Up Again Qatar: Governance


1. What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?

The competent authorities in Qatar have not issued any specific guidance or changes to corporate governance policies or recommendations during the COVID-19 pandemic. The Ministry of Commerce and Industry has passed a circular permitting public and private shareholding companies to hold general assembly meetings remotely and to use electronic voting mechanisms subject to certain conditions.

Directors should continue to act in compliance with their obligations (which will vary depending on the type of company, its jurisdiction of incorporation in Qatar, and specific obligations set out in the company’s constitutional documents). Directors should not exceed the limits of their authority in dealing with unusual or unprecedented circumstances.

For companies facing financial distress as a result of the COVID-19 pandemic, boards should be mindful of their obligations under relevant legislation, including the Companies Law and bankruptcy provisions of the Commercial Law. Failure to properly act can result in personal liability for directors.

The Qatar authorities continue to implement restrictions on the number of employees permitted in commercial locations and certain health and safety obligations have been imposed. Directors should conduct a proper analysis of return-to-work logistics.

2. Should boards adopt particular governance practices in this context?

Shareholders and board members should be able to attend and vote at general assembly meetings and board meetings electronically. This practice is likely to continue for as long as restrictions on face-to-face meetings and travel restrictions remain in place.

3. To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?

There has been no formal encouragement for boards of companies in Qatar to take into account corporate purpose and values in the context of COVID-19 and a return to work. However, such considerations should undoubtedly form part of a board’s decision-making.


4. Your company is facing liquidity issues as a result of COVID-19:

a. What are the repercussions for continuing to operate your company?

Companies facing liquidity issues should consider (among other things) the requirements in the Companies Law and the bankruptcy provisions of the Commercial Law regarding requirements where the company is insolvent, including continuing to trade while insolvent.

Companies Law

The Companies Law sets out relevant obligations of managers and shareholders. This includes the following obligation on a limited liability company (LLC) to start winding-up proceedings (whether the company is solvent or insolvent) based on company losses:

  • The manager(s) (or any person whose name appears on the commercial register as an LLC authorised signatory) must call a shareholders’ general assembly to be held no later than 30 days from the date the losses amounted to half or more of the LLC’s share capital.
  • The shareholders must resolve (by a majority of shareholders holding 75% of the share capital), to either:
    • reinstate the LLC’s capital; or
    • dissolve the LLC.

Both steps must be complied with and completed within the required 30-day period to avoid the shareholders and/or the managers becoming jointly and severally liable for all the LLC’s debts. Failure to comply with these steps therefore effectively results in a shareholder guarantee.

Under the Companies Law, if the company is found to have ceased conducting business, or conducts business in contravention of the Companies Law, the relevant ministry or government authority is obliged to notify the company that it shall be deregistered within three months from the date of the notice “unless a good reason not to deregister the company is provided.” If no reason is provided, the matter is referred to the court for liquidation of the company.

Commercial Law (bankruptcy provisions)

If it is established that the company has insufficient assets to pay at least 20% of its debts, the court may order some or all directors/managers jointly and severally to pay all or some of the company’s debts. A defence is available if it can be established that reasonable diligence was exercised in managing the company’s affairs. This is not a shareholder issue.

There are significant civil and criminal sanctions that may be applicable to directors or managers of a company. Such sanctions may include:

  • restrictions on individuals involved in the management of being involved in other entities; and
  • potential criminal liabilities on directors if the books and records have been improperly kept, assets improperly disposed of, or where there is a lack of cooperation with the administrator for the bankruptcy.

The bankruptcy provisions of the Commercial Law provide that certain dispositions including settlement of debts prior to maturity, donations, and settlement of debts other than in the manner contractually agreed may be challengeable by the creditors, to the extent that such transactions take place after suspension of payments and prior to adjudication of the bankruptcy.

A transaction is liable to be void if the act was harmful to the general body of creditors and the recipient was aware at the time of receipt that the bankrupt party had stopped making payment.

If a disposition is deemed invalid, the recipient is obliged to reinstate the bankrupt estate either with the property or the monetary equivalent.

Members of the board of directors of a company that has been issued a final declaration of bankruptcy may be punished by detention for a period of between one and five years if it is proved that they have:

  • hidden, altered, or destroyed the company’s books;
  • embezzled part of the company’s property, or hidden or disposed of company property with the intent to remove it from creditors;
  • knowingly declared debts that are not payable by the company, whether the declaration is in writing, verbal, or in the balance sheet, or by refraining from presenting accurate papers;
  • obtained conciliation for the company by means of deception; or
  • reported capital that is subscribed or paid up contrary to the truth, distributed fictitious profits, or appropriated remuneration in excess of the amount prescribed by the law or in the company’s memorandum of association or articles of association.

Members of the board of directors of a company that has been declared bankrupt may also be subject to punishment by detention of between six months and three years if it is proved that they have:

  • not kept commercial books that are adequate for an understanding of the reality of the company’s financial position;
  • refrained from presenting information demanded by the judge for bankruptcy or the bankruptcy administrator, or if they have deliberately presented incorrect information;
  • after the company has ceased to pay, settled the debt of one of the creditors that is damaging to the other creditors, or have allocated securities or special benefits to one of the creditors preferentially over others, even if this was with the intention of obtaining conciliation;
  • disposed of the company’s goods for less than their normal price with the intention of delaying the cessation of payment by the company, declaring its bankruptcy, or the setting aside of conciliation, or they have the recourse to achieve these purposes by illegal means to obtain cash;
  • spent large amounts of money in speculative transactions in a manner not required by the company’s commercial activity; or
  • participated in acts contrary to the law or the company’s memorandum of association or its articles of association, or they have ratified such acts.

The punishments above will not be applied to those who it is proved did not participate in the act that is the subject of the crime, or who it is proved had reservations about the decision taking regarding it.

b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?

Under the bankruptcy provisions of the Commercial Law, any company (trader) who has stopped paying its commercial debts as they fall due because of a distressed financial status can be declared bankrupt.

c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?

Practical steps include:

  • holding regular board meetings to authorise actions;
  • considering recapitalisation;
  • documenting all actions taken and maintaining full records (including minutes of board meetings);
  • ensuring that the board has accurate financial information (in the form of up-to-date management accounts);
  • assessing whether any particular methodology should be employed in the context of ongoing trading, with an overriding objective of minimising losses to creditors including:
    • incurring credit;
    • entering into customer/supplier contracts;
    • using bank facilities;
    • creating contingent liabilities; and
    • disposing of assets outside the ordinary course of business;
  • investigating suspected misconduct and recording findings, and ensuring that any relevant evidence is preserved;
  • preparing up-to-date cashflow statements, management accounts and projections, and considering availability of existing facilities (e.g. checking events of default that may prevent drawdown);
  • considering alternative means of support (e.g. stakeholders, key customers, government-backed facilities, disposals of assets); and
  • considering whether outflow of cash to creditors can be managed/delayed –in particular, speak to landlords and key suppliers.

Although current Qatar public policy is designed to inject liquidity into the economy, directors should still carefully consider the items discussed above and the requirements of relevant laws (including the Companies Law and Bankruptcy Law). They should consider whether adding more burden to the balance sheet will ultimately benefit the company’s stakeholders (including creditors).

We recommend directors implement strategies that have a reasonable prospect of avoiding insolvency proceedings and minimising loss to creditors. Decisions to continue to trade must be carefully justified and require careful navigation with the aid of expert advice from lawyers and insolvency practitioners. Such strategies and the reasons for them should be regularly monitored and properly minuted at board meetings.

d. Will your company be wound up if you fail to make payments when due?

A company (trader), creditor or the public prosecutor may petition the court to make a bankruptcy order.

An application for bankruptcy must be submitted to the court, stating the reason for the suspension of payments along with a signed report appending various information relating to the books and records of the business and a summary of the creditor position.

If the managing director of a company intends to apply for bankruptcy they must first obtain permission to do so from an extraordinary general meeting of shareholders. The company must then submit a signed report setting out the reasons for the company’s insolvency and attach the required documents in its application to the court.

A creditor may apply for a declaration of bankruptcy in respect of a company that fails to pay its debts when due. The creditor must demonstrate to the court that the company has suspended payment of its commercial debt. Arrears owing to lessors or unpaid debts to supply chain entities may be considered sufficient from the perspective of a court to commence bankruptcy proceedings.