Changes to the Commercial Companies Law

January 2018

The new amendment made to the Commercial Companies Law No. 21 of 2001 (“CCL”) pursuant to the Law No. 1 of 2018 (“2018 Amendment”) has been issued on 4 January 2018 and its provisions, except for the new Article 176 thereof, came into effect on 12 January 2018.

The most salient changes to the CCL pursuant to the 2018 Amendment are as follows:

Appointment of Board of Directors

Article 176 of the CCL has been amended by the 2018 Amendment. The appointment of a director is still by election from the Ordinary General Assembly, however, election is now to be made by secret cumulative ballot. Cumulative ballot is defined under the said Article as the right of a shareholder to cast more than one vote on a preferred candidate. More specifically, each shareholder shall have a number of votes equivalent to the number of shares it owns and shall have the right to cast all votes it has for one candidate or to divide the votes amongst a number of preferred candidates.

It is to be noted that the application of the new Article 176 only comes into effect on 1 August 2018.

Article 193(a) of the CCL has been amended by the 2018 Amendment. The new Article 193(a) provides that prior to the nomination or election of a director, the director will have to disclose whether he occupies a seat in any other board of directors. This is in addition to the existing obligations to disclose the name of the other companies he works in and whether the work he undertakes therein, directly or indirectly, competes with the company.

Independent & Non-Executive Directors

Article 172 of the CCL has been amended by the 2018 Amendment. The new Article 172 introduced a provision concerning the appointment of independent and non-executive directors in the board of directors of joint stock companies. In accordance with the 2018 Amendment, the board of directors should consist of a number of independent and non-executive directors. The parameters of such appointment will be organized by an order from the Central Bank of Bahrain (“CBB”) for those companies that are licensed by the CBB or from the Minister of the Ministry of Industry, Commerce and Tourism (“MOICT”) for those companies that are not licensed by the CBB.

The new Article 172 gave the right to the Central Bank of Bahrain, for those companies that are licensed by it, or the Minister of Commerce for the other companies—as applicable—to extend the term of the membership of the board of directors beyond its expire for not more than six months.

Article 240(a) of the CCL, that organises the establishment of the board of directors of a closed joint stock company, has been amended pursuant to the 2018 Amendment. In accordance with the new Article 240(a), the Minister of the MOICT or the CBB—as applicable—will issue an order to determine the types of closed joint stock companies that must include members that are independent and non-executive within their board. However, for closed joint stock companies that are listed in the Bahrain stock exchange, the new Article 240(a) provided that their board of directors should consist of a number of independent and non-executive directors.

Conflict of Interest of Directors

Article 189 of the CCL has been replaced in its entirety. The new Article 189 provides that the directors of a joint stock closed company must disclose to the board of directors any personal interest they have, whether direct or indirect, in matters brought up with the board. In such instance the directors will not have the right to vote on such matter or attend the meeting that such matter will be discussed .

The said Article also provides that the directors of a joint stock closed company or its management shall not have any direct or indirect personal interest in any contract or transaction of which the company is a party to, unless approved by the board of directors. The CBB will have the right to issue further restrictions on the approvals required for those companies that are licensed by it. Prior to the amendment of Article 189, the approval required to enter into any contract or transaction that the directors or the management of a joint stock company have direct or indirect personal interest was granted by the general assembly.

Further, the Article goes on to provide that the chairman of the board of directors of a joint stock company must disclose to its general assembly the results of the contracts or transactions approved by the board of directors. Such disclosure is to be made at the next general assembly meeting following the execution of the contract or the completion of the transaction.

Directors’ Qualifications

Article 173 of the CCL has been amended by the 2018 Amendment. The new Article 173 has listed the qualifications of the directors of a public joint stock company to be as follows:

enjoy the legal capacity to act.
not to have been convicted of an offence of bankruptcy by default or fraud or for a crime affecting honor or integrity or for an offence by reason of being in breach of the CCL, unless the director’s conviction record of these crimes has been erased.
not to be prohibited from being a board member of a public joint stock company in accordance with the CCL or any other law enforceable in Bahrain.
with respect to the board’s chairman or the deputy chairman positions, not to hold both such positions with the position of the CEO of the company or its equivalents.
for companies that are not licensed by the CBB, to have the qualifications set out in the order that will be issued by the Minster of the MOICT relating to independent, non-executive and executive directors
for companies that are licensed by the CBB, to have the qualifications set out in the order that will be issued by the CBB relating to independent, non-executive and executive directors.
any other qualification set out in the company’s Memorandum & Articles of Association.

Article 240(b) of the CCL has been amended by the 2018 Amendment. The new Article 240(b) has listed the qualifications of the directors of a closed joint stock company to be as follows:

enjoy the legal capacity to act.
not to have been convicted of an offence of bankruptcy by default or fraud or for a crime affecting honor or integrity or for an offence by reason of being in breach of the CCL, unless the director’s conviction record of these crimes has been erased.
for companies that are licensed by the CBB, to have the qualifications set out in the order that will be issued by the CBB relating to independent, non-executive and executive directors.
any other qualification set out in the company’s Memorandum & Articles of Association.

Audit Committee

The 2018 Amendment introduced a new Article 184bis. This new Article 184bis stipulates that the board of directors of a joint stock company shall form an audit committee to review the accounting and financial practices of the company and anything related thereto.

The said Article stipulates further that the corporate governance code will determine the mechanism of appointment of its member and their remuneration…etc. The works of the audit committee must be included in the annual reports of the company.

General Assembly Meetings of WLL

Article 283 of the CCL has been amended by the 2018 Amendment. Pursuant to the new Article 283 invitations to the general meeting of a “with limited liability” company must be sent to the partners at least 21 days before the date of the meeting by registered mail with proof of delivery. The meeting can now be held within 6 months from the financial year end of the company.

The new Article 283 provided further that a person can now attend a meeting on behalf of more than one partner. Also, any person attending a general meeting on behalf of a partner must now hold an official power of attorney.

Article 285 of the CCL has been amended by the 2018 Amendment. The new Article 285 provides that a unanimous resolution must now be passed by the partners for the entrance of new partner to the company.

The new Article 285 also provided that partners holding three quarters (75%) of the capital of the company must approve the disposal (in any way) of what amounts to half the assets of the company.