Corporation Breach of Trust

Business is built on trust; such value ethic cannot be ignored even if someone went into a bad experience. However, every commercial relationship has its own challenges and one of these challenges are corporation breach of trust.

What is breach of trust?

The Omani law defined breach of trust as an act of concealing, denying, embezzling, dissipating, or destroying a handed money, or any other movable property, as a loan, deposit, in agency, lease, mortgage, or is entrusted with it in any manner.

For example: (X) gave (Y) his laptop to fix a technical problem in it, (Y) received (X)’s laptop and sell it to someone else.

In corporate field many Actions can be considered as breach of trust. For Example: by using company’s funds without prior consent from the shareholders or obtaining profits more than the agreed percentage.

Oman Companies Law has determined the actions that considered as a breach of trust of fiduciary duties, Article (28) provides:

“Any partner or shareholder, manager, the board of directors or any member thereof shall not, without the prior approval of all the shareholders or the general meeting, as the case may be, use the assets of the company or its funds for his/her benefit or the benefit of a third party, or conclude directly or indirectly any agreement with the company for his/her benefit or for the benefit of any one of his/her relatives up to the second degree. Ordinary contracts which the company concludes with its customers in the normal course of its activities are exempt from the foregoing…”. 

Therefore, whoever proceeds with the actions mentioned in the Article shall be liable before the company for the profits gained by him/her from such actions and for the losses of funds or opportunities caused by him/her.

What are the consequences?

Paragraph (8) of Article (306) of the Oman Companies Law states:

“The punishment with imprisonment for a period from one year to three (3) years and with a fine from ten thousand (10000) Omani Rials to fifty thousand (50000) Omani Rials, or with either of these two penalties shall be imposed on: whoever of the managers or members of the board of directors of the company or of the Executive Management who intentionally use the property of the company for their personal benefit or for the benefit of a company or another establishment in which they have an interest”.

Accordingly, breach of trust has civil and punitive liability and the business owners or their representatives can file civil or criminal case or both pursuant to the given facts against the violated person.

Point to note

In practice, such cases require an audit report to determine the exact losses and infringements that has been made. Therefore, we at WR always advise our client to appoint an auditor to determine the incurred losses and damages to build a sufficient case.

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