In brief: Company directors in Morocco face criminal liability for offences including misuse of corporate assets, distribution of fictitious dividends, misleading financial statements, and bankruptcy. Both de facto and de jure directors are subject to these provisions under Laws 17-95 and 5-96.
The purpose of this article is to provide an overview of the laws governing the liability of directors of commercial companies in Morocco. The focus is on criminal liability.
The laws governing the various commercial companies in Morocco have undergone legislative reforms. The goal of these reforms has been to modernize Moroccan company law. As a result, these reforms have placed company law within a new global economic framework.
This article aims to present the basic principles of criminal liability of company directors in Morocco. It then sets out the list of offences that give rise to criminal liability.
Regarding the liability of directors, the legal rules in Morocco are established in particular by the following laws:
- Law 17-95 on public limited companies (PLCs)
- Law 5-96 on LLCs (and other forms of companies)
The Criminal Code also provides for a number of penalties.
To analyze your situation with regard to criminal law or to defend yourself in court proceedings, it is essential to call on a professional lawyer with experience in this field.
First, the innovations introduced by company law have ensured greater transparency in business affairs. In addition, they have reduced the processing time for many types of offences.
The liability of company directors may be either civil or criminal.
The legislature has strengthened the penalties that existed in previous legislation (Commercial Code).
This article deals exclusively with offences relating to the operation of the company.
It is therefore advisable to first examine the persons who may be criminally liable in each type of company (I) and then to set out the most common offences in business affairs (II).
Director Liability - Who Is Concerned?
The law provides for criminal penalties for company directors when they commit an offence.
By “company director,” one should understand:
- First, in an LLC: the manager
- Next, in a PLC: the members of the board of directors and its chairman
- Furthermore, the members of management boards and supervisory boards are concerned
- Finally, in general: any person with the power to bind or represent the company
Directors, by virtue of the powers they hold to act on behalf of the company, incur both civil and criminal liability through their actions.
In this section, we will examine the various directors according to the different types of commercial companies.
Liability of PLC Directors
First of all, it is important to note that there is a distinction between a PLC with a board of directors and a PLC with a management board. Director liability applies, as explained above, in both cases.
Liability of Directors in a PLC with a Board of Directors
In principle, in this type of company, the chairman of the board of directors is responsible for managing the company. As such, he is criminally liable.
However, under Law 17-95, there are offences (such as misuse of company assets, failure to prepare annual accounts, or distribution of fictitious dividends, etc.) for which not only the chairman of the board of directors is held responsible, but also the other board members, the chairman, and the external chief executive officers.
Liability of Directors in a PLC with a Management Board and Supervisory Board
Regarding criminal liability in PLCs with a management board and a supervisory board, since the law does not distinguish between the supervisory function and the management function, criminal penalties are equally applicable to members of the management board and members of the supervisory board.
However, for each offence, the question arises whether liability lies with the management board or the supervisory board, or both. Another question concerns the supervisory board. Should its members be considered as directors by law in the sense of holding management and direction powers, and therefore incur criminal liability? Based on the powers assigned to each member under the law, the supervisory board does not participate in management and does not assume any management function. It therefore cannot be held liable in any way, and only members of the management board should be concerned.
Nevertheless, in France, there is a precedent suggesting that supervisory board members could also be held liable if they interfere in the company’s management or behave as de facto directors or co-perpetrators, or even accomplices to an offence. For example, if through their supervisory role, they allowed an offence committed by management board members to go unchecked.
Director Liability in Other Forms of Companies
In other types of companies — namely general partnerships, limited partnerships (simple or by shares), limited liability companies, and joint ventures — it is the managers who are responsible for managing the company. Consequently, under Law 5-96, criminal penalties fall upon them.
Limited Liability Company: LLC
The concept of limited liability does not apply to the liability of directors. It is limited to the financial liability of the contributors (shareholders).
The same rule applies to single-member LLCs: the criminal penalties provided by law for the LLC manager apply equally to the manager of a single-member LLC.
Where there are multiple managers in an LLC, there are multiple managers who are criminally liable.
General Partnership: GP
In a general partnership, the manager(s) who may be criminally liable are the partner-manager or the non-partner manager. Where there are multiple managers, they are independently liable. The same rules also apply to limited partnerships.
Limited Partnership by Shares: LPS
For limited partnerships by shares, the law (Article 32 of Law 5-96) distinguishes two types of managers:
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The initial manager(s) designated by the articles of association to complete the formation formalities (the founders in PLCs)
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The other managers during the life of the company are appointed by the ordinary general meeting of shareholders with the agreement of all general partners
This distinction is useful insofar as it makes it possible to determine the criminal liability of the company director depending on whether they are a founding manager or a manager appointed after the date of incorporation.
The initial manager incurs liability regarding offences related to the formation of the company. For a manager appointed after incorporation, liability applies in the opposite case.
Also, in this type of commercial company, it may happen that the director’s powers are delegated to other persons. What happens then?
Director Liability in Cases of Delegation of Powers
It may happen that a company’s director(s) do not have time to exercise their management powers. It is then possible to delegate to another person the power to perform certain specific acts on behalf of the company. In this case, who is criminally liable in the event of an offence?
Delegating powers to a third party does not in any way exempt the director from full liability. The director may also be criminally liable for acts performed by the delegatee. Although there are no specific formal requirements for delegating authority, doing so in writing is recommended. The content of this written document must be clear and precise so that it can serve, in the event of a dispute, as valid evidence. Furthermore, the delegatee must necessarily belong to the company and must not hold a position too far removed from that of the director for the delegation to be valid.
Special Case: De Facto Directors
De facto directors are defined by law as persons who exercise the direction, administration, or management of the company. This direction may be exercised either directly or through an intermediary. De facto direction, by definition, is exercised in practice by a person different from the one indicated in the legal documents.
These persons, just like de jure directors who have committed offences, are criminally liable under Article 374 of Law 17-95 and Article 100 of Law 5-96.
It should be noted that the liability of de facto directors in no way excludes that of de jure directors. A question may cross readers’ minds, namely whether there is a difference in treatment between de jure and de facto directors. There is no difference in treatment because both hold and exercise the highest and most important functions of the company they represent.
Ultimately, both de jure and de facto directors are criminally liable for offences committed. But what types of offences are they liable for?
Common Offences in Business Affairs
The director of a commercial company has obligations that must be honored. The powers conferred upon them are of such importance that the consequences of an offence can sometimes be extreme.
There is a comprehensive list of offences relating to commercial companies. These include offences related to the formation of the company, those related to its management and oversight, and those connected to the winding up and dissolution of the company.
Some of these offences are directly committed by directors and consequently engage their criminal liability. The most common offences are: offences related to company formation formalities, misuse of company assets, presentation of misleading annual accounts, distribution of fictitious dividends, and bankruptcy.
1- Offences Related to Company Formation Formalities
These offences may be offences of omission, corresponding to non-compliance with certain formalities required for the company to acquire legal personality.
Examples include the failure to file documents or deeds with the commercial register, the failure to comply with legally required publicity, or the omission of certain information on company documents.
Criminal law for commercial companies requires founders to file certain documents (the original or a certified copy of the articles of association, the legalized list of subscribers, or the statutory auditor’s report, etc.) with the court registry. They must then publish a notice signed by a notary or the founder after registering with the commercial register.
The constituent elements of these offences:
Legal Element of the Offence
Under Article 420 of Law No. 17-95 on PLCs and Article 108 of Law No. 5-96 on other commercial companies, any founder, director, chief executive officer, deputy chief executive officer, or management board member who has not taken, within the legal deadlines, the following steps:
Filing with the court registry the required documents or deeds (no deadline for PLCs and 30 days for other commercial companies from incorporation (signing of the articles of association))
The publicity required by the law on commercial companies (30 days from the company’s registration)
Material Element of the Offence
These offences may be committed at the time of the company’s formation, at the time of amendment of the articles of association, and even at any time when other operations requiring the filing of documents with the court registry are necessary.
Their material elements consist of the failure to perform the obligations provided for by law.
Moral Element of the Offence
As for the moral element, these offences require none. The omission of these two obligations provided for by law constitutes an offence without needing to prove criminal intent.
Liability for the fault is attributed to its author solely on the basis of their failure to perform their legal obligations, regardless of whether they acted in good or bad faith.
Penalties: The penalty for the offence of failure to file documents or deeds with the commercial register and for failure to comply with publicity requirements relating to the formation of PLCs and other commercial companies is currently a fine ranging from 10,000 to 50,000 dirhams.
2- Misuse of Company Assets
The offence of misuse of company assets was introduced into Moroccan special criminal legislation in 1996.
Misuse of company assets occurs when the director(s) of a commercial company use the company’s assets in a manner contrary to its interests.
It is an offence of illegitimate appropriation through:
- Diversion of assets for personal purposes
- Use of the company’s credit for personal interests
- Favoring organizations or companies in which the director has an interest, to the detriment of the company’s interests
Constituent elements of the offence:
Legal Element of the Offence
This offence is provided for in Article 384-3 of Law 17-95 on PLCs and in Article 107-3 of Law 5-96 on LLCs.
Material Element of the Offence
The material element of this offence consists of three parts:
- Use of company assets or credit for personal purposes through acts of administration or disposal
- Use of assets contrary to the company’s “economic interests”
- Acts by directors contrary to the corporate interest are punishable only if those directors acted for personal purposes or to favor another company or enterprise in which they are directly or indirectly interested
Moral Element of the Offence
Regarding the moral element, fraudulent intent is a mandatory element to constitute this offence.
The bad faith of the directors must be established, as well as the intentional element, which must also be found by the courts. The legislation clearly targets bad faith, meaning the director was aware of the criminal nature of their conduct or act. In other words, they were aware that their act was detrimental to the company and of the advantage they stood to gain from it.
Penalties: Those responsible for misuse of company assets in a PLC face a prison sentence of 1 to 6 months and a fine of 100,000 to 1,000,000 DH, or either of these penalties alone. For managers of other commercial companies, the law provides:
- Imprisonment of one to six months
- And a fine ranging from 10,000 to 100,000 DH.
3- Director Liability for Presenting Misleading Annual Accounts
A company’s annual accounts allow third parties to assess the company’s solvency. Moreover, investors attach enormous importance to them. These accounts allow them to judge the company’s ability to generate profits.
As such, the annual accounts must imperatively present a true and fair view of the company.
The offence of presenting or publishing misleading annual accounts occurs when members of the administrative bodies of a company present accounts that do not reflect a true and fair view. The law recognizes this offence even in the absence of dividend distribution. The material element requires that the directors committed it knowingly. They must also have done so with the aim of concealing the company’s true situation.
The constituent elements of the offence are as follows:
Legal Element of the Offence
In Morocco, the law punishes the offence of presenting misleading financial statements. This is an offence under:
- Law No. 17-95 on PLCs (Article 384-2)
- Law No. 5-96 on other forms of companies (LLCs in particular) (Article 107-2).
Material Element of the Offence
The material element here consists of two parts:
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Accounts that do not present a true and fair view: The presentation of irregular or insincere accounts is necessary to establish this offence. Examples include:
Failure to set up provisions or depreciation,
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Overvaluation or undervaluation of inventory
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Omission of recording company debts or receivables
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Publication or presentation of these accounts. The presentation of financial statements is mandatory under the law. This obligation derives from Accounting Law 09-88. It also derives from Laws 17-95 and 5-96. Commercial company law also requires the publication of annual accounts. Publication is intended to make them known to third parties, particularly those with an interest.
Moral Element of the Offence
Regarding the moral element, the fraudulent intent of the directors is mandatory to constitute the offence. Director liability is complete. However, to engage criminal liability, the intentional element is necessary (Article 384, paragraph 2 of Law 17-95).
The public prosecutor must prove the bad faith of the directors and that the defendants sought to conceal the true situation of the company, without needing to prove that the result was actually achieved. In this sense, this offence is doubly intentional.
Penalties: Those responsible for an offence in a PLC face a prison sentence of 1 to 6 months and a fine ranging from 100,000 DH to 1,000,000 DH, or either of these penalties alone. For managers of other commercial companies, imprisonment of one to six months and a fine of 10,000 to 100,000 DH, or either of these penalties alone.
4- Criminal Liability of Directors in Morocco: Distribution of Fictitious Dividends
Any officer of a company who distributes fictitious dividends, that is, dividends distributed in violation of any of the conditions set out in Article 331 of Law 17-95, commits the offence of distributing fictitious dividends.
The constituent elements of the offence:
Legal Element of the Offence
Article 384, paragraph 1 of Law 17-95 punishes directors who distribute dividends in the absence of actual results and/or without an accounting inventory proving the actual existence of profits. For other companies, Article 107 of Law 5-96 provides for the penalty for this offence.
Material Element of the Offence
Three elements constitute the material element of this offence, namely:
- A distribution made in the absence of an inventory or by means of a fraudulent inventory. This fraudulent inventory may consist of establishing an unrealistic value of the company’s assets
- A distribution of dividends noted from the moment fictitious dividends are distributed among shareholders.
- The distribution of fictitious dividends is characterized by recording a profit from which the mandatory legal, statutory, and optional reserves have not been deducted.
Moral Element of the Offence
The offence of distributing fictitious dividends requires proof of the perpetrator’s fraudulent intent.
Penalties: Those responsible for the offence in PLCs face a sentence of one to six months’ imprisonment and a fine of 100,000 to 1,000,000 dirhams, or either of these penalties alone. For managers of other commercial companies, while the custodial sentence is identical to that of PLC officers, the fine is limited to 10,000 to 100,000 DH.
5- Criminal Liability of Directors in Morocco: The Offence of Bankruptcy
Bankruptcy is characterized by acts of fraudulent management. The law makes criminal prosecution conditional upon the prior opening of insolvency proceedings.
It occurs when any merchant in a state of cessation of payments, whether through negligence or intentionally, has performed culpable acts likely to harm their creditors.
Therefore, the offence of bankruptcy requires two conditions: having the status of merchant and being in a state of cessation of payments (a situation in which a company cannot meet its due liabilities with its available assets).
Constituent elements of bankruptcy:
Legal Element of the Offence
The Criminal Code and the Commercial Code both provide for bankruptcy as an offence. The law provides for penalties in Articles 556 to 569 of the Criminal Code and Articles 754 to 756 of the Commercial Code.
Material Element of the Offence
Bankruptcy requires the combination of two elements, namely:
- The existence of judicial reorganization or liquidation proceedings
- And the existence of conduct prohibited by law.
The Commercial Code considers directors of a company guilty when they have committed certain fraudulent acts such as:
- Diverting or concealing all or part of the debtor’s assets
- Fraudulently increasing the debtor’s liabilities
- Maintaining fictitious accounts
- Destroying the company’s accounting documents
- Failing to maintain any accounting records when required by law, etc.
The Moroccan Criminal Code provides that certain acts engage the criminal liability of directors if they committed them fraudulently. This is the case in particular if the director:
- Concealed their accounts
- Diverted or dissipated all or part of the assets
- Acknowledged debts that were not owed
Moral Element of the Offence
Bankruptcy may be an intentional or unintentional offence. In all cases, the Criminal Code punishes this act of a nature to harm creditors.
Even in the absence of culpable intent, the judge, using their discretionary power, may classify certain acts as bankruptcy.
Penalties: Imprisonment of 1 to 5 years and/or a fine of 10,000 to 100,000 dirhams under the Commercial Code. And under the Criminal Code, imprisonment of 3 months to 3 years for simple bankruptcy. For fraudulent bankruptcy, imprisonment of 3 to 5 years.
Conclusion
Ultimately, Moroccan law places company directors at the center of the criminal framework that accompanies the birth and operation of a company, whether solvent or in difficulty. These directors are concerned whether they are de facto or de jure directors, given their important role within the company. They must therefore be careful about the acts they perform, because in the event of an offence, they incur criminal liability.
Frequently Asked Questions
What types of criminal liability can company directors face in Morocco?
Directors in Morocco can face criminal liability for offences including misuse of corporate assets, abuse of power, fraud, fictitious company formation, failure to declare cessation of payments, distribution of fictitious dividends, and bankruptcy. Both de facto and de jure directors are subject to these provisions.
What is the penalty for misuse of corporate assets (abus de biens sociaux) in Morocco?
Under Moroccan law, misuse of corporate assets is punishable by imprisonment of 1 to 6 months and/or a fine of 100,000 to 1,000,000 MAD. The offence consists of using company property, credit, or powers for personal purposes or for the benefit of another company in which the director has a direct or indirect interest.
Can a de facto director be held criminally liable in Morocco?
Under Moroccan law, both de facto and de jure directors can be held criminally liable for offences committed in the course of managing a company. A de facto director—someone who exercises actual management authority without formal appointment—is subject to the same criminal provisions as a legally appointed director, including penalties for misuse of corporate assets, fraud, fictitious company formation, and bankruptcy. This broad scope of liability reflects the importance Moroccan legislation places on the actual exercise of management functions, regardless of formal title.
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For expert guidance on director liability matters, contact Salaheddine Yatim, Chartered Accountant at Upsilon Consulting, member of the OEC.
