve until the termination of his term of membership or approving his resignation by decision from the Board of Directors, or until his death or removal by decision from the general assembly of the company.
5- If the office of any member becomes vacant, the Board of Directors may appoint a member for this vacancy provided that this matter be referred to the general assembly on its first meeting to endorse his or other's designation unless otherwise is specified by the Articles of Association of the Company. Should the numbers of the vacant vacancies be one quarter of the total number of Board members, the general assembly must be convened within three months at most from the date of the last vacancy to elect members to fill these vacancies.
6- The Board of Directors shall meet at least once every two months, according to a written convocation from the Chairman of the Board of Directors or a written request submitted by at least two members of the Board. The convocation must be addressed at least one week before the fixed time supported with the agenda. Every member is entitled to add any subject which he deems necessary to be discussed in the meeting.
7- The attendance of the majority of the Board members is required for the meeting to be legally held. Decisions shall be given by the majority of the attending and the represented members in the meeting. In the event of a tie, the side which the president has voted with shall prevail.
8- Without prejudice to whatever is specified in the preceding clause, the Board of Directors may exclude some decisions to be issued by circulation in urgent instances taking into consideration what follows:
a- The instances of issuing decisions by circulation must not exceed 4 times per year.
b- Approval of the majority of the members of the Board of Directors is required provided that the instance requiring decision by circulation is urgent.
c- The members of the Board of Directors must receive the decision in writing to approve, supported with all the documents and instruments necessary for reviewing it.
d- Any of the decisions of the Board of Directors issued by circulation must be approved by the majority members in writing. It must be presented to the Board of directors in the next meeting to be inscribed in its minute.
Clause 9 of Article 3 was amended by virtue of Article 2 of Ministerial Decision No. 250/2014 dated 01/05/2014, to read as follows:
9- The details of the issues discussed by the Board of Directors and its committees, as well as the decisions taken by said bodies shall be recorded in the minutes of their meetings and shall include the members' reservations and their dissenting opinions. Said minutes shall be signed by the members who attended the meeting as well as the rapporteur. If any of the members refrained from signing, his objection must be mentioned in the minutes along with the grounds thereof, if reported. The present minutes' copy shall be sent to the members in order to be kept, as for the Board and committees' meeting minutes they must be kept by the Board's rapporteur.
10- Should a conflict of interest arise as regards a Board member on a matter to be examined by the Board of Directors, and If it is deemed essential by decision from the Board of Directors; the decision must be issued in the attendance of the majority members, the concerned member is not allowed to participate in the voting on decision. In exceptional instances, these matters may be examined by committees emanating from the Board of Directors and formed for this purpose by decision from the Board. The opinion of the committee must be submitted to the Board of Directors to adopt the decision in this concern.
11- The Board of Directors, by decision of the majority of the attending members; may decide to resort to the opinion of an external advisor on any subject concerning the company and at its own expenses on condition of compliance with the non-conflict of interests.
12- Without prejudice to the provisions of this regulation, the Board of Directors shall set down procedural rules for corporate's governance, and shall supervise and control over their implementation. The Board shall be responsible for its implementation pursuant to the provisions of this regulation.
13- The Board of Directors shall set down development programs appropriate to all members of the Board of Directors to develop and update their knowledge and skills and to ensure their effective participation in the Board of Directors.
14- The Board of Directors is required to set down written rules concerning dealing transactions of the members of the Board of Directors and personnel in the securities issued by the company, mother company, or affiliated or sister companies.
Article 4 - The Chairman of the Board of Directors
The Chairman of the Board of Directors shall carry out the following duties and responsibilities and particularly:
1- Ensuring that the Board of Directors functions effectively, carries out its responsibilities and discusses all main and appropriate cases on the fixed time.
2- Setting down and accrediting the agenda of every Board meeting taking into consideration any matters proposed by the members to be listed on the agenda. The Chairman of the Board of Directors; and under his surveillance, may delegate this responsibility to a certain member or to the Board of Directors reporter.
3- Encouraging all members to participate fully and effectively to ensure that the Board of Directors acts in the best interests of the company.
4- Acting to adopt appropriate procedures to ensure effective dialogue with the shareholders and to communicate their opinions to the Board of Directors.
5- Facilitating effective contribution of the Board members; especially the non-executives, and establish constructive relations between the executive and non-executive members.
A new Article was added under the number 4 (bis) by virtue of Article 2 of Ministerial Decision No. 239/1/2012 dated 31/05/2012 as follows:
Article (4 Bis) - Defining the tasks and obligations of the keepers of the company's administration
It is allowed to define the tasks and obligations of the chairman or keepers of the company's administration according to its statute, including sufficient powers to manage the company's operations and take necessary decisions with the aim of safeguarding its' money and working honestly and faithfully in order not harm the company's interests or those of the shareholders. It is also allowed to define those powers, whether they are administrative, financial or other, in accordance with a decision issued by the company's general assembly.
Article 5 - The Members of the Board of Directors
1- The management must commits itself to introducing the newly designated Board member to all company's departments and units, and providing him with all information necessary for correct understanding of the company's activities and business and full cognizance of his duties, and whatever necessary to enable him to perform his duty perfectly according to the Laws and legislations in effect and any other regulatory requirements as well to the company's bylaws in the field of its business.
2- The management must commits itself to providing the Board of Directors and committees emanating there-from, with sufficient information, in a full and authenticated manner within the time requested to enable him to adopt decisions on proper basis and perform his duties and responsibilities perfectly. The Board of Directors may adopt all the means to obtain the information necessary for rendering his decisions on sound basis.
3- The member of the Board of Directors; during exercising his powers and executing his duties must act with integrity taking into consideration the interests of the company and its shareholders, and to make a concerted effort, and comply with the provisions of the laws, regulations and decisions in effect, the company's Articles of Association and by-laws.
4- The tasks of the non-executive members of the Board of Directors shall specifically include what follows:
a- Participating in the meetings of the Board of Directors to furnish an independent opinion as regards strategic matters, policy, performance, accountability, resources, basic appointments and work criteria.
b- Maintaining the company's and shareholders' interests as a priority should a conflict of interests arises.
c- Participating in the company's Audit Committees.
d- Following up the company's performance in achievement of its objectives and purposes as agreed upon and controlling performance reports.
e- Enabling the Board of Directors and different committees to benefit from their skills, expertise, variousness of specializations and qualifications, through regular attendance and effective participation, and attending the Board meetings, and establishing a balanced understanding of the shareholder's opinions.
5- Every Board member; upon receiving his tasks, is required to disclose to the company of the nature of positions which he occupies in the companies and public establishments, and any other significant liabilities, the time allotted to them and any change that may occur at time of its emergence.
Article 6 - Committees of the Board of Directors
1- The Board of Directors shall set up permanent committees and be directly affiliated to it in the following manner:
a- Audit Committee which shall carry out the tasks as specified in Article (9).
b- Nominating and Remunerations Committee which shall mainly carry out the following task:
Clause 1 of Article (6/b) was replaced by virtue of Article 2 of Ministerial Decision No. 84/2010 dated 007/03/2010 to become as follows:
1- Continuously make sure of the independency of the independent members. If the Committee finds out that a member has lost the independency conditions, it shall report the issue to the Company's Board of Directors. The Board of Directors shall notify such member of the reasons of his privation of the capacity of independency by registered mail at his address known to the Company.
The member shall reply to the Board of Directors within fifteen days from the date of his notification.
The Board of Directors shall issue a decision to decide whether the member is independent or not during the first meeting following the reply of such member or after expiration of the time limit mentioned in the preceding paragraph without reply.
If losing said capacity by such member is not intended to result in breaching the minimum number of the independent members in the Board of Directors, this matter shall be taken into consideration upon the formation of the committees.
Without prejudice to the provisions of Article 102 of the Commercial Companies Law , in the event that the Board's Decision of lack of reasons or justifications for the independency of such member is intended to affect the minimum number of independent members in the Board, the Board of Directors shall appoint an independent member to replace the aforesaid member, provided that the General Assembly of the is instantly notified of such appointment during its first meeting to decide upon the adoption of the Board of Directors' Decision.
2- Preparing and yearly reviewing of the special policy for granting remunerations, privileges, incentives and salaries as regards the members of the Board of Directors of the Company and its personnel.
The Committee is required to verify from remunerations and privileges granted to the Higher Executive Management of the company being reasonable and proportionate to the company's performance.
3- Determining the company's needs for qualifications on the level of Higher Executive Management and employees as well to the basis for their selection.
4- Preparing the special policy for human resources and training in the company, controlling its application and reviewing it no less than annually.
5- Regulating and following up the procedures regarding the nomination for the membership of the Board of Directors in compliance with the laws and regulations in effect and the provisions of this Decision.
A new paragraph was added under no. (6) to Clause (1-b) of Article (6) by virtue of Article 2 of Ministerial Decision no. 225/2015 dated 09/04/2015, as follows:
6- Developing a policy for the candidacy to the membership of the board of directors, which aims at observing the gender diversity in the composition of the board and encouraging women to run for the membership of the board of directors of the company; Providing the Authority with a copy of this policy and any amendments that may be introduced thereto.
2- The Committees shall be composed of at least three non-executive Board members, provided that at least two of them are independent members and one of them presides over the Committee. The Chairman of the Board of Directors is not allowed to be member in any of these committees. The Board of Directors is required to appoint non-executive Board members in the committees concerned in tasks that may result into instances of conflict of interests such as verifying the soundness of the financial and non-financial statements, reviewing dealings concluded with stakeholders, and selecting the executive Board members, and determining remunerations.
3- The Committees shall be formed pursuant to procedures set down by the Board of Directors provided that they include a determination of the committee's task, period, powers, and the Board of Directors controlling manner. The committee is required to submit a written report to the Board of Directors with the procedures, results and recommendations reached with absolute transparency. The Board of Directors is required to ensure following up the committee's functioning and verify its commitment to the activities entrusted to it.
Article 7 - The Remunerations of the Board of Directors
Without prejudice to the provisions of Article (118) of the Law no. 8 of 1984 on Commercial Companies; the remuneration of the Board members shall be composed of a percentage from the net profit. The company may pay additional expenses, fees or monthly salary in amount to be decided by the Board of Directors to any member should he be working in any committee, make special efforts or carries out additional activities to the serve the company above his ordinary duties as a Board member. In all instances, the remuneration of the members of the Board of Directors must not be in excess of 10% of the net profit after deducting the consumptions, the reserve fund and after distributing the profit of at least 5% of the capital to the shareholders.
Article 8 - The Internal Control
1- The Company must have a precise internal control systems, which aims to set down an evaluation to the means and procedures of risk management in the company and appropriately apply the governance rules, verify compliance of the company and its personnel with the provisions of Laws, regulations and decisions in effect which regulate its activity, policies and internal procedures, and to review the financial statements referred to the Higher Management of the company and are used to prepare the financial lists.
2- The internal control system shall be issued by the Board of Directors after consulting the management. This regulation shall be implemented by the competent Internal Control Department.
3- The Board of Directors shall determine the objectives, tasks and powers of the Internal Control Department, which must have sufficient independency to perform its duties and shall affiliate directly to the Board of Directors.
4- The Board of Directors is required to perform a yearly review to ensure the effectiveness of the internal control system of the company and the affiliated companies, and must disclose the results to the shareholders in its annual corporate's governance report.
The annual review must comprise specifically the following elements:
a- Basic Control elements including controlling financial affairs, dealings and risk management.
b- Changes that have occurred since the last annual review in reference to the nature and extent of the basic risks and the company's ability to respond to changes in its business and external environment.
c- The scope and quality of the Board of Directors continuous control on risks, the internal control system and the work of the internal auditors.
d- Number of notifications made to the Board or its committees of the results of controlling activities to enable it to evaluate the internal control of the company and the effectiveness of risks management.
e- Instances of material weakness or failure in the control system which have been found, or any unexpected urgent conditions that had or may have substantial impact on the company's performance or financial situation.
f- The effectiveness of the company's transactions as regards the preparation of financial reports and compliance with the listing and disclosure rules.
5- The Board of Directors must disclose in the company's governance report the extent of the company's compliance with the internal control system during the report period; this disclosure must include the following:
a- The functioning process of the Internal Control Department in the company.
b- The procedure adopted by the company to determine, evaluate and manage huge risks.
c- Any additional information assists in comprehending risk management operations and the internal control system of the company.
d- The Board of Directors acknowledgement of its responsibility as regards the internal control system, its reviewing and effectiveness.
e- The procedure adopted by the company to review the internal control system effectiveness.
h- The procedure adopted by the company to deal with the substantial aspects of the internal control to any large problems disclosed in reports and annual accounts.
6- The Board of Directors must verify that the disclosures of the company submit sufficient and precise information and not misleading the investors, and that they fully comply with the disclosure rules.
7- The company must appoint a compliance officer who shall verify the company's and the personnel compliance with the issued laws, regulations, decisions and bylaws. It is allowed to combine between the Compliance Officer position and the Internal Control Department Director.
Article 9 - The Audit Committee
1- The Board of Directors shall set up an Audit Committee of at least three members from among the non-executive Board members provided that the majority Committee members are independent members. One of the committee members is required to be an Auditing and Accounting Expert. One or several members may be appointed from other than the company's staff in the instance where sufficient number of non-executive Board members is not established.
2- It is not allowed for a former partner of the external Audit office which is assigned to audit the company's accounts to be a member of the Audit Committee, for the term of one year from the date of the end of his capacity as a partner or the end of his financial interest of any kind in the Audit Office whichever is subsequent.
3- The Committee shall convene at least once every three months or whenever necessary. The minutes of the Committee meetings shall be retained by the reporter. The draft Committee meeting minutes must be signed by all the attending members before its accreditation. Should any member abstain from singing, his opposition shall be stated in the minute. Reasons for opposition shall be also inscribed if mentioned on condition that final copies of the minute after accreditation must be sent to the members to retain.
4- The company must provide the Audit Committee with sufficient resources to perform its duties including permitting it to resort to the assistance of experts as necessary.
5- The Audit Committee shall carry out the following tasks and duties:
a- Setting down and implementing the contracting policy with the external Auditor, and reporting to the Board of Director of all matters which it deems necessary to adopt measures in this regard and submitting its recommendations for the steps necessary to adopt.
b- Following up and controlling the independency of the external auditor and the extent of his objectivity, discussing the nature and scope of the auditing process and its effectiveness pursuant to the accredited auditing criteria.
c- Controlling the soundness of the company's financial statements and reports (yearly, half-yearly and quarterly) and reviewing them more frequently during the year as part of its regular activity, it is required also to focus specifically on the following:
1- Any changes of the accountancy policies and practices.
2- Featuring the aspects subject to the management's estimation.
3- Essential modifications resulting from auditing.
4- Assuming the continuity of the company's activity.
5- Complying with the accountancy criteria as decided by the Authority.
6- Complying with the listing and disclosure rules and other legal requirements as regards preparation of financial statements.
d- Coordinating with the Board of Directors of the company and the executive management, the financial director or his substitute for the achievement of its tasks. The Committee is required to meet with the external auditor of the company for at least once per annum.
e- Examining any significant and extraordinary clauses which is or must be inscribed in these reports and accounts. It must pay necessary attention to any matters put forth by the financial director of the company or his substitute, the Compliance Officer or the External Auditor.
f- Reviewing the financial auditing systems, the internal controls and risks management of the company.
g- Discussing the internal control system with the management, and verifying the performance of its duty to establishing an effective internal control system.
h- Examining the results of basic investigations as regards the internal control matters assigned to it by the Board of Directors or carried out by a Committee initiative approved by the Board of Directors.
i- Ascertaining the existence of coordination between both the internal and external auditor and the availability of the resources necessary to the internal audit system as well to reviewing and controlling the effectiveness of this system.
j- Reviewing the financial and accountancy policies and procedures of the company.
k- Reviewing the letter of the External Auditor, his work plan and any essential inquiries put forth by the auditor to the management in reference to accountancy records, financial accounts or auditing systems, and accordingly replying and approving.
l- Ascertaining the reply of the Board of Directors at the time requested on inquiries and substantial matters brought up in the external auditor's letter.
m- Setting down the controls which enable the company's staff to report on any possible violations to the financial reports, internal control or other matter in a secret manner, and the steps to perform independent and just investigations of these violations.
n- Controlling the extent of the company's compliance with to the Codes of Ethics.
o- Ensuring the implementation of business rules as regards its duties and powers entrusted to it by the Board of Directors.
p- Submitting a report to the Board of Director as regards the matters mentioned in this clause.
q- Examining any other subjects as decided by the Board of Directors.
6- In the instance where the Board of Directors disapproves on the recommendations of the Audit Committee on the selection, appointment, resignation or removal of the External Auditor, the Board of the Directors is required to include in the governance report a statement explaining the recommendations of the Audit Committee and the reasons for not adopting them by the Board of Directors.
Article 10 - The External Auditor
1- The Board of Directors shall nominate the External Auditor upon a recommendation from the Audit Committee. Appointment and determination of his fees shall be carried out by a decision from the company's general assembly.
2- The External Auditor shall be selected on basis of qualification, reputation and expertise.
3- The External Auditor is required to be unattached to the company or it's Board of Directors. He is not allowed to be either a partner or representative of any of the company's founders or any of the Board members or be a relative up to the fourth degree.
4- The company must adopt reasonable steps to verify the independency of the External Auditor and that his activities are free of conflict of interests.
Clause 5 was abrogated by virtue of Article 3 of Ministerial Decision No. 84/2010 dated 07/03/2010
6- The External Auditor during the period of reviewing or auditing the company's accounts is not allowed to render any additional services or activities whether technical, administrative or advisory related to his activities and that may affect his decisions or independency. Likewise, to any services or activities which the Authority deems prohibited and specifically what follows:
1- Any other accountancy services or activities related to the accountancy records and financial lists, expect for routine accountancy services which the Auditor may render to a company affiliated to the company which he is auditing its accounts and when the following requirements are fulfilled:
a- That the service rendered by the Auditor requires no judgments'.
b- That the affiliated company be not significant to the company which the auditor audits its accounts.
c- That the volume of these services is clearly insignificant to the Auditor and the affiliated company.
d- That rendering such service by the Auditor shall not have a significant impact on the financial statements of the mother company.
2- Design or execute any software should they have an essential influence on its financial statements or controlling systems. The Audit Committee must verify the fulfilment of these requirements.
3- Render any services or internal audit activities through sub-contracting.
4- Render any actuarial services or activities.
5- Render or participate in any evaluation or pricing services or activities to the company during the Auditing process.
6- Render any administrative services or activities or recruitment services of the human resources working in the financial management of the company or the administrative positions there-in starting from Heads of Departments and higher or equivalent administrative or supervisory positions.
7- Render any services or activities in reference to financial brokerage.
8- Submit any consultancies except for the following investment consultancies:
Assisting the client in preparing feasibility studies and strategic plans.
Capital restructuring advisory.
Reviewing or Auditing Service as regards the companies which the client is willing to purchase.
In these exceptional instances, the Audit Committee must verify the following:
a- That procedures and policies which prevent the Auditors employees from adopting any decision as regards the company's management are set down.
b- That the Auditor's employees who have rendered the above mentioned services shall not participate in the auditing process.
c- That the Auditors fees for these services are not significant.
d- The subject of the service is not significant or have no impact on the financial statements of the company which he audits its accounts.
9- Render any legal services or activities or expertise except for support expertise activities related to a judicial claim being examined before courts.
10- The External Auditor must commit to attend the general assembly meetings and read its report to the shareholders, clarifying any obstructions or interferences from the Board of Directors which he encountered during his service, in addition to his remarks on the company's accounts and financial status and any violations there-in. His report must be independent and neutral.
11- The External Auditor must notify the controlling authorities of any substantial violations or obstacles and their details in the instance where the Board of Directors fails to adopt the appropriate decision in this concern.
Article 11 - Delegation of Management:
The Board of Directors may delegate to any Board member or to the executive management some of the administrative matters included within his competency. In this instance, the Board is required to give clear directives regarding the management powers especially whatever is related to the instances where the management is required to obtain a prior approval from the Board of Directors before adopting any decisions or concluding any liabilities on behalf the company, provided that a written list of the duties and competencies carried out by the Board of Directors, or to be delegated to the management must be set down, in addition to reviewing these duties and competencies periodically.
Every delegation must be clearly defined in subject and time of implementation. It must include the date on which the results shall be presented to the Board members.
Article 12 - Shareholders Rights
1- The Shareholders shall be given all the rights related to the share and specifically; the right to receive a share of profit decided to be distributed, the right to share in the company's assets after its dissolution, the right to attend the general meetings and participate in its deliberations and vote on decisions, the right to dispose of the shares, the right to have access to the reports and the company's financial lists, as they shall have the right to request to view the company's books and documents by a permission from the Board of Directors and the general assembly in conformity to whatever is specified in the company's bylaw.
2- The company's Articles of Association and its by-laws must include the procedures and controls necessary to ensure that all shareholders are practicing their regulatory rights which include:
a- Provide the shareholders with all the information necessary to exercise their rights efficiently without discrimination, and informing them of the rules governing the meetings of the general assembly and voting procedures, accordingly these information's must be sufficient, precise and be submitted and updated regularly on the fixed time, including any information related to the company's plans before voting on them in the meetings or any other information.
b- Give the shareholders the opportunity to participate effectively in the deliberations of the meetings of the general assembly and vote on its decisions. The Shareholders are entitled to discuss the subjects listed on the meeting's agenda, address questions in this concern to the Board members and the external auditor. The Board of Directors or the external auditor must answer these questions without harming the interests of the company.
Clause 2(c) of Article 12 was amended by virtue of Article 3 of Ministerial Decision No. 250/2014 dated 01/05/2014, to read as follows:
c- The members' election shall be done by cumulative voting.
3- The Board of Directors must disclose the important incidents, significant decisions and the clarifying information related the status and activities of the company. The Board must set down a clear policy on the company profit distribution process to the benefit of the shareholders and the company. The shareholders must be informed of this policy in the general assembly meeting and be mentioned in the Board of Directors report.
4- The members of the Board of Directors are not allowed to attend by proxy on behalf the shareholders in the meetings of the general assembly.
The text of Clause 5 was replaced by virtue of Article 4 of Ministerial Decision no. 84/2010 dated 07/03/2010 and then was amended by virtue of Article 3 of the Ministerial Decision No. 250/2014 dated 01/05/2014, to read as follows:
5- The company must announce the opening act of nomination for the Board of Directors' membership, call upon the General Assembly, and comply with the following:
a- To keep the nomination doors for the Board of Directors' membership opened for fourteen days from the announcement date.
b- To publish the candidates' names and data thereof related to candidacy on the company' s billboards and its website on the international information network, and that five days before the date set for the company's General Assembly meeting to convene.
c- To notify the Authority and the Market of the candidates' names.
d- To provide an outline of the candidates, before proceeding with the vote, that gives shareholders a clear idea about their experiences and qualifications.
Two clauses No. (6) and (7) was added by virtue of Article 3 of Ministerial Decision No. 250/2014 dated 01/05/2014, to read as follows:
6- Every person wishing to run for the elections must submit an application accompanied with his outline and the capacity for which he wants to apply (executive/ non-executive/independent). He shall meet the terms of candidacy mentioned in the Commercial Companies Law, its amending Laws and the company's statute.
7- The company must comply with the controls set by the Authority on the investors' relations.
A new Clause was added under no. (8) to Article (12) by virtue of Article 2 of Ministerial Decision No. 225/2015 dated 09/04/2015 as follows:
8- Except for the decisions which shall be issued by a special majority pursuant to Federal Law no. (8) of 1984 concerning Commercial Companies and its amendments, the decisions of the extraordinary general assembly for the amendment of the company's Statute shall be issued by the simple majority of the shares present at the meeting and which represent (50%) of the present shares plus one share.
A new Clause was added under no. (9) to Article (12) by virtue of Ministerial Decision No. 225/2015 dated 09/04/2015 as follows:
9- All the shares issued by the company shall be ordinary and shall have equal rights and obligations, and all the share-related rights shall be granted to the shareholders especially the right to obtain his share in the profits and the company's assets upon liquidation thereof, and to attend the general assembly sessions and vote thereon. The Board of Directors may not issue decisions which make changes in the rights of shareholders to vote.
A new Article was added under the number (12/bis) by virtue of Article 4 of Ministerial Decision No. 250/2014 dated 01/05/2014, as follows:
Article (12/Bis) - Conclusion of Transactions or Deals with the Concerned Parties
1- The company may not conclude transactions or deals, with concerned parties, whose rate is 10% or more of the company's assets value- according to the last financial annual or progress statements of the company- unless having the approval of the Board of Directors and the General Assembly. The concerned party may not vote for the decision of the Board of Directors and the General Assembly issued on the transaction proper to this party.
If any meritorious modification occurs to the terms of the transaction or deal, the company must re-obtain the consent of the Board of Directors and the General Assembly. Said transactions or deals must be evaluated, and the terms thereof must be reviewed before their conclusion to the knowledge of one of the companies competent in the field of transactions or deals. The company must bear the assessment expenses.
2- The damages caused to the company shall fall on the following parties if transactions or deals were concluded with concerned parties, in violation with clause 1 hereof, or if said transaction or deal is deemed unfair, involves a conflict of interest or affects the rest of shareholders:
a- A member of the Board of Directors concerned in the transaction
b- The Board of Directors if it issued a decision unanimously or by majority, so the opponents won't be asked to justify their opposition once reported in the session's minutes. If any of the members didn't attend the session within which the decision was issued, he will be handled responsible of said decision until he proves that he lacked of knowledge or he proves that he knew about the decision and wasn't able to object it.
Clause (3) of Article 12 (bis) was amended by virtue of Article 1 of Ministerial Decision No. 225/2015 dated 09/04/2015 to read as follows:
3- If the company concludes transactions or deals with the concerned parties, each shareholder (s) who owns 5% or more of the company's shares shall be entitled to the following:
a- To look at all the documents related to transactions or deals and examine the same
b- To appoint an “independent auditor or evaluator” to perform the examination at the shareholder's expense.
c- To submit an application to the Authority in order to examine the particulars of the transactions or deals in case of violation of the procedures stated in this Decision, and consider the invitation of the general assembly in case the Authority is certain that a violation to such procedures or any error in the management of the company had occurred.
d- To file a lawsuit before the competent courts against the transaction or deal parties to compel them to submit the following:
- The information concerning which the defendant expressed his determination to base his defence thereon.
- The information and documents which directly prove facts that are specified in the statement of claim deposited by the plaintiff before the court.
- The information and documents related to the transaction or deal without limitation.
- The information and documents which lead to uncover relevant information.
Without prejudice to the provisions of Federal Law no. (10) of 1992 on the promulgation of the Law of Evidence in Civil and Commercial Transactions, the shareholder shall have the right, during consideration of the lawsuit, to ask subject-matter related questions to the parties to the transaction or deal or the witnesses, without having to obtain a prior consent to ask such questions. The competent civil court may, if said transactions or deals are proven to be unfair, involved a conflict of interest or affected the rest of shareholders, cancel the transaction or deal and impose on the concerned party to pay to the company any profit or benefit achieved thereto in addition to a compensation, if it was proven that the company was damaged. Also, the competent penal court may, should the lawsuit be referred thereto by the public prosecution and if it was proven that the transaction or deal concluded by the concerned party involved fraud in terms of its value, nature, essential features, type or relevant documents or any other fraud in the commercial transactions, impose the penalty of imprisonment or the fine prescribed in Article (423) stipulated in Federal Law no. (3) of 1987 on the promulgation of the Penal Code.
e- To claim the recovery of the judicial fees of the lawsuit instituted according to the provisions of Clause (2) of Article (133) and Article (134) of Federal Law no. (11/1992) concerning the Civil Procedures in the two following cases:
- The judgment was rendered in favour of the shareholder to impose upon the concerned party the payment of the lawsuit expenses which include as well the remuneration of the lawyers. In case of multiple defendants, the Court may decide to divide the expenses equally or in proportion to the interest of each of them in the lawsuit, at the discretion of the court.
- If the Court finds that the concerned party who won the lawsuit has caused that the shareholder pays useless expenses, or the concerned party has left the shareholder unaware of the conclusive documents in his hands or of their content.
4- The Chairman of the company's Board must notify the Authority of the following matters, if transactions or deals were concluded with concerned parties:
a- A notification including data and information on the concerned party, the details of the transaction or deal, its nature and the interest of said party in this transaction.
b- A written confirmation proving that the transaction or deal terms are fair, rational and in favour of the company's shareholders.
A new Article was added under the number 12 (bis) by virtue of Article 3 of Ministerial Decision no. 239-1 of 2012 dated 31/05/2012 and then the numbering of article 12/bis on the disclosure of the concerned party shall be modified to 12/bis/1, by virtue of Article 5 of the Ministerial Decision No. 250/2014 dated 01/05/2014, as follows:
Article (12/Bis/1) - Disclosure by relevant parties
Article (12/bis/1) was amended by virtue of Article 5 of Ministerial Decision No. 250/2014 dated 01/05/2014, to read as follows:
1- If any of the concerned parties concluded a transaction with the company, the mother company or any of its subsidiaries or sister companies, whose rate is 10% or more of the company's assets value- according to the last financial annual or progress statements of the company- this party must immediately disclose- through a letter sent to the Board- the nature of this transaction, its terms, all the meritorious information on his shares or his contribution in both companies parties of the transaction or deal, his interest and benefits. The Company's Board of Directors must then immediately disclose said information to the Market.
2- The details of the transaction mentioned in paragraph 1 hereof shall be listed along with its terms and the conflict of interests related to the party concerned in the annual financial statements showed to the General Assembly. These statements shall be published on the website of the company and the Market.
3- If the concerned party refrained from disclosing his deal mentioned in clause 1 hereof, the Company's Board of Directors or any shareholder owning 5% or more of the company's shares may file a lawsuit against the member of this Board or the concerned party, before the competent Court, on the suspension of the violating transaction and the imposition on this member or party to pay to the company the profits or benefits they achieved.
Article 13 - Codes of Ethics
The company must commit itself to adopt the codes of ethics and other internal policies and principles in consistent with the company's objectives and goals, and must comply with the Laws and regulations in effect. These codes shall apply to the members of the Board of Directors, Directors, employees and the internal auditor when performing their tasks.
The companies shall implement an environmental and social policy towards the local community.
Article 14 - Corporate’s Governance Report
The Corporate's Governance Report means the report signed by the Chairman of the Board of Directors and submitted to the Authority once a year or at request during the accountancy period covered by the report or as regards any subsequent period until the date of publishing the annual report. It must include all statements and information mentioned in the form issued by the Authority and especially what follows:
1- The principles and requirements for completing the corporate governance bylaw, and its implementation method.
2- Violations committed during the fiscal year, with statement of their reason, handling method and avoiding their repetition in the future.
Clause (3) of Article (14) was amended by virtue of Article 1 of Ministerial Decision No. 225/2015 dated 09/04/2015 to read as follows:
3- How to form the Board of Directors according to the categories of its members, their term in office, the method for determining their remunerations, and the remunerations of the Director-General, the Executive Director or the Chief Executive Officer and the employees appointed by the Board of Directors.
The Board of Directors must make this report available to all the shareholders in sufficient time before the date of the general assembly meeting.
Article 15 - Administrative Penalties
The Authority may impose any of the following penalties against whoever violates the provisions specified in this Decision:
1- Address a warning the company to remove the causes of violation.
2- Suspend the listing of the company's security.
3- Cancellation of listing.
4- Financial Fine not in excess of the maximum limit as specified in the law.
Article 16 - Implementation of this Decision
1- The companies and establishments which have listed securities on any of the financial markets are required to adjust its situations pursuant to the provisions of this Decision before 30/4/2010.
2- This Decision shall be published in the Official Gazette and be put into effect on the next day of publication. Companies and establishments which list securities on any of the financial markets after the implementation of this Decision must comply with its provisions.
Issued in Abu Dhabi
Sultan Bin Said Al-Mansouri
Minister of Economy
This Ministerial Decision has been published in the Official Gazette, issue no. 500, p. 273
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