Manager liability in Morocco

4 February 2019 - Christian Steiner

The greatest risk for a foreign managing director (MD) is to underestimate the linguistic and cultural challenges. Morocco is both modern and maintains its rich traditions. It is therefore necessary to bring along a high degree of flexibility, spontaneity and creativity, while at the same time respecting the rules. The country sports oriental scents and holds many surprises, but it is not the Wild West. Therefore, one can and should secure oneself by proper contracts and take administrative requirements seriously in order to be reasonably well-armed against administrative attempts, mostly promoted by competitors,  to arbitrarily delay one’s entrepreneurial efforts in Morocco.   

Who may (and who may not) be the managing director? 

Morocco does not treat the foreign entrepreneur, shareholder and MD differently from the Moroccan one. The CEO can, but does not have to be a shareholder. The managing director does not have to be Moroccan or resident in Morocco. As is customary elsewhere, the MD is prevented from exercising his or her position as a result of insolvency or a criminal conviction.  

Are there certain mandatory functions that must be held by a managing director in addition to his or her managing function, or that cannot be held by the MD?  

There are no special features of the organisation of the management in Morocco. If several MDs are appointed, they are jointly and severally liable. Differences of opinion have no external effect. Statutory restrictions on the powers apply only in the internal relationship and cannot be invoked against third parties acting in good faith. The registration of the limited powers in the Commercial Register alone does not prove the bad faith of the third party. 

What are the duties of the management?

Following the French legal tradition, Moroccan company law requires that the MD acts carefully, loyally and in accordance with the law. The standard of due diligence is the usual diligence of a prudent manager. The CEO is loyal if he avoids conflicts of interest and makes them transparent, treats confidential information appropriately and handles company data properly. He or she is obliged not to compete and may not engage in self-dealing.  

What possibilities of control do the shareholders have? 

The shareholders may demand information and inspection of the books and must be invited to the annual general meeting. An auditor is only mandatory in case of a turnover of EUR 4.5 million/year or more, but may be appointed upon the request of the shareholders, provided they hold three quarters of the company shares. An auditor may also be appointed by the court at the request of the shareholder or shareholders holding at least one quarter of the shares. With at least three quarters of the company shares it is possible to dismiss the managing director without giving reasons, in which case compensation may be due. For good cause, the MD may also be dismissed by the court at the request of a shareholder. Finally, the  shareholders may also formulate written questions to the managing director and request the appointment of an expert.  

Liability of the shareholders and the managing director In Morocco, the usual liability rules also apply. This already applies to the liability of the shareholders, which is basically limited to the capital contribution, but can also affect their private assets, especially in the constitution phase and with regard to the capital contributions and the payment of dividends. The courts have become more professional and increasingly look at the activities of the shareholders in the run-up to insolvency.  The MD is liable for violations of the law, the articles of association and the rules of proper business management. The law prohibits the exclusion of an actio pro socio (actions requested by a shareholder on behalf of the company) or a reservation which subjects such action to the authorization by the general assembly, but does not exclude other voluntary limitations of liability in the internal relationship. Such limitations of liability in the internal relationship do not apply to third parties.  Criminal liability does not yet play a major role in practice. However, the relevant laws punish a whole series of serious management misconduct, both to protect third parties and to protect minority shareholders and the general assembly. These include very general criminal offences such as fraud, embezzlement, forgery and bankruptcy, as well as breaches in the constitution phase (in particular with regard to share capital and publicity) and business operations (fictitious dividends, falsification of balance sheets, misappropriation of company assets) and breaches of duty with regard to the general assembly (insufficient information, missed deadlines, or breaches of obligations concerning the minutes). Legal basis

Moroccan company law is essentially regulated by the Code des obligations et contrats (Dahir du 9 ramadan 1331 [12 août 1913] – Law of Obligations and Contracts), the Code de Commerce (Loi No 15/1995, as amended by Law No 20/2005 – Commercial Code), the Loi relative aux sociétés anonymes (Loi n° 17-95 – Law on public limited companies) and the Loi sur la société en nom collectif, la société en commandite simple, la société en commandite par actions, la société à responsabilité limitée et la société en participation (Law No 5/1996 on other commercial companies, amended by Law No 24/2010). There have been recent amendments to the laws concerning the public limited companies and the other commercial companies, by virtue of Laws 20/2019 and 21/2019

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