Directors’ Liability in Morocco

The liability of the managing director of a limited liability company in Morocco is governed by Law No. 5/1996 on other commercial companies as amended and supplemented ("Loi sur la société en nom collectif, la société en commandite simple, la société en commandite par actions, la société à responsabilité limitée et la société en participation") – hereinafter the “Companies Act”.

The managing director is individually or jointly and severally liable to the company and third parties for violations of statutory provisions, the company's articles of association, breaches of the law and regulations applicable to the company, and for breaches of duty in the management of the company. If the company has several managing directors at the same time, the liability share of each of them is determined by the court in the event of liability.

Civil law claims against the management of a limited liability company can be asserted in Morocco both by the shareholders and by the company itself, whether represented by the management (which is unlikely – unless in case of several managers) or represented by a single shareholder or several shareholders who are instructed to assert the claim on behalf of at least a quarter of the shares (so-called “action sociale”). The exercise of the action by the company may not be made subject to the prior consultation or authorization of the shareholders' meeting or even be excluded altogether by the articles of association.

It is important to note that Article 67 par. 6 of the Companies Act prohibits any limitation of managers’ liability in the Company’s articles of association (e.g., a requirement of the consent of a shareholders’ meeting for an action against a manager, a provision providing an anticipated waiver of this action), and such provisions would hence be ineffective.

Although of little relevance in practice because it is often not implemented by the courts, Moroccan legislation also provides for extensive criminal liability of management in various areas of law, such as traditional criminal law, social law, company law, tax law, insolvency law or accounting law. It is essentially regulated in the Criminal Code, the Commercial Code and the Companies Act.

General criminal liability may be incurred by the management in the establishment and administration of a company in cases of fraud, breach of trust, and forgery of documents. The Commercial Code criminalizes bankruptcy. The Companies Act regulates specific criminal offenses designed to protect the company's incorporation formalities, capitalization, and operations from gross misconduct. To protect minority shareholders and third parties, the Companies Act also provides for a whole series of criminal offenses in the operation of the company. Regarding the exercise of administrative and management functions, the law prohibits under penalty, for example, the distribution of fictitious dividends to shareholders without or by means of a fraudulent inventory (due to fictitious profits) or the publication and presentation of annual financial statements which do not give a true and fair view of the company's accounting. Finally, the Companies Act also protects the shareholders' general meeting in order to enable it to perform its role as a central supervisory and decision-making body.

The law does not provide for any precise actor in charge of initiating criminal procedures against directors/managers. In fact, such proceedings are ruled by ordinary law, meaning that the criminal proceedings are initiated by the prosecutor’s office after receipt of a formal complaint. Such a complaint may come from anyone, from third parties to shareholders, to the company itself if the General Assembly agrees so under the habitual conditions of decision-making.

The limitation period for liability claims under the Companies Act is five years from the occurrence of the damage or knowledge thereof if it has been concealed. Regarding information contained in the financial statements, the limitation period starts to run from the date of filing with the court's office. In the case of criminal offenses, civil claims are subject to a 20-years statute of limitations. The statute of limitations for criminal offenses varies depending on the severity of the offense.

The law does not provide any specificities on managers’/directors’ liability insurances. However, under the general legal framework it is possible for both the managers’/directors’ and the company to contract an insurance policy to cover the risk of civil or criminal liabilities and the pertained costs.

The law does not distinguish between different functions of the managing directors. Every person registered as a managing director is fully liable externally, regardless of whether a distribution of tasks and responsibilities has been made internally.

The liability of shareholders is generally (!) limited to the value of their contribution. Nevertheless, 30-40% of insolvency proceedings lead to an extension of liability to the personal assets of the shareholders, a significant increase from 10% even at the beginning of the century; this has to do, among other things, with the increasing professionalization of judges dealing with insolvencies. Criminal liability of the shareholders is also not excluded. Pitfalls for the shareholders in connection with the appointment of the managing director can be found particularly in the case of omitted publicity or in the case of a de facto managing shareholder.