Dubai Court of Cassation Rules: LLC Managers Personally Liable for Withholding Shareholder Dividends

In a rare judicial precedent that signals an evolution in corporate governance jurisprudence within the UAE, the Dubai Court of Cassation issued a landmark ruling. This decision marks a significant turning point in interpreting the fiduciary obligations of management within Limited Liability Companies (LLCs). The Court mandated that the company and its managers are jointly liable to pay approximately AED 28 million to a shareholder, citing the managers’ continuous breach of their legal duties, primarily their refusal to convene Annual General Assemblies and the withholding of declared profits for nearly two decades.
Piercing the Corporate Shield: From Entity Liability to Personal Accountability
What makes this ruling distinct is its decision to circumvent the traditional legal principle of separating the financial liability of the company from that of its directors. The Court chose to impose direct personal liability on the managers alongside the corporate entity, a legal action commonly referred to as “Piercing the Corporate Veil.”
Case Summary: Silent Shareholder Claims Entitlement
The case originated from a shareholder holding a 34% stake in a Dubai-based LLC. The shareholder sought legal recourse after years of managerial silence and a severe lack of financial transparency. From 2003 until 2022, no Annual General Assembly was held, and no dividends were distributed, despite the company’s consistent financial performance. A court-appointed financial expert confirmed the existence of substantial undistributed profits, unequivocally supporting the claimant’s position.
Judicial Endorsement at All Levels
Despite the appeals lodged by the company and its managers, both the Court of Appeal and the Court of Cassation upheld the initial judgment. They unequivocally affirmed that Corporate Governance is not merely a theoretical framework but a binding legal obligation with tangible consequences, and that managers bear fiduciary duties toward shareholders.
Legal and Regulatory Ramifications:

• Reinforcing Fiduciary Duty: The judgment strengthens managers’ obligations under Federal Law No. 32 of 2021 concerning Commercial Companies, particularly regarding governance and financial disclosure.
• Expanded Scope of Liability: Liability is no longer confined to the company’s legal entity but extends to the managers personally in cases of gross breach of duty.
• Investor Assurance: The ruling boosts confidence for shareholders, especially minority holders, in the capacity of the UAE judiciary to deliver justice even in complex and protracted disputes.
  Implications for the Business Environment:
• A Warning to Managers: Breaching statutory duties is no longer a simple administrative violation but can lead to personal financial liability.
• Call for Institutional Compliance: Companies are now strongly urged to activate governance mechanisms, convene General Assemblies, and meticulously document all financial decisions.
• Enhancing Investment Appeal: The judgment reflects the UAE judiciary’s commitment to international standards of transparency and accountability, thereby strengthening the trust of both local and international investors in Dubai’s business environment.