Suing a Company Manager in Saudi Arabia: Who Can Sue and When

A company manager spent SAR 600,000 on a supply contract with a business owned by his relative. The partners found out two years later from the accountant's report. The first question an affected partner asks is: can I sue him myself, or must the company sue? And is it too late?

The short answer: as a rule, the claim belongs to the company, by a decision of the partners or the general assembly. If the company does not sue, a partner or shareholder holding 5% of the capital or more (or a lower percentage set by the articles of association) may sue, after notifying the manager 14 days in advance. The claim is not heard after five years from the end of the financial year in which the act happened, or three years from the end of the manager's service, whichever is later, except in cases of forgery and fraud.

Who files the claim on behalf of the company?

Article 29 of the Companies Law gives the company the right to sue its manager or board members if it is harmed by their breach, error, negligence or failure. The partners, the general assembly or the shareholders, depending on the company form, decide to file the claim and appoint the person who will represent the company in it.

This matters when the manager to be held to account is the person who normally represents the company. It is not enough for one partner to write a claim in the company's name. He must have a document that authorises him.

If the company is being wound up, the liquidator files the claim. If any liquidation procedure under the Bankruptcy Law has been opened for the company, the person who legally represents it files the claim. So a company stopping its business does not end the manager's accountability.

If the company does not sue, can a partner sue the manager?

Yes. One or more partners or shareholders representing 5% of the capital, or a lower percentage if the articles of association or bylaws provide for it, may file the company's liability claim if the company does not. The conditions are:

• The main purpose is the company's interest.
• The claim has a valid basis.
• The claimant acts in good faith.
• The claimant is a partner or shareholder when the claim is filed.

The manager or board members must be notified of the intention to file the claim at least 14 days before filing. Keep proof of the notice and its date. Do not rely on a verbal statement.

Note that this claim protects the company's right, so any money recovered goes back to the company, not to the partner. At the partner's request, the court may order the company to pay the costs of the claim whatever its outcome, if he filed it in good faith and in the company's interest (Article 32).

How is it different from a personal claim?

For example, if the manager transferred money from the company's account to his own without justification, the harm is to the company. A partner's claim for extra personal compensation needs a harm specific to him. A fall in the value of his share because of the company's loss is usually not enough to be a separate harm.

When is a claim against a company manager time-barred in Saudi Arabia?

Article 30 states that, except in cases of forgery and fraud, a liability claim is not heard after:

• five years from the end of the company's financial year in which the harmful act happened, or
• three years from the end of the manager's service or the member's membership,

whichever date is later. If the manager left early, the five-year period may be the later one. If he stayed in office a long time, the three years after his service ended may be the later one.

The period does not start from the date you discovered the breach. Identify the date of each act, the end of the company's financial year and the date the manager's service ended. If there are several acts, each one is calculated separately.

Do a release or an accusation of fraud settle the matter?

A release of the manager approved by the partners or the assembly does not prevent a liability claim. On the other hand, writing the word "fraud" in the statement of claim is not enough to escape the time limit. The exception needs facts and evidence to prove it, and the court decides.

Which court hears the claim, and what must you prove?

Claims under the Companies Law fall within the jurisdiction of the Commercial Court under Article 16 of the Commercial Courts Law, and are filed electronically through Najiz (the Ministry of Justice e-portal). The exception is listed joint stock companies: a claim against the board members of a company listed on the stock exchange goes to the Committee for Resolution of Securities Disputes (Companies Law Article 266(2)). Liability under Article 28 rests on three things that you must prove: a breach of the law or the articles of association, or an error or negligence in management; actual harm; and a link between them. Article 28 makes any clause releasing the manager from this liability void.

On the other hand, Article 31 protects a manager who made a decision in good faith: if he had no interest in the subject of the decision, informed himself about it to an appropriate degree, and reasonably believed it served the company's interest. The claimant must prove the opposite. So a loss-making deal alone is not enough. You need to prove a conflict of interest or a clear failure.

An LLC's financial year ends on 31 December. The manager signed a contract harmful to the company in March 2021, and his service ended in June 2022.

The five-year period runs from the end of the 2021 financial year, so it ends at the end of 2026. The three-year period from the end of his service ends in June 2025. The later date is the end of 2026, so the claim can still be heard if filed before then.

If the contract was based on forged documents, the time limit does not apply at all.

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for both sides

If you are a partner who wants to sue:

• Calculate the period now: the date of each act, the end of its financial year, and the date the manager's service ended.
• Ask the partners or the assembly for a decision to sue, and document their refusal if they refuse.
• If the request is refused, combine with others to reach 5% of the capital, and send the notice to the manager at least 14 days in advance.
• Separate the company's harm from your own, because each has its own claim and conditions.

If you are the manager being sued:

• Check the claimant's standing: does he have a decision from the company, or the required percentage and notice?
• Check the time limit. Some acts may be outside the period in which a claim can be heard.
• Collect evidence that your decision was made in good faith, after study, and without personal interest.
• If you opposed the decision when it was made, present the minutes that prove your objection.

Deadlines here pass quickly, so do not delay. Send us on WhatsApp the dates of the events, the end of the company's financial year and the date the manager's service ended, and we will help you understand where you stand.