The civil and criminal liability of managers and board members of Iranian companies (Part 2)

 

The civil and criminal liability of managers and board members of Iranian companies (Part 2)

• The civil and criminal liability of managers and board members of Iranian companies (Part 2)
  • What is Criminal Liability under Iranian law?
  • The criminal liability of the CEO and managers in joint stock companies
  • The Penal Regulations of Articles 258, 265 and 266 of the Commercial Code
  • Some other cases in civil and criminal liability of company managers
  • The Article 5 of Anti-Money Laundering Law
  • The Criminal liability of the limited liability company (LLC) managers
  • The criminal liability of the CEO outside the provisions of the Commercial Code
  • The criminal liability of the CEO according to the provisions of the Commercial Code
  • The responsibility of the CEO and the board of directors in a co-operative
  • The responsibility of the board of directors in terms of refusal or negligence
  • Managers’ liability in general liability and proportional liability partnership
  • The last word

This article is about the civil and criminal liability of managers and board members of Iranian companies. If you have not read the First Part, Please click on the below link:

The criminal and civil liability of managers and board members of Iranian companies (Part 1)

 

What is Criminal Liability under Iranian law?

In general, the obligation of an individual to be held accountable for assault on other persons, whether to protect Individual Rights or to defend society, is referred to as criminal liability or criminal accountability.

However, in none of the criminal laws, both today and in the past, has the legal nature and definition of criminal responsibility been explicitly stated by the legislature. Criminal liability is a kind of personal commitment to respond to the adverse effects and consequences of a criminal phenomenon or crime.

The civil and criminal liability of managers and board members of companies are as follows:

 

The criminal liability of the CEO and managers in joint stock companies

In addition to the civil and criminal liability of managers, it should be mentioned that in criminal liability, the principle is personal punishment and no one can be punished instead of the person who committed the crime. Managers and CEOs of the company may commit acts during the performance of their duties that can be criminalized, like the crime of fraud in the Islamic Penal Code, and dealt with by way of criminal prosecution.

However, in other cases, due to the insufficient penalties provided for in the Commercial Code, the legislator has provided a section entitled Penal Regulations (including Articles 243 to 269 of the Commercial Code); in these cases, criminalization is taken into account and the consequent punishment is provided for in the law. Some of the most important items in this regard are as follows:

 

The Penal Regulations of Articles 258, 265 and 266 of the Commercial Code

Article 258: The following people will be sentenced to disciplinary imprisonment from one to three years.

Clause 3: The chairman and members of the board of directors and the CEO of the company who use the property or credits of the company for personal purposes against the interests of the company and/or for another company or institution in which they have profits directly or indirectly.

Clause 4: The chairman and members of the board of directors or the CEO of the company who intentionally use their powers against the interests of the company for personal gain or for the sake of another company or institution in which they are directly or indirectly involved for gaining profits.

Article 265: The chairman and members of the board of directors of any joint stock company who in case of loss of more than half of the capital of the company, due to sufferings, do not convene the general meeting of shareholders for a maximum of two months to discuss the dissolution or survival of the company, and also do not register and advertise the decision of the said assembly for a maximum of one month, will be sentenced to imprisonment from two months to six months or a fine from ten thousand to one hundred thousand Rials, or both.

Article 266: Anyone (directors and CEO of the company, relatives of the director and CEO up to the third degree of the first and second class, the incapacitated, bankrupts and people sentenced to punishment by court verdict) who intentionally, despite the legal prohibition, accept the position of inspector in the joint stock company and practice it, will be sentenced to a disciplinary imprisonment of two months to six months or to a fine of twenty thousand to one hundred thousand Rials, or both.

 

Some other cases in civil and criminal liability of company managers

The following items can also be considered as the civil and criminal liability of company managers:

1. The failure to demand the unpaid parts of the par value capital stock in the company on time or not convene an extraordinary general assembly (EGM) to reduce the company’s capital to the paid amount (taken from paragraph one of Article 246 of the Trade Law Amendment Bill).
2. The failure to prepare the list of the participants present in the General Assembly in accordance with Article 99 of the said bill (taken from Article 255 of the Amendment Bill).
3. The failure to convene the General Meeting of Shareholders, intentionally, at any time that the election of the company inspectors is to take place, or the failure to invite the company   inspectors to the General Meetings of Shareholders (taken from Article 259 of the Commercial Code Amendment Bill).
4. The intentional disruption in the performance of duties of company inspectors (taken from Article 260 of the Amendment Bill).
5. The issuance and distribution of new shares or share parts before the registration of the corporate capital or in cases where the registration of the capital increase is done fraudulently or without observing the necessary legal formalities (taken from Article 261 of the Commercial Code Amendment Bill).
6. The deprivation of priority right of shareholders over the subscription for shares and the company new shares purchase, except for the cases provided in the bill of 1347 of the Commercial Code (taken from paragraph 1 of Article 262 of the Commercial Code Amendment Bill).
7. Non-observance of the rights of holders of bonds interchangeable with company shares and issuance of new bonds that can be exchanged or converted into company shares (taken from paragraph 2 of Article 262 of the Trade Law Amendment Bill).
8. Giving false information, with full knowledge that this information is incorrect, to the General Assembly to deprive the shareholders of the right of precedence over the subscription of new shares (taken from Article 263 of the Trade Law Amendment Bill).
9. The failure to comply with the provisions of Article 262 of the Amendment Bill on reducing the capital of the company.

 

The Article 5 of Anti-Money Laundering Law

Regarding companies and the responsibilities of company managers, it is very important to pay attention to the Anti-Money Laundering Law. The Article 5 of this law states that all legal entities must comply with the regulations approved by the Council of Ministers in the implementation of this law and should consider the following items:

1. The full identification of the client or their lawyers and legal representatives.
2. Submitting information, documents and the papers related to this law to the Supreme Council of Combatting and Preventing Money Laundering.
3. Maintaining the records of transactions, accounts and the customer identification for a specified period.

 

 

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The civil and criminal liability of managers and board members of Iranian companies (Part 2)