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Becoming a director gives status and a direct impact on the strategy and success of a business. But at times when businesses face financial difficulties, directors are often faced with the challenge of balancing their obligations to shareholders, creditors and other stakeholders, while diligently performing their duties and keeping in mind potential personal liability.
Directors in the region will typically be under a general duty to:
But what changes in the context of insolvency: are there different considerations? As a starting point a heightened level of awareness and care is required in a potential insolvency situation. In certain jurisdictions like the United Kingdom, a director’s duty can effectively switch to be owed to the creditors of the relevant company as opposed to the shareholders. This is also the case in the UAE common law jurisdictions of the Dubai International Financial Centre and Abu Dhabi Global Markets. While this is not necessarily the case in the Middle East, directors must be aware of their obligations when potentially trading while insolvent and what steps should be taken to protect themselves and the company.
Relevant considerations include:
The need to consider these issues is amplified by the potential liability that can sit with directors. Looking at the region:
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