CMA OKs updated rules for board member dismissal, dividend distributions

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The Capital Market Authority's (CMA) Board approved amendments to the implementing regulation of the Companies Law for Listed Joint Stock Companies, as part of developing the regulatory framework governing the removal of board members and regulating the mechanism for determining and distributing profits in listed companies.

The development of the regulatory framework aims to establish specific controls for the removal of board members by the general assembly, which will contribute to enhancing the governance of listed companies by enabling shareholders to exercise their rights and monitor the performance of boards of directors, increasing transparency, and strengthening investor protection, thereby supporting the stability of the capital market. It also aims to increase flexibility in the regulatory requirements related to distributable profits, in line with best practices, the regulator said in a statement.

With respect to the controls governing the removal of board members by the general assembly, the amendments set out the controls and procedures applicable to requests submitted by one or more shareholders to remove board members through the ordinary general assembly, including the obligations that the board of directors must comply with upon receiving such requests.

Under the amendments, one or more shareholders holding no less than 10% of the voting shares may request the removal of all board members after at least six months have elapsed from the start of the board's term. They may also request the removal of one or more board members where it is determined that a member is unable to perform their duties as prescribed by law, according to the statement.

The amendments also include obligating a board member to promptly notify the board in the event a final judicial ruling is issued convicting them of a crime involving breach of trust, or the issuance of a decision by an authority under the relevant laws that affects their ability to perform their duties. The board shall, upon becoming aware of such ruling or decision, submit a recommendation to the General Assembly to remove the member, even if the member fails to notify the board thereof.

The amendments also stipulate that if the removal of all or some board members results in a breach of the minimum quorum required for the valid convening of the board in accordance with the Companies Law or the company's bylaws, the General Assembly's resolution must provide that the removal shall not take effect until after the election of a new board or a replacement for the removed member.

The board of directors must take the necessary measures to convene the General Assembly to elect a new board or a replacement member within a period not exceeding 75 days from the date of the general assembly's approval of the removal request.

With respect to distributable profits, the approved amendments grant listed companies greater flexibility in their calculation by removing the requirement to link their determination to the audited annual financial statements.

The mechanism has been amended to rely on the latest reviewed or audited financial statements preceding the distribution decision, thereby enabling listed companies to rely on their most recent financial statements, whether interim reviewed or annual audited, when determining the amount of distributable profits.

These amendments come as part of the CMA's ongoing efforts to develop the regulatory environment of the capital market, enhance the governance of listed companies, and achieve a balance between protecting shareholders' rights and enabling companies to manage their businesses efficiently, thereby supporting the growth and sustainability of the Saudi capital market.

The CMA published, in November, the draft amendment of the implementing regulation of the Companies Law for Listed Joint Stock Companies on the “Istitlaa” public consultation platform and CMA's website for public consultation for a period of 30 calendar days.

The Implementing Regulation of the Companies Law for Listed Joint Stock Companies.