Branch Managers in Bahrain: Duties and Responsibilities
Corporate Structuring / Bahrain
Rad El TrekiPartner,Head of Office - Bahrain
Yara FrotanAssociate.Corporate Structuring
Where a foreign entity has established a branch in the Kingdom of Bahrain, it must also appoint a general manager. This article covers the general powers, duties and responsibilities of such managers in line with the Commercial Companies Law 21 of 2001 (the “Commercial Companies Law”), in addition to the penalties imposed where the provisions of the Commercial Companies Law have not been complied with.
The general understanding under the Commercial Companies Law and other relevant laws and procedures applicable in Bahrain is that general managers of entities are empowered with the day to day running and operation of the entity. In addition to this, the Commercial Companies Law permits parent companies to grant any additional powers to the branch manager, provided that it is documented clearly, for example in the constitutional documentation of the parent company, in a resolution or by issuance of a power of attorney in favour of the branch manager.
While the Commercial Companies Law does not include an explicit list of manager duties and responsibilities, it does reference the imposition of certain penalties upon branch managers in the event of engaging in or omitting certain actions. The duties and responsibilities may also be extracted from the provisions governing other types of legal entities such as With Limited Liability companies (WLL) and Bahrain Shareholding Companies (BSC).
The manager shall prepare for each financial year, within a period not exceeding 3 months from the financial year end, a report on the branch’s activities and financial position during the ended year in addition to the balance sheet and the profit and loss account. The manager shall forward to the Ministry of Industry and Commerce, within 6 months after the end of the financial year end, a copy of each of the balance sheet, the profit and loss account, the annual report and the auditor’s report. Penalties may be imposed where a branch manager participates in preparing or approving a balance sheet that does not reflect the true financial position of the branch or a profit and loss account that does not properly represent the profits or the losses of the branch for the financial year. Equally, penalties may be imposed where the branch manager has wilfully ignored essential facts in the balance sheet or in the profit and loss account that affects the branch's financial position.
Under the Commercial Companies Law, the parent company’s constitutional documentation or a resolution of the parent company shall specify the way the manager is remunerated. Where a branch manager takes remuneration in excess of any limits provided for in the parent company’s constitutional documentation, then the penalties outlined in the Commercial Companies Law may be imposed.
Penalties are imposed where a manager has disclosed what they have known, ex-officio, of the branch’s secrets or has exploited these secrets to serve their own interest or that of others. Similarly, the Commercial Companies Law states that penalties would be imposed on any manager that has wilfully stated false facts or inaccurate information in any reports, or any manager who intentionally includes wrong data or information contrary to the truth in any papers, or deliberately conceals data or information that they should otherwise disclose. Note the penalties are also imposed if any of the above actions appear as part of a transaction with third parties.
Penalties may be imposed where a branch manager has wilfully obstructed officials of the Ministry of Industry and Commerce. This includes refraining from enabling auditors or the staff of the Ministry of Industry and Commerce or those who have the powers to undertake inspection of the branch to have access to the books and documents which they are permitted to have access to in accordance with the provisions of the Commercial Companies Law.
Duties and responsibilities covered under article 18(bis) of the Commercial Companies LawArticle 18(bis) of the Commercial Companies Law sets out all cases in which a branch manager may be liable to the extent of all personal funds for any damages that may be sustained by the branch or the branch’s parent company. The cases include (non-exhaustively):
Encumbering the Branch with obligations that cannot be fulfilled: where the branch manager encumbers the branch with further obligations, despite the supposed certainty or knowledge that the branch cannot perform the same as they fall due or if the branch fails to fulfil those obligations as a result of the gross negligence or wrongdoings. Equally, penalties may be imposed where the branch manager causes the branch to fall short in paying accrued taxes and fees to government departments or public institutions, despite the supposed certainty or knowledge of the same, or if the branch fails to pay those taxes due to the gross negligence or wrongdoings.
Fraud: where the branch manager has used the branch or fraudulent or illegitimate purposes or commits any fraud or negligence in the performance of duties.
Lack of separating interests: where branch managers treat the branch’s funds as their own personal funds, or where they do not separate their personal interest from the branch’s interest.
Not acting with responsibility: where a branch manager does not act in the way a discerning person would act, in the relevant circumstances.
The above article lists out the relevant powers, duties and responsibilities of a branch manager in Bahrain, as extracted from the list of cases in the Commercial Companies Law that are subject to penalties. Such penalties include a fee of BHD 10,000 – BHD 100,000 to be paid to the Ministry of Industry and Commerce or imprisonment. The Minister of Industry and Commerce publishes amendments to the Commercial Companies Law from time to time, adding to the list of duties and responsibilities covered under article 18(bis) of the law.
For further information, please contact Rad El Treki or Yara Frotan.
Published in October 2023
