The final Law Update of 2022 is here, and it’s packed full of articles. The double edition features two focus areas, first is a spotlight on Energy and Resources and second we feature a collection of articles on Transport and Logistics. The developments occurring in these sectors in the MENA region are unprecedented and our lawyers cover vast themes for you.
The Energy and Resources focus features topics such as diversifying energy resources, solar PV, mining in the Middle East, renewable energy and green hydrogen. From a transport perspective, we draw attention to the Bahrain metro project, discuss the challenges and remedies associated with the repossession of an aircraft, and there is advice on what to consider should a party vary the terms of a shipping contract.
This edition navigates you through updates from across jurisdictions such as, Oman, Jordan, Saudi Arabia, Egypt, Iraq, Qatar, and the UAE. Each article is timely and provides insights into legal issues and cases that are affecting these sectors across the region.Read the full edition
The Corporate Governance Code (“Code”) issued by Ministerial Decree (19) of 2018, has been amended by HE Zayed Al Zayani, Minister of Industry and Commerce, through Ministerial Decree No (91) of 2022 (“Amendment”) which was published in the Official Gazette on 19 September 2022, taking effect the day following its publication.
According to Chapter 1, Section 2, Four, the Code is applicable to all public and closed joint stock companies incorporated in the Kingdom of Bahrain (“Bahrain”) and registered pursuant to the Commercial Companies Law (“CCL”). WLL companies in particular are not bound by the Code.
Compliance with the Code is based upon the “Comply or Explain” principle, meaning that the company is expected to either comply with the provisions of the Code or provide an explanation in the case of non-compliance. There is further guidance within the code on what could be considered an acceptable reason for non-compliance, and this includes but is not limited to the market size of the company or if the company is newly listed.
Chapter 1, Section 2 General Provisions, Paragraph (Ninth)
The company shall keep at its headquarters for not less than ten years:
Chapter 2, Section One, Paragraph (First), (a)
Public joint-stock companies are now required to have women’s representation within the formation of the BoD. This means that such companies should appoint at least one female member to comply with this provision. To monitor compliance, the Code requires such companies to disclose the membership statistics of the BoD, categorised by gender, in the company’s annual Corporate Governance report. This obligation does not apply to closed joint stock companies.
Chapter 2, Section Two, Principle 2, Paragraph (Fourth), (a)
The Amendment prohibits officers or members of the BoD from attending the meeting, or participating in the deliberation, where a decision is to be taken regarding a transaction in which they have an interest. In terms of consequences, the Amendment states that failure to disclose in accordance with this provision would give the company and its shareholders the right to bring a claim against the person in violation of the Code for compensation as well as the right to invalidate a transaction. These restrictions already exist under Article 189 of the CCL, however, the Code is more explicit in extending this duty to officers such as company secretaries. The presence of this in the Code underlines the importance of this obligation and indicates that it would be closely monitored.
Chapter 2, Section Three, Principle 3, Paragraph (First)
There is now a distinction made between public and closed joint stock companies with respect to the composition of the Audit Committee. In all cases, the Audit Committee must:-
(a) have at least three members;
(b) the chairman of the Audit Committee must be an Independent Board Member (as defined in the Code).
For public joint stock companies, the Audit Committee must:-
(a) be fully composed of Board Members (they may not appoint from outside the company);
(b) have a majority of the Audit Committee must be Independent Board Members.
On the other hand, closed joint stock companies:-
(a) must have at least one or more Independent Board Member on its Audit Committee; and
(b) may appoint from outside the company in case of insufficient number of Independent Board Members.
Chapter 2, Section Three, Principle 3, Paragraph (First)
When nominations are proposed to the shareholders for the election or re-election of directors, the BoD must disclose to shareholders if the nominated director is directly or indirectly running any business which is competitive to the company’s business.
There is also a new reporting obligation: the information presented to the shareholders must be published in the company’s annual report.
Chapter 2, Section Seven, Principle 7, Paragraph (Second), (c)
There is an explicit recognition of the right of shareholders to participate in their deliberations and vote on their decisions via electronic voting systems and modern means of technology.
Chapter 2, Section Ten, Principle 10, Paragraph (First), (e)
Both closed and public joint stock companies shall appoint an external auditor for a term of one financial year to be renewed for similar periods not exceeding five (5) years. Previously, this obligation was specific to public joint stock companies.
Appendix 5, Paragraph (Second), (l)
There is more extensive disclosure obligations with respect to the benefits received by the chairman and the board members, as well as the six highest paid of the Executive Management Members, including the CFO and CEO in all cases, and such disclosure should be made in the forms designated by the Ministry of Industry and Commerce (“Ministry”).
Chapter 2, Section Seven, Principle 7, Paragraph (Fifth)
The Amendment has introduced penalties for violations to the Code. The penalties are set forth in Article 362-bis of the CCL. The Ministry can:
The Ministry monitors compliance with the Code by reviewing the reports submitted during the annual general meeting, including the company’s annual report, corporate governance report, and agreed upon procedure (AUP) report. As the annual general meeting is held during the first 3 months after the end of the financial year for public joint stock companies or the first 6 months after the end of the financial year for closed joint stock companies, this means that the public joint stock companies will have to demonstrate compliance by March 2023, while closed joint stock companies will have until June 2023.
Despite the introduction of penalties for violations to the Code, the Ministry has verbally confirmed that penalties will not apply to sections of the Code which provide a mere guide for best practice, and that the Ministry is still honouring the “Comply or Explain” principle.
As the leading law firm in the Middle East & North Africa Region and with strong corporate structuring experience across all industry sectors in the region, Al Tamimi & Company is well-placed to assess the impact of these changes to the Code on your company.
If you would like to further discuss the contents of this update, please contact Al Tamimi & Company in Bahrain.