Introduction-Commercial Company Law
There has been New Government Rules issued by the authority recently, The Provisions are related to “Related Parties”, “Insiders”, and “Conflict of Interest”. The purpose of this article is to provide an overview between the New Government Rules and Commercial Company Law.
To suffice the purpose of this article, let us first understand the definition of these terms to get the overview of the terms.
Deals
The simple definition of deal is “an agreement entered into by two or more parties for their mutual benefit, especially in a business or political context’. It would define as Transactions, contracts or agreements entered by a public joint stock company that is listed in the market and do not fall under the main activity of such company or by way of including preferential terms that are not usually granted by the company to its clients, in addition to any other deals to be specified by SCA from time to time by a resolution, instruction or circulation issued thereby.
The new rule Is that the deal entered between related parties the company is 5 percent or less than the company’s capital, the approval of the Board of Directors is required. When the value exceeds 5 per cent the approval of the general assembly is required. However, the old definition mentions if deal’s value is 10 per cent or more of the company’s total assets the approval of the Board of Directors and General assembly.
However, the main issue rises in this regard is that whether the value of Deal’s shall be calculated per se or it shall be calculated accumulative. The new definition was issued recently and have not been put into practice, which creates confusion on this matter.
Another point to be considered that whether valuation of the Deal’s is required or not, the old definition of deal’s mention that the valuation of the deal is required whose value are less than 5 per cent of the company’s capital, however the new definition has ruled out this requirement and mentioned that only those Deal’s are less than 5 per cent of the company’s capital is not required.
Related Parties
The new definition of Related Parties has been amended in the new government rules by limiting the Related Parties to the Chairman, Board Members, Members of the Senior Executive Management and the employees of the company and the companies to which any of such persons own at least 30 percent of their share capital as well as sister and allied companies and subsidiaries.
The motive of such change is lesson the burden of the disclosure to the people who are entered in such deals with the company where it is impracticable. Therefore, the burden of the disclosure about the deals Is only on those are related parties as explained above.
Another point to be considered is the New Government Law is that it is saying 30% of shareholding owned by Chairman, Board Members, Members of the Senior Executive Management and the employees of the company and the companies to which any of such persons, however the old definition is mentioned 30% of shares holding by such people, so the point is the new law is silent on whether such holding should be directly or indirectly since, indirect owners have the same benefits as direct owners.
For the disclosure requirements, the new rule said the disclosure of Deal’s entered by related parties with the company, a subsidiary, or a sister company on the other side has to be disclosed to the Board of Directors whatever is the value of the deal. The old rules on the other hand mentioned that disclosure required only if the Deal’s value is 10 per cent or more of the company’s total assets. The New Governance Rules in Commercial Company Law further introduced to maintain a register of related parties which will include the value of the Deal’s and name of parties and every detail.
Insiders
The new Governance Rule in Commercial Company Law introduced new provisions for insiders (Article 12) and Confidentiality (Article 13) that did not exist under the Revoked Governance Rules. However, the new Governance Rule does not define an Insider, therefore it Is very difficult to determine who is an insider and who is not an insider of the company Therefore, insider can be determined on a case to case basis, so we assume that insider can be considered who are company’s related parties or their relatives and the persons who have access to the inside information prior to publication such as consultant, advisors who are employed or retained on a certain deal.
The new rule in Commercial Company Law also mentioned to maintain the register of permanent & temporary insiders with their name and details and it should include their disclosures.
Conflict of Interest
Another new provision also has been introduced which does not exists in the revoked law that if any Board of Directors has a joint interest of conflict of the interest with the Deal presented to the Board of Directors to take a decision on the same should inform the board regarding his interest and will not be allowed to vote on such deal and the director must inform the same to the company beforehand about the conflict of the same. If any director fails to do the same, then the company can resort to the court to invalidate the deal and the director will be compelled to pay any profit or benefit he obtained from such deal.
The new Governance Rule in Commercial Company Law also mention to maintain the register of Conflict of interest with each detail regarding to, name, address, amount, declared interest and any court decides if he fails to do so.
To Conclude we can say that the new rule is a detailed solution to avoid any problems which the company may get in the future due to the negligence of the details and therefore, it is very beneficial in today’s era. However, it is not yet put in practice once it is done, we may get to know more advantages of this.
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