Qatar threshold on WLL manager and shareholder personal liability clarified

WLL companies are like limited liability companies (LLCs) common in other jurisdictions in that WLL shareholders’ liability extends only to what they have invested in those companies, not to their personal assets.

WLL is a common form of corporate structure in the Middle East. In Qatar, subject to limited exceptions soon to change once the new Foreign Direct Investment Law is passed, only up to 49% of WLL companies can be owned by foreign investors. The rest must be owned by Qatari businesses or Qatari nationals.

In Qatar, legislation is designed to provide creditors with some protections in respect of debt they are owed by WLL companies. Specifically, article 298 of Qatar’s Commercial Companies Law No. 11 of 2015 prescribes what managers of WLL companies must do when the company incurs losses that total at least half of its share capital. The managers must convene a General Assembly within 30 days at which shareholders must decide whether to inject more capital to cover the loss or dissolve the company. Failure to act in accordance with this protocol can expose managers and/or shareholders to personal liability towards the company’s creditors.

In four cases in 2024 and 2025, considered by Qatar’s highest court, the Court of Cassation, the judiciary in Qatar have explored how Article 298 should be implemented in circumstances where creditors believe that the threshold for managers or shareholders to act has been triggered.

The principles established by the court

In considering the cases that have come before it, the Qatari Court of Cassation can be said to have established five principles regarding the implementation of article 298 that makes it clear to both managers and shareholders of WLL companies and creditors of those companies where the burden of proof and action lies.

The first principle is that, once a creditor identifies that a WLL company has lost at least half of its capital, the burden of proof shifts to the managers and the shareholders of the WLL to prove that this is not the case and to articulate why they are not personally liability for the debt.  

The second principle is that the creditor does not have to prove the loss. All they have to do is provide an indicator that there has been such loss by the WLL company. This accounts for the fact that creditors do not have access to the WLL company’s internal documents.

The third principle is that the only way for the mangers and the shareholders to deny their liability is to prove that the company did not suffer a loss of at least half of its capital. To do this, they must submit internal documents and records, such as the audited financial reports. 

The fourth principle is that the loss of at least half of the company's capital is not, on its own, sufficient to establish the joint and the personal liability of the mangers and the shareholders. Instead, creditors need to show that the debt in question is related to and resulted from the loss.

The fifth principle is that the managers have to invite the shareholders to either liquidate the company or increase the capital of the company within 30 days from the date that at least half of the capital is lost. Failing to do this can expose the managers and/or the shareholders to joint personal liability. 

The implications for WLL companies and creditors

These cases indicate a significant change of direction for the Qatari courts, to one which favours the creditor prosecuting claims against a WLL, and acknowledges the challenge creditors have in proving that a WLL has lost at least half of its capital in a jurisdiction where access to financial company data is scarce.

The introduction of the rule that creditors only have to demonstrate by indication that such losses exist may well result in managers and shareholders of WLL companies being more commonly included as co-defendants to litigation proceedings, especially where companies have no liquid or tangible assets to enforce against.

Co-written by Mohamed Adam of Pinsent Masons.