Interest in Corporate Governance has increased markedly in the past decades with headline-grabbing scandals such as WorldCom and Enron and more recently the subprime mortgage crisis of 2008. One of the recurring themes in these cases was the failure of corporate governance. Lack of corporate governance can lead to bankruptcy, fines, or even worse a lengthy jail sentence. Committed to strong corporate governance principles and in an effort to continue to comply with international standards, the Sultanate of Oman has seen major changes to its legal framework in 2019, which include a New Commercial Companies Law (hereinafter the “New Law”). Not only are these laws designed to promote business in the Sultanate, but they are also in line with Oman’s Vision 2040. One of the key pillars of Vision 2040 is Governance, which will lead to greater transparency, accountability, consumer confidence, and foreign investment. As such, this article will highlight some of the key changes to the Commercial Companies Law with respect to Corporate Governance.
New Commercial Companies Law & Corporate Governance
The New Law seeks to build on a tradition that already embraces robust Corporate Governance Principles as indicated in the Code of Corporate Governance for Public Listed Companies (hereinafter “the Code”) 2015, Ministerial Decision 92/2003 regarding Closed Joint Stock Companies, as well as the Royal Decree 4/1974. As such, there are several new articles and amendments that specifically apply to the Board of Directors, Executive Management, and Minority Shareholders:
- Board Composition: Article 179 of the New Law states that Board of Directors must now represent odd numbers: 5, 7, 9, or 11 directors for a publicly listed companies and 3, 5, 7, 9, or 11 directors for closed joint stock companies. The theory is that it will provide greater decision making efficiency.
- Corporate Governance for Companies Owned or Partially Owned by the Government: Article 20 is a new article which states that, the Capital Markets Authority (hereinafter the CMA) “shall draw up governance regulatory principles which must be complied with by public joint stock companies and companies in which the Government owns shares.” Joint stock companies are already subject to the Code, however the new article indicates both public joint stock companies and companies. As such, there will be additional regulatory principles for companies where the government owns shares. It is expected that the Code will clarify these points such as the interpretation of what it means by the term companies. Also, clarification is needed to clearly state the percentage of government shares that will make companies subject to Article 20.
- Notifications and Disclosures: Article 205 is a new article that places additional duties on the Board of Directors and the Executive Management, which requires them “to notify the company in writing of the interests he/she has with the company and securities held by him/her therein, within 5 days…from gaining the membership or appointment.” Please note that this is an-ongoing duty and notification. Article 197 is also a new article which allows the general meeting to determine remuneration for the Board of Directors and any privileges in this capacity or any other capacity must be disclosed. Please note that this is an on-going disclosure. Under the old law remuneration was capped for the Board of Directors and it is anticipated that the Executive Regulations will provide further insight as to whether this will apply under the New Law.
- Increase in Minority Shareholder Rights: Article 165 of the New Law states that “any proposal submitted by a shareholder that represents 5% of the capital shall be included in the agenda of the general meeting.” The old law granted similar rights, but it applied to shareholders that represented 10% of the capital. Expansion of minority shareholder rights is also discussed in Article 164 whereby shareholders holding at least 10% (25% under the old law) can demand the Board of Directors to convene a general meeting. Here, the New Law seeks to expand the voice of the minority shareholder and provide a system of accountability.
- Conversion of Holding Company Structure to a Joint Stock Company and Establishment of a Board of Directors: Article 227 states that, “a holding company is a joint stock company…” As such, all Holding Companies structured as limited liability companies (hereinafter LLC) must convert to a joint stock company and establish a Board of Directors. Many LLCs were owned by family members as shareholders, which could create issues when forming a board and complying with the above-mentioned Corporate Governance laws.
- Liability of the Board of Directors: Article 161 is a new article that states in pertinent part, “any acts performed by…the Board of Directors, one of its committees, or the executive management shall be binding on the company.” Here, the law seeks to impose a higher degree of responsibility on the decision makers within the company.
- Increased Penalties and Jail Time: Article 306 is a new article that provides an increase in jail time for a period of 1 to 3 years and with a fine ranging from 10,000 Omani riyals to 50,000 thousand Omani riyals for various acts committed by the Board of Directors, auditors, and Executive Management including, but not limited to fraud, falsification of records, forgery, and using the company’s assets for personal gain.
The New Law also expands the role of the CMA in the field of corporate governance, which will be discussed in future articles. It is clear that the New Law provides additional checks and balances among the various stakeholders including the Board of Directors, Executive Management, minority shareholders, and the CMA. As such, this will lead to greater responsibility and accountability within the realm of Corporate Governance. Please be advised that the aforementioned is not legal advice and is not an exhaustive list of the changes to the new law.
The Role of a Corporate Lawyer with respect to Corporate Governance
Each company is unique and therefore we provide tailored advice to meet your company’s needs including the following:
- Board structure and composition that is legally compliant and fits your strategic needs;
- Counseling on conflict of interest and related party transactions;
- Vetting, elections, remuneration, and succession planning;
- Keeping Executive Management and Board of Directors up-to-date on evolving and best practices for corporate governance, including review and updating Articles of Association and related documents.
- And, much more…
About the Author
C. Ann Whalen, Esq. is a Corporate Lawyer & Head of Global Business Development at Rajab Al-Kathiri & Associates. A native of the United States and qualified to practice law in the State of New York, Ms. Whalen brings close to a decade of legal experience from New York City, the GCC, and Singaporean markets. A proud recipient of Fulbright and Boren Fellowships, Ms. Whalen has been in Oman since 2015 and is enjoying using her Arabic to write legal opinions and to train the next generation of Omani lawyers. Ms. Whalen will be publishing a similar article in Arabic on the OABC website in the coming weeks.
Rajab Al-Kathiri & Associates is a full-service law firm located in the center of Muscat at the Jasmine Complex with a branch in Sohar. Rajab Al-Kathiri opened its doors more than thirty years ago and today has more than twenty-five members on its legal team. Rajab Al-Kathiri & Associates has teams dedicated to Litigation, Corporate, and Alternative Dispute Resolution. For inquiries as to how the firm can advise your company, please contact Ms. Whalen at firstname.lastname@example.org.