In a recent high-profile case, the Abu Dhabi Commercial Court has delivered a significant judgment that underscores the importance of corporate governance, financial oversight, and the responsibilities of company executives. This case, which involved a public joint-stock company and several individual defendants, offers valuable insights into the legal landscape surrounding corporate financial transactions and the potential consequences of breaching internal procedures.

The Dispute at a Glance

The case centered around allegations of misappropriation of company funds through a series of questionable transactions. The plaintiff, a public joint-stock company, accused several defendants, including former executives and external parties, of orchestrating a scheme that resulted in the unauthorized payment of approximately AED 90.2 million (about $24.5 million).

Key Legal Issues

1. Corporate Governance and Internal Controls: The court emphasized the critical nature of adhering to proper corporate governance procedures, especially in public joint-stock companies. The case highlighted how bypassing established protocols for approving contracts and financial transactions can lead to significant legal and financial repercussions.
2. Executive Responsibility: A central issue in the case was the extent of responsibility borne by company executives. The court examined the roles of various officials, including the general manager and financial director, in facilitating the disputed transactions.
3. Validity of Contracts and Payments: The court scrutinized the legitimacy of price quotations, assignment orders, and subsequent payments made to external parties. This scrutiny focused on whether these transactions had proper authorization and whether they corresponded to actual services rendered.
4. Evidence and Burden of Proof: The case underscored the importance of documentary evidence in corporate disputes. The court relied heavily on expert testimony and financial records to establish the facts of the case.

Court’s Findings and Ruling

After a thorough examination of the evidence, including expert reports, the court reached several key conclusions:

1. Invalidation of Transactions: The court ordered the cancellation of all price quotations and related assignment orders involved in the dispute, deeming them invalid due to lack of proper authorization and failure to follow internal company procedures.
2. Financial Restitution: The primary defendant, identified as the owner of two individual establishments involved in the transactions, was ordered to repay the full amount of AED 90.2 million to the plaintiff company.
3. Interest Award: The court granted interest at a rate of 3% per annum from January 4, 2024, until full payment is made, not to exceed the principal amount awarded.
4. Dismissal of Claims Against Certain Defendants: Interestingly, the court dismissed claims against two former company executives (the fourth and fifth defendants), citing insufficient evidence of their direct involvement in the fraudulent scheme.

Legal Principles Affirmed

This ruling reinforces several important legal principles in UAE corporate law:

1. The sanctity of internal corporate procedures and the consequences of circumventing them.
2. The high evidentiary standard required to hold individual corporate officers personally liable for company losses.
3. The court’s authority to invalidate transactions that lack proper corporate authorization, even if they have been partially or fully executed.
4. Maintaining clear and comprehensive documentation for all significant corporate transactions is important.

Implications for UAE Businesses

This case serves as a stark reminder to UAE companies, particularly public joint-stock entities, of the need for robust internal controls and strict adherence to corporate governance standards. It highlights the potential personal liability of corporate officers and the importance of maintaining proper documentation for all significant transactions.

For corporate entities operating in the UAE, this ruling offers valuable lessons on the importance of due diligence, proper authorization procedures, and the potential pitfalls in complex financial transactions. It also demonstrates the UAE judiciary’s approach to balancing corporate liability with individual responsibility in cases of alleged financial misconduct.

As the UAE continues to position itself as a global business hub, cases like this play a crucial role in shaping its legal landscape and reinforcing confidence in its judicial system’s ability to handle complex commercial disputes.

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