Legal guide for company directors and CEOs in Algeria

BREAKING: Coronavirus (COVID-19) considerations for directors

1. What are the key issues for directors during the COVID-19 crisis?

Solvency and/or business continuity: The COVID-19/coronavirus pandemic crisis has acquired an unprecedented magnitude, affecting every aspect of companies’ activities and presenting many challenges to companies, directors and stakeholders. During this exceptional crisis, one of the main directors’ challenges is to maintain, as far as possible, the company’s financial sustainability and prevent irremediable financial difficulties despite business interruption and the social distancing and lockdown measures adopted by the Algerian government. This requires, in particular, a careful assessment of:

  • the company’s financial solvency;
  • the impact of COVID-19 on the company’s business, including potential disruption and/or reassessment of the business’ objectives;
  • the impact of COVID-19 on employment, taking into account social distancing and lockdown measures;
  • the eligibility for / the opportunity to use any of the relief measures adopted by the Algerian government.

Directors need to act with due care, skill and diligence and always in the best interest of the company. They are required to increase their vigilance in this period of crisis, and must consider every possible scenario (from the worst to the best case scenario) to anticipate as far as possible potential risks and adopt, often on an urgent basis, any measures to protect the company’s interests or adapt its strategy and even its work policies. This exercise may be challenging for directors as it would require them to take decisions while being careful not to do anything likely to incur liability.

Contractual commitment: The COVID-19/coronavirus pandemic crisis has given rise to issues in relation to non-performance of contractual commitments. Directors may be required to review contractual arrangements and use legal engineering to prevent financial difficulties that could arise from such contractual non-performance.

In practice, directors could use the theory of unpredictability, provided by Article 107 of the Algerian Civil Code, arguing the existence of an exceptional and unforeseeable event of a general nature that has rendered performance of the contractual obligation excessively onerous so as to threaten an exorbitant loss. In such event, directors could ask for a reasonable reduction of the obligation that has become excessive. Directors need to review contractual terms and refer to the clause governing unpredictability to determine the mechanism to be implemented in this respect. Absent any contractual clause dealing with such an issue, the latter should be discussed amicably. Failing this, the issue could be brought before the competent judge, who could review and reduce the parties’ respective obligations.

In addition to the theory of unpredictability, non-performance of a contractual obligation could be justified by a force majeure event, depending on applicable contractual provisions. For the record, Algerian civil law does not provide for a specific legal provision defining the force majeure event, which should be contractually defined. It should be noted that a force majeure event is commonly defined as any unpredictable and irresistible event that is beyond the will of the parties. Absent any contractual provision governing its mechanism, directors may have to discuss with the company’s counterparties a suspension of performance, or at least, adapt the company’s contractual obligation to the extent possible. For such purpose, they must ensure that relevant specialists are consulted to mitigate any potential claim.

Labour considerations: In the context of the ongoing outbreak of COVID-19, directors need to adapt the work conditions to social distancing and the lockdown measures adopted by the Algerian government, taking into account the lack of specific legal or regulatory provisions (e.g. Algerian law does not provide for partial unemployment mechanisms nor for remote working). Accordingly, directors must consider and make decisions on measures relating to employee safety and prevention of any potential infections in workspace. For such purpose, they must make decisions on having systems in place for working remotely, where possible, even though such working arrangements are not regulated under Algerian law. Such decisions must be taken with great care and always in the best interest of the company, to avoid incurring liability for mismanagement. Directors must therefore ensure that relevant specialists are consulted to mitigate any potential claim and liability.

2. What government relief measures have been made available to directors?

The Algerian government has adopted, through the following instruments, social distancing and lockdown measures (including, notably, travel and business operation restrictions as well as cultural, sporting suspension and closure of schools and universities) to contain the spread of the virus:

  • Executive Decree No. 20-69 of 21 March 2020 on measures to prevent and combat the spread of the coronavirus (COVID-19);
  • Executive Decree No. 20-70 of 24 March 2020 establishing additional measures to prevent and combat the spread of the coronavirus (COVID-19).

Tax relief measures: Algeria’s Directorate General of Taxes has issued a note announcing further support measures for businesses affected by the COVID-19 pandemic. The measures include several deadline extensions:

  • the deadlines for the monthly declarations (Declaration No. G50) and payment for February and March 2020 are extended to 20 May 2020
  • the deadline for the quarterly declaration (Declaration No. G50b (ter)) and payment for the first quarter (January to March 2020) is extended to 20 May 2020
  • the deadline for annual declaration of results under the standard corporate regime is extended to 30 June 2020, although for companies under the Division for Large Enterprises (DGE) the deadline is 31 May 2020 (also note that corporate tax (IBS) due must be paid within 20 days of the annual declaration)
  • the deadline for the annual declaration for individuals subject to global income tax (IRG) is extended to 30 June 2020
  • the payment deadline for the first provisional instalment payment of IRG and IBS is extended to 20 June 2020.

In addition to the above deadline extensions, taxpayers facing financial difficulties may request to benefit from a tax payment schedule.

Social contribution measures: Employers can settle their social contributions in any agency, across the country, regardless of their affiliated agency.

In addition, the Minister of Labour, Employment and Social Security has decided to:

  • extend until 30 May the deadline for payment of the social security contributions of salaried workers that are due in April
  • extend until 30 September the deadline for payment of contributions by self-employed workers that are due on 30 June
  • suspend increases in late payment penalties applicable for the payment of social security contributions during a period of 6 months, as from April.

Corporate law relief measures: The deadline for filing the annual accounts for the 2019 financial year has been exceptionally extended to 30 September 2020 instead of 31 July.

Banking relief measures: The Bank of Algeria has addressed to commercial banks a note dated 19 March 2020 in which it expressly authorises these banks to receive documents relating to imports by electronic means, with SWIFT confirmation from the bank sending the documents.

In addition, by means of Instruction No. 05-2020 dated 6 April 2020 relating to exceptional measures in order to lighten prudential provisions applicable to banks and financial establishments and help businesses, various measures were taken, including:

  • reduction of the liquidity ratio of banks and financial institutions to 60%
  • exemption from the obligation to constitute the safety cushion set by the provisions of Article 4 of Regulation no. 2014-01 of 16 February 2014 relating to solvency coefficients
  • at their discretion, banks and financial institutions can postpone the payment of credit instalments reaching maturity or reschedule the debt payments of their customers that have been impacted by the disruption caused by COVID-19
  • banks and financial institutions may also grant new loans to any customer that has already benefited from these deferral or rescheduling measures.

The above-mentioned measures enter into force as from 1 March 2020 and until 30 September 2020.

In this context, the Professional Association of Banks and Financial Institutions subsequently instructed banks and financial institutions to consider the above instructions and examine each individual situation by taking appropriate measures, essentially related to:

  • postponement and/or renewal of the deadlines for loans due on 31 March 2020 and after
  • consolidation of unpaid debts on 31 March 2020 and after
  • extension of the deadlines for the use of the loans and deferred payments
  • cancellation of late payment penalties for debts due on 31 March 2020 and after
  • maintenance and/or renewal of operating loans.

Exceptional paid leave: At least 50% of the staff of public institutions and administrations, as well as of all public and private economic operators, must be placed on exceptional paid leave. This measure applies to all sectors of activity, even those whose continued activity is made mandatory. Staff considered as having priority for exceptional leave are pregnant women and women raising children (without this concept being defined), as well as persons suffering from chronic diseases and those with health issues.

Customs relief measures: Imports of raw medical products, medical devices and any products used to prevent COVID-19, as well as first necessity and wide consumption food products, benefit from a “green circuit”, in other words, an accelerated customs clearance procedure. The Central Customs Department has made available to customs brokers the list of products benefiting from such customs relief measure. In addition, it has been decided to suspend exports of some food and pharmaceutical products.

Measures applicable to public procurement: Taking into consideration the relief measures adopted to prevent the spread of COVID-19, and in particular, their negative impact on industry that has slowed down activities due to delays in the supply of materials and temporary suspension of transport means, the Algerian government has decided to suspend contractual deadlines and not apply late penalties, within the limit set by the services stop-and-resume order issued by the contracting service.

3. What changes have been made to directors’ duties as a consequence of the COVID-19 crisis?

It should be noted that most of the measures adopted by the Algerian government in response to the COVID-19 crisis, as described above, do not lighten directors’ duties and responsibilities, who remain subject to the common duties and responsibilities described below. On the contrary, the substantive measures to be adopted by Algerian companies as a consequence of COVID-19 and that are linked to the companies’ activities remain the responsibility of the directors. For instance, Algerian law and regulations do not provide for partial unemployment mechanisms. In addition, remote working, where possible, is not covered. Given the COVID-19 pandemic exceptional crisis, directors need to take some difficult decisions to address the significant drop in the company’s activities and to mitigate, as far as possible, its financial difficulties. Such a situation increases the risk for directors with regard to their liability for mismanagement, given in particular the absence of a specific legal framework. Directors should, therefore, obtain the prior opinion of the shareholders with respect to the decisions to be taken for the company’s sustainability, to avoid potential liability for abnormal acts of management.

Directors duties and responsibilities

As a preliminary remark, it should be stressed that this guide focuses on rules applicable to directors in Algerian joint stock companies only, as provided by the Algerian Commercial Code. It does not address the legal provisions applicable to other corporate legal forms, such as those governing managers of limited liability companies.

1. What form does the board of directors take?

Under Algerian law, joint stock companies may choose to have a single board of directors (single management) or a separate management board and supervisory board (dual management).

2. What is the role of non-executive or supervisory directors?

When joint stock companies are incorporated with the single management form, i.e. single board, the board of directors is empowered to act on behalf of the company in all circumstances, subject to the powers expressly granted to it by the general meeting and within the limits of the company’s objects.

As for the supervisory board, it exercises permanent control of the company. The articles of association may require the prior authorisation of the supervisory board for certain acts.

However, some acts, such as the transfer of real estate, any transfer of participating interests, any security, as well as all guarantees and other securities, are subject to authorisation of the supervisory board, which is given according to the conditions set forth in the articles of association.

3. Who can be appointed as a director?

Under Algerian law, the shareholders of a company can freely designate the director(s) of their choice, subject to specific articles of association provisions. Unless otherwise provided in the articles of association, a director is not required to have any special qualification or expertise.

There are practically no legal limitations on the suitability criteria for electing directors. However, minors, incapacitated persons and persons declared bankrupt may not be appointed as directors.

The members of the board (the directors) may be either individuals or legal entities. The chairman of the board of directors must, mandatorily, be an individual appointed as director. Algerian law does not require the directors (including the chairman) to be Algerian residents or nationals.

An individual may not be appointed as director to the board of more than five Algerian companies. Such restriction does not apply to legal entities appointed as directors.

In the event that a legal entity is to be appointed as director, a permanent representative must be appointed to represent the legal entity on the board. Such representative will be held responsible and liable to the same extent as if he/she had carried out those functions in his/her own name.

An employee may be appointed as director to the extent that his/her employment contract dates from at least one year prior to his/her appointment and corresponds to actual employment. In such event, the employment contract remains in force and effective.

When a company reaches 150 employees and when a works council is in place, the latter appoints, from among or outside its members, two directors to represent the employees on the board of directors.

It is also necessary to emphasise that the board of directors must, through its members, own at least 20% of the share capital in order to guarantee its management decisions (“guarantee shares” concept).

4. How is a director appointed?

The directors are appointed by the decision of an ordinary shareholders’ meeting for a period stated in the company’s articles of association, but not exceeding 6 years. At the end of this term, they may be re-elected. In the event of a vacancy due to death, resignation or dismissal, the board of directors can temporarily fill such vacancy. Any such temporary appointment must be ratified by the next general shareholders’ meeting.

The appointment of directors is subject to publication formalities, made by an Algerian notary in a legal notice bulletin (“Bulletin Officiel des Annonces Légales”), and modification of the company’s entry in the trade register.

5. How is a director removed from office?

A director’s term of office expires after the ordinary shareholders’ meeting held during the year of expiry of the director’s term of office and which decides on the financial statements of the preceding financial year. 

Directors may resign their mandate at any time. Directors may be dismissed at any time, without grounds or indemnity, directly by the decision of an ordinary shareholders’ meeting. 

The removal or resignation of a director involves the transfer of guarantee shares between removed/resigning directors and their replacements. It also involves publication formalities to be made by an Algerian notary in a legal notice bulletin (“Bulletin Officiel des Annonces Légales”), followed by updating of the company’s entry in the trade register to remove the departing directors and add the new ones. The change to the directors will be effective with respect to third parties from its publication in said legal notice bulletin (“Bulletin Officiel des Annonces Légales”) and modification of the company’s entry in the trade register. The removal of a director does not put an end to his/her liability. He/she can still be liable if he/she has breached directors’ duties prior to his/her removal.

6. What authority does a director have to represent the company?

Subject to the powers expressly granted to it by the general meetings and within the limits of the company’s objects, the board of directors is empowered to act on behalf of the company in all circumstances.

The board may in particular review all matters related to the proper administration of the company and decide on any business concerning the company.

With regard to relationships with third parties, the company is also bound by decisions of the board of directors made outside the company’s objects, unless the company proves that the third party knew that such a decision exceeded the company’s objects.

The chairman of the board of directors is entrusted with executive management of the company. Subject to the powers expressly granted by law to general meetings and the powers especially reserved for the board of directors, the chairman, who is necessarily a director, has the broadest powers to act in all circumstances on behalf of the company, within the limits of the company’s objects. 

Towards third parties, the company is also bound by decisions of the chairman that go beyond the company’s corporate objects unless the company proves that the third party knew that the decision exceeded the corporate objects.

7. How does the board operate in practice?

The board of directors is composed of no fewer than 3 members and no more than 12 members. 

The board of directors is a collegial body. Decisions to be made by directors must satisfy the following quorum and majority conditions:

  • a quorum of the board of directors’ meetings is when half of the members are present
  • decisions are made by a majority of the members present.

If there is a tie, the chairman has a casting vote, unless otherwise provided in the articles of association.

8. What contractual relationship does the director have with the company?

The director is the company’s corporate officer. The appointment as director does not mean that the director is the company’s employee.

A director may, but need not, be remunerated. The general meeting of shareholders determines the remuneration of the directors, unless the articles of association grant this power to the board of directors.

As previously indicated, a director may be an employee of the company to the extent that his/her employment contract dates from at least one year prior to his/her appointment and corresponds to actual employment. In such event, the employment contract remains in force and effective.

9. What rules apply in respect of conflicts of interest?

Directors must act in the best interest of the company. 

Conflicts of interest are regulated under Algerian law. The agreements concluded directly or indirectly between a company and any of its directors must, subject to nullity, be submitted for prior authorisation to the board of directors on the basis of a report prepared by the statutory auditor and then be approved by the shareholders’ general meeting on the basis of a report of the statutory auditor. 

The same rule applies to any agreement made between the company and any other enterprise if any of the company’s directors is the owner (whether or not he/she is a shareholder), statutory manager, director or manager of said enterprise.

The director(s) concerned may not take part in the vote and their shares are not taken into consideration when calculating the quorum and the majority. This rule is applicable not only to the meeting of the board of directors but also to the shareholders’ general meeting.

Such provisions do not apply to day-to-day operations relating to the company’s dealings with its customers. 

10. What other general duties does a director have?

Each director must act, at all times, in good faith and in the company’s corporate interest. He/she must act independently and exercise his/her duties with reasonable care, skill and diligence and avoid any potential conflict of interests. Each director has also a duty of confidentiality in respect of all the board’s proceedings.

Unless otherwise provided in the articles of association, directors act as a collegial body, save for the chairman, who is entrusted with executive management and powers of representation.

Directors act in the name of and on behalf of the company. As previously indicated, subject to the powers expressly granted to it by the general meetings and within the limits of the company’s objects, the board of directors is empowered to act on behalf of the company in all circumstances. They have a duty to oversee the management of the company and promote its success. The board of directors is responsible for defining the company’s business plan and improving the company’s financial results.

Under Algerian law, the board of directors has the following specific duties:

  • general accounting and reporting obligations (preparing the financial statements and the annual management reports)
  • approving the agreements entered into between the company and any of its officers, directors or shareholders (see below for a detailed presentation of regulated agreements)
  • convening the shareholders’ meeting
  • transferring the company’s head office to another address located in the same city
  • allocating the directors’ fees.

The board of directors may also authorise the chairman or the general manager to grant endorsements, bonds or guarantees on behalf of the company. The articles of association may specify the duties of the directors.

11. To whom does the director owe duties?

The directors’ duties are owed to the company as well as shareholders, as the company’s owners. In this respect, it should be kept in mind that ultimately directors can be dismissed at any time, without grounds or indemnity, directly by a decision of the shareholders during an ordinary shareholders’ meeting

12. How do the director’s duties change if the company is in financial difficulties?

Pursuant to Article 715 bis 20 of the Commercial Code, if the net equity of the company falls under one fourth of the share capital because of losses incurred by the company (as acknowledged in the accounting documents), the board of directors must convene an extraordinary shareholders’ general meeting within four months of the approval of the financial statements in which the loss appeared to resolve on the company’s early dissolution.

Where a company is facing financial difficulties, the directors need to pay particular attention to acting in the best interest of the company to mitigate its financial difficulties. They must be particularly careful and take the interests of both stakeholders and the company’s creditors into account when carrying out their duties to the company. Directors can be personally criminally prosecuted in case of mismanagement, and notably in cases where directors have used company assets in their own personal interest or in cases where they have improperly pursued a loss-making operation or in the event that the company’s business was being carried out negligently. In the event of bankruptcy, a specific action may be brought against directors, who may be ordered to pay off all or part of the company’s debts.

13. What potential liabilities can a director incur?

Civil liabilities

Under Algerian law, directors may be held individually or jointly liable towards the company and/or third parties in case of breach of law, violation of the company’s articles of association and mismanagement, having caused damage to the company and/or third parties.

Directors are personally liable only if they have breached their duties towards third parties who are not shareholders, and if such breach is not intrinsically connected with the performance of these duties.

Directors may be liable individually or jointly, depending on whether a director individually or several directors collectively have breached their directors’ duties.

Liability suits brought against directors by third parties suffering damages, by shareholders acting individually or on behalf of the company lapse three years after commission of the harmful act (or its being revealed).

Criminal liabilities

The Algerian Commercial Code provides for criminal sanction if directors breach certain obligations, such as, but not limited to:

  • misuse of company property
  • distribution of fictitious dividends
  • failure to submit annual accounts to the general shareholders’ meeting within six months after the closing of the financial year
  • failure to publish the annual accounts
  • failure to make available to shareholders the necessary documents to allow them to decide with full knowledge and make informed judgements about the management and operation of the company’s affairs
  • failure to convene the extraordinary shareholders’ general meeting to resolve on the company’s early dissolution if the net equity of the company falls under one fourth of the share capital because of the losses incurred by the company etc.

In addition, the directors’ criminal liability could also be incurred in several matters related to operation of the company and its day-to-day management and activities, for offences during the exercise of their duties (e.g. in case of breach of labour law, tax law, commercial law, customs law, foreign exchange control regulations, etc…).

14. How can a director limit his/her liability?

A director’s liabilities (including those of the chairman) can be limited in the company’s articles of association. However, such limitation is not enforceable against third parties. The company is bound even by those decisions that go beyond the corporate objects of the company, unless the company proves that the third party knew that such decision exceeded the corporate purpose; however, mere publication of the articles of association is not sufficient to provide such evidence of knowledge on the part of the third party.

Picture of Samir Sayah
Samir Sayah
Partner Africa Practice – Corporate, M&A
Algiers
Amina Rabaï
Senior Legal Associate
Paris