Is a Member of the Board of Directors Liable for the Company’s Debts?
The Story of a Bankruptcy Claim for AED 513 million and a High-Profile Legal Battle Lasting Seven Years
The UAE courts witnessed one of the most complex and protracted judicial disputes in the field of bankruptcy and the liability of members of the board of directors. In this matter, our firm (M&CO) represented several members of the Board of Directors of Marka, including the Vice Chairman of the Board, in a bankruptcy claim filed against the company.
The Court, in this case, ruled that they are jointly and severally liable to pay an amount of AED 513,178,838.50, representing the total indebtedness of the company Marka.
This case was exceptional in nature, both in terms of its factual background and legal complexity. Its judicial proceedings extended over a period of nearly seven years, from 2019 until the issuance of the final judgment by the Court of Cassation on 27 January 2026.
The management of this litigation was marked by distinguished leadership from Dr. Mahmood Hussain, Dr. Salman Al-Taweel, and Mr. ElSayed Mohamed, with the support of the litigation team at M&CO. This case stands as one of the landmark disputes that contributed to consolidating judicial principles concerning the nature and limits of the liability of members of boards of directors in the context of bankruptcy, affirming that such liability is exceptional in nature, is not presumed, and arises only upon the strict satisfaction of its statutory legal conditions.
Background of the Dispute
A bankruptcy claim was filed against the company and its Board of Directors. In its initial judgment, the Court of First Instance ruled that the members of the Board of Directors were jointly and severally liable to settle the company’s entire indebtedness, based on alleged administrative violations and purported breaches of the provisions of the Bankruptcy Law and the Companies Law, on the premise that they had caused the losses that ultimately led to the company’s bankruptcy.
The Complex Procedural Trajectory
This judgment did not mark the end of the dispute; rather, it signaled the beginning of a complex procedural trajectory, which may be summarized as follows:
We challenged the judgment of the Court of First Instance before the Court of Appeal, which had held the members of the Board of Directors jointly and severally liable for the payment of the company’s indebtedness. The Court of Appeal subsequently ruled that the judgment was null and void insofar as it concerned the liability of the members of the Board of Directors and remanded the case to the Court of First Instance for reconsideration.
Thereafter, the Court of First Instance issued a second judgment, once again holding the members of the Board of Directors liable for the same amount, namely AED 513,178,838.50.
Thereafter, the judgment was appealed for a second time, and the Court of Appeal ruled to dismiss the appeal and uphold the appealed judgment.
Thereafter, a cassation was filed, and the Court of Cassation ruled to dismiss the cassation.
Accordingly, the matter did not end at that stage. We proceeded to challenge the judgment before the General Assembly of the Court of Cassation, which upheld our submissions and arguments, and issued its ruling annulling the judgment of the Court of Cassation and remanding the case file to the Court of Cassation for reconsideration again.
In turn, the Court of Cassation, for the second time, ruled to set aside the challenged judgment and remand the case to the Court of Appeal to adjudicate the merits anew.
Despite all of the foregoing, the Court of Appeal, for the third time, returned to uphold the judgment holding the members of the Board of Directors liable for the indebtedness.
Accordingly, we did not accept this judgment and proceeded to challenge it once again by way of a second cassation. Ultimately, the Court of Cassation upheld our substantive and decisive submissions, set aside the challenged judgment, addressed the merits directly, and ruled that the members of the Board of Directors bore no liability for the debts of the bankrupt company, thereby fully discharging them from any such obligations.
Conclusion
The final judgment of the Court of Cassation marked the culmination of a high-level legal battle, throughout which M&CO acting as legal representative for several members of the Board of Directors of Marka, including the Vice Chairman of the Board steadfastly maintained our position and successfully entrenched a judicial principle of fundamental importance, namely that:
The liability of members of the Board of Directors for the debts of a company declared bankrupt is neither presumed nor automatic. Rather, it is an exceptional and conditional liability that does not arise by operation of law merely upon the declaration of bankruptcy.
Such liability may only be established where two cumulative elements are satisfied:
(I) the existence of a deficit in the company’s assets rendering it unable to satisfy at least 20% of its debts, and
(ii) proof that the board member committed a gross fault, or engaged in fraudulent acts or acts of mismanagement, strictly as exhaustively enumerated under the law.
