Bahrain Corporate Governance Code amended
Introduced by effect of Ministerial Decree (19) of 2018, the Corporate Governance Code of Bahrain (the Code) has been amended by Resolution No. (91) of 2022 which was published in the Official Gazette on 19 September 2022. The amendments introduced by Resolution No. (91) of 2022 (the Amendments) took effect the day following the publication in the Official Gazette, with a notable change in the name of the Code to "The Management and Corporate Governance Code".
The Code serves to supplement the Bahrain Commercial Companies Law (the CCL), establishing best-practice minimum corporate governance principles expected to be adopted by companies to which it applies. It does not replace the CCL but is intended to further its objectives and to provide help in understanding it, complying with it, monitoring performance under it and ensuing fair disclosure.
The Code applies to all joint-stock companies in the Kingdom of Bahrain that are registered in accordance with the CCL. WLL's remain outside of this and are not bound to comply with the Code.
The application of the Code is based on the principle of "Comply or Explain", meaning that the companies to which it applies are required to either comply with the provisions of the Code or explain the reason(s) for non-compliance. The Code sets out the acceptable reasons for non-compliance, including where a company applies different measures based on its market size. The Code is divided into mandatory rules reflecting the provisions of the CCL, and the best practice guidelines set out within the Code itself. Although the guidelines may be explained in the event of non-compliance, a company is expected to gradually increase its compliance with these in order to ultimately achieve good governance.
The amendments to the Code are as follows:
- Record Keeping
Paragraph 9 of Section 2, Chapter 1 now requires companies to keep all records, minutes, paper and electronic documents, reports required to be kept at its head office for at least 10 years. This includes all minutes of meetings, reports of the Board and committees and governance reports. This obligation extends to all records relating to litigation or claims or any existing investigations until such proceedings are completed.
- Female Representation on Boards
Public Joint Stock Companies are now formally required to take into account the representation of women in the composition of the Board. The Company is further required to disclose Board membership statistics within the Company's annual corporate governance report, including gender statistics.
- Conflicts of Interest
Principle 2 of Paragraph 4 of Section 2, Chapter 2 requires the disclosure by the directors and officers of the Company of any conflict of interest. As amended, such conflicted persons are prohibited from attending a meeting, or participating in the deliberation at a meeting where a decision is to be made regarding a transaction in which they have an interest. Such persons are also restricted from voting on any such decision. Failure to disclose any such conflict means any of shareholders of the Company and the Company may apply to the court to invalidate the decision or bring a claim against such person for compensation payable to the Company. The introduction of this amendment reflects the provisions already contained in the CCL, with the added extension of this provision to the officers of the Company.
- Audit Committee Composition
As amended, the composition of the Audit Committee of the Company now differs for Public and Closed Joint Stock Companies. Both remain required to be comprised of at least three members with the chairman as an Independent Board Member, however Private Joint Stock Companies are now permitted to make appointments to the Audit Committee from outside of the Company where there is an insufficient number of Independent Board Members. Public Joint Stock Companies must however be comprised fully of Board Members.
- Director Nominations
Board nominations to the shareholders for the election or re-election of members of the Board are to be accompanied by a Board recommendation and a summary of the Nomination Committee's report on the proposed nominations. As part of the Board's recommendation, it is required to disclose to the shareholders details of any other companies in which the proposed nominated person works or serves on another board, and details of any work he/she undertakes which is directly or indirect in competition to the Company.
All such information presented to the shareholders must also be disclosed in the Company's annual report.
- Shareholders' Meetings
In keeping with the CCL, it is now acknowledged that all shareholders may participate in deliberations and voting at general meetings by way of electronic voting system and modern technology. For many companies this is already possible, and the inclusion in the amended Code reflects a formalisation in the expectation pursuant to good governance.
- External Auditors
Prior to the amendment, the obligation to appoint an external auditor for one fiscal year, renewable up to a maximum of 5 consecutive years only applied to Public Joint Stock Companies. This now also applies to Private Joint Stock Companies. Any appointed auditor must also record in its reports a statement that the Company complies with all regulatory requirements of governance, taking into account the principle of Comply or Explain.
- Remuneration Disclosure
As amended, Appendix 5 requires in the Company's annual corporate governance report for the disclosure of the total remuneration, fees and privileges paid to the Chairman and Board members each year. This is to include details of any benefits, share in profits, attendance allowance, representation allowances, expenses and a statement of what they have received in their capacity as employees, administrators, or against technical, administrative or consulting works undertaken. The annual corporate governance report must also include the total earnings of the executive management of the Company, whereas the Annual Report to shareholders must detail the totals received by the six highest remunerated executives of the Company. The Code expressly notes this to include the Chief Executive Officer and Chief Financial Officer.
All such disclosures are to be made pursuant to the forms prescribed by the Ministry of Industry, Commerce and Tourism (MOICT).
Ultimately this change imports the MOICT resolution seen at the start of 2022, amending Article 125 of the Executive Regulations of the CCL.
A key change in the Code is the introduction of penalties for its violation. The applicable penalties are those detailed in Article 362-bis of the CCL. Note despite the introduction of penalties, it is noted that the MOICT has reaffirmed the sections of the Code which are best practice, will remain subject to the Comply or Explain principle.
- Shareholders' Rights
Again, in line with the provisions of the CCL, the Code now at Paragraph 5 of Principle 7, Section 7 Chapter 2, expressly incorporates the rights of shareholders in the Company, for example the right to inspect the Company's books, records and documents.
The amendments to the Code ultimately can be seen to draw it further in line with the CCL and international corporate governance approaches. Any queries in relation to the above can be addressed to our key contacts on this page.