Abu Dhabi Court of Cassation, Commercial Appeals Nos. 8 and 10 of 2023, judgment of 7 February 2023
A limited liability company has legal personality and assets separate from its partners from formation; a partner is liable only up to his capital contribution (Article 71 of the 2015 Companies Law), and a manager is personally liable only for fraud, misuse of authority, breach of the law or the constitutional documents, or gross fault (Article 84(1)). A letter acknowledging the debt signed by the manager in his corporate capacity is not a personal guarantee. By contrast, a person who signs a cheque on another's behalf is personally liable on it under Article 599 of the Commercial Transactions Law, and a cheque given for a commercial debt does not novate it (Article 607).
A marble supplier sued its customer company, a related company that had issued 23 post-dated cheques for AED 5,708,881.62 to cover the customer's debt, the manager of both companies and the executive who signed the cheques, after the cheques bounced. It claimed AED 6,878,520.71 jointly and severally, plus damages. The first-instance court held the two companies and the cheque signatory jointly liable for the debt with 5% interest and declared the claim inadmissible against the manager. The Court of Appeal added AED 100,000 in damages against the two companies. Both sides appealed in cassation (Nos. 8 and 10 of 2023, commercial), and the appeals were joined.
On the supplier's appeal, the Court held that an LLC acquires separate legal personality and assets on formation; under Article 71 of Federal Law No. 2 of 2015 a partner's liability is limited to his share in the capital, which is the creditors' only security, and under Article 84(1) a manager is liable to the company, partners and third parties only for fraud, misuse of authority, breach of any law, the memorandum of association or his appointment, or gross fault. The supplier had not shown any of these; the letter of 20 September 2021 acknowledging the debt was signed by the manager for the company, not personally as guarantor. The damages award of AED 100,000 was within the trial court's discretion.
On the debtors' appeal, the Court held that under Article 607 of the Commercial Transactions Law accepting a cheque does not novate the debt, which remains with its securities until the cheque is paid; a cheque is presumed to have been given for a debt due. Under Article 599, an agent who draws a cheque on another's account is personally liable to the holder unless he proves that funds existed when it was issued. A guarantee of a commercial debt is commercial and carries joint liability. The cheques were security for the customer's debt and did not settle it. Both appeals were dismissed.
The judgment marks the line between corporate and personal exposure in Abu Dhabi commercial disputes. Creditors cannot reach an LLC manager merely because he signed contracts or an acknowledgment of debt for the company; they need proof of fraud, misuse of authority or gross fault, or a personal guarantee in his own name. But the individual who signs company cheques, and a related company that issues cheques for another's debt, can be held jointly liable. It applied the 2015 Companies Law and the 1993 Commercial Transactions Law.
| Articles 71 and 84(1) of Federal Law No. 2 of 2015 on Commercial Companies Decided under this law; it has been replaced by Commercial Companies Law. |
| Articles 599 and 607 of Federal Law No. 18 of 1993 (former Commercial Transactions Law) Decided under this law; it has been replaced by Commercial Transactions Law. |
“وان الشريك في الشركة المحدودة المسؤولية-لا يسأل في الأصل- عن التزامات الشركة إلا في حدود حصته في رأس مالها”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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