Host
Legal Hour on Drive Live.
All about disputes between business partners and managers. Can you give us a little perspective on this one first of all?
Ludmila Yamalova
Indeed. It was inspired by a number of questions from last week’s show and several cases we’re currently handling. Given the prevalence of such issues in the industry, this topic feels very relevant.
Let’s consider a scenario: you have a company with three shareholders, and one shareholder has left the country. What can the remaining shareholders do? Assume the departing shareholder has no intention of returning and may have even embezzled money. Logically, you might think it’s straightforward to go to the authorities, present evidence of wrongdoing, and amend the corporate documents to remove the shareholder or redistribute their shares. However, the reality is much more complex.
Many believe that providing evidence like emails, letters, or WhatsApp messages proving embezzlement or mismanagement is sufficient for authorities to act. However, regulatory authorities like DED or free zones are not judicial bodies. They cannot amend corporate documents or make determinations about shareholder disputes. These cases fall under judicial jurisdiction, which means they must be resolved through the courts.
Host
So it’s not as simple as taking evidence to the authorities?
Ludmila Yamalova
Exactly. Even with clear evidence of wrongdoing, courts are cautious about forcing a shareholder out, especially if that shareholder has invested significantly in the company. The most common outcome in these cases is for the court to force the company into liquidation.
This is often shocking for partners, who expect the process to be more straightforward. Liquidation is a drastic step, but courts are reluctant to interfere with ownership rights without exhaustive evidence and due process.
Host
That sounds like a long and challenging process.
Ludmila Yamalova
It definitely is. It becomes even more complicated if the departing shareholder is also the company’s manager or key signatory. For example, we’re currently handling a case where a manager refuses to cooperate, and the company cannot close or operate effectively without their signature.
In such situations, businesses are stuck. Without the manager’s signature, they can’t even terminate the manager’s contract or appoint a new one. This can leave remaining partners in a frustrating and legally complex position.
Host
It sounds like business partners really need to think carefully about who they go into business with.
Ludmila Yamalova
Absolutely. Many people focus on the excitement of starting a business but neglect to consider what happens if things go wrong. It’s critical to scrutinize potential partners and ensure all agreements, roles, and responsibilities are clearly defined upfront.
One recurring issue we see involves investing shareholders—those who contribute funds but are not involved in daily operations. These shareholders are particularly vulnerable because they lose control over the business and may not realize something is wrong until it’s too late.
The key takeaway here is to plan for worst-case scenarios when setting up a business. This foresight can save you significant trouble later on.
Host
That’s great advice. Let’s take a listener question now.
Host
We’ve got a question here from Sarah. She says, “I have a contract with a real estate agent for one year to show and rent a property. Can I switch to another agent, or do I have to stay with the first one?”
Ludmila Yamalova
That’s a good question. The answer depends on the specific terms of the contract you’ve signed. First, check if there’s an exclusivity provision in the agreement. This clause would obligate you to work exclusively with that agent for the duration of the contract.
If there is no exclusivity provision, you are free to engage another agent. However, if the agreement includes exclusivity, you’ll need to see what obligations the agent has agreed to fulfill in return. For example, does the contract specify that the agent must show a certain number of properties within a specific timeframe or provide regular updates? If the agent has failed to meet these obligations, you may have grounds to terminate the contract for breach.
If there is no breach, you would need to abide by the exclusivity clause unless you want to risk the agent taking legal action. However, it’s worth noting that if the agent does pursue legal action, they must prove they suffered actual damages due to the breach. Courts in the UAE don’t award speculative damages, so unless the agent can demonstrate financial loss, their case may not be strong.
Host
Good to know. Let’s move on to another question from Majid, who asks, “I used to have a loan and credit cards with a bank, but I’ve now paid them off and closed my accounts. Do I need to get a no-liability letter, or is it unnecessary?”
Ludmila Yamalova
Technically, you don’t need a no-liability letter unless you require it for a specific purpose, like immigration or applying for residency in another country. However, I would strongly recommend getting one.
Here’s why: in the UAE, it’s common for banks to require post-dated cheques as security when you take a loan or open a credit card. Even if you’ve paid everything off, those cheques may still be with the bank. We’ve seen cases where banks misplaced or failed to cancel these cheques, creating complications for customers later.
To protect yourself, you should request a no-liability letter that explicitly confirms your account is closed, your obligations are settled, and your security cheques have been returned or nullified. This document can be invaluable if any disputes arise in the future.
Host
That’s really practical advice. Let’s take a final question from Christopher, who’s dealing with a landlord issue. He says, “After being evicted because my landlord claimed they were selling the property, I discovered they didn’t sell it and instead rented it to someone else for a higher price. Can I take action?”
Ludmila Yamalova
Yes, you absolutely can. Under Dubai’s rental laws, if a landlord evicts a tenant claiming they intend to sell the property but then re-rents it instead, the tenant has the right to file a complaint with the Rental Dispute Settlement Committee (RDSC).
To succeed, you’ll need to provide evidence of the landlord’s actions. For example, if you have proof that the property was re-rented shortly after your eviction, that strengthens your case. If the RDSC rules in your favor, you can claim compensation for the costs you incurred due to the eviction. This could include moving expenses, the difference in rent between your new property and the old one, and any other related expenses.
It’s also worth noting that landlords are required to give 12 months’ notice if they intend to sell or move into the property themselves. If your landlord didn’t follow this procedure, that’s another point in your favor.
Host
Very useful to know. Thank you for explaining that so clearly. Ludmila, as always, your insights are incredibly helpful.
Ludmila Yamalova
Thank you. It’s always a pleasure to join and answer these questions.
Host
That wraps up this week’s Legal Hour. If you didn’t get your question answered, don’t worry—we’ll roll it over to next week’s show. Ludmila Yamalova, Managing Partner at HPL Yamalova & Plewka, thank you so much for your time.
Ludmila Yamalova
Thank you. I look forward to next time!
