In brief: Prohibited agreements under Moroccan company law (Article 62 of Law 17-95 and Article 63 of Law 5-96) are contracts such as loans, advances, and guarantees between a company and its directors that are absolutely null and void. Violations may result in civil liability and criminal prosecution for misuse of corporate assets.
Prohibited agreements under Moroccan law refer to contracts concluded between a company and certain individuals connected to its management bodies, which the law explicitly forbids. These agreements are considered dangerous because they can create serious conflicts of interest or abuses detrimental to the company and its shareholders.
In Morocco, the legislator has established a strict framework to protect the corporate assets of commercial companies. Prohibited agreements represent the highest level of protection: they are struck with absolute nullity, with no possibility of regularization. Any director or manager who enters into such an agreement faces not only the cancellation of the transaction, but also civil and criminal proceedings.
Prohibited Agreements: Legal Basis
This concept is found in company law, particularly in Law 17-95 on public limited companies (Article 62) and Law 5-96 on limited liability companies (Article 63). These texts establish a fundamental distinction between three categories of agreements:
- Regulated agreements: possible, but subject to authorization or approval (by the board of directors, the supervisory board, or the general assembly).
- Free (normal) agreements: concluded in the ordinary course of business, without any special formality.
- Prohibited agreements: absolutely forbidden, null and void by operation of law, with no possibility of ratification.
Article 62 of Law 17-95: The Reference Text for PLCs
Article 62 of Law 17-95 is the central provision governing prohibited agreements in public limited companies (societes anonymes). It clearly states that directors, other than legal entities, may not contract in any form whatsoever loans from the company, nor obtain overdrafts in current accounts or otherwise, nor have their commitments to third parties guaranteed or endorsed by the company.
This prohibition is a matter of public policy, which means that no statutory clause and no general assembly resolution can derogate from it. The nullity that affects these agreements is an absolute nullity that cannot be covered by any confirmatory act.
Article 63 of Law 5-96: Extension to LLCs
For limited liability companies (SARL), Article 63 of Law 5-96 provides a similar mechanism. Managers and individual shareholders may not, in any form whatsoever, borrow from the company, obtain overdrafts, or have their commitments guaranteed by the company. This prohibition also applies to the spouses, ascendants, and descendants of the persons concerned, as well as to any interposed person.
Persons Covered by Prohibited Agreements
The prohibition does not only concern the directors themselves. The Moroccan legislator has broadened the scope of application to prevent any circumvention of the law.
In PLCs (Law 17-95)
The persons covered by Article 62 are:
- Directors who are natural persons,
- Chief executive officers (directeurs generaux),
- Permanent representatives of legal entity directors,
- Members of the executive board (in the case of a PLC with an executive board and supervisory board),
- Spouses of the above-mentioned persons,
- Ascendants and descendants up to the second degree inclusive,
- Any interposed person acting on behalf of the persons concerned.
In LLCs (Law 5-96)
Article 63 covers:
- Managers of the LLC,
- Shareholders who are natural persons,
- Spouses, ascendants, and descendants of these persons,
- Any interposed person.
The concept of interposed person is particularly important. It allows for the sanctioning of indirect arrangements through which a director might attempt to benefit from a financial advantage by using a third party as an intermediary.
Operations Covered by Prohibited Agreements
Prohibited agreements cover a specific set of financial operations. Any transaction that effectively allows a director to benefit from corporate resources is forbidden.
Loans and Advances
A company may not grant any loan or advance of funds to its directors, chief executive officers, managers, or members of the executive board. The form of the loan is irrelevant: whether it is a formal contract, a simple bank transfer, or the making available of funds.
Current Account Overdrafts
It is prohibited to grant directors an overdraft on their current account or any similar benefit. This includes cash facilities and debit balances maintained in shareholders’ current accounts.
Sureties, Endorsements, and Guarantees
The company may not stand surety for, endorse, or guarantee the personal commitments of its directors toward third parties. For example, a PLC cannot act as guarantor for the personal mortgage of one of its directors.
The objective of these prohibitions is clear: to prevent any confusion between corporate assets and the personal assets of directors. The company’s resources must serve exclusively the corporate interest.
Sanctions for Prohibited Agreements in Morocco
The sanctions applicable to prohibited agreements are particularly severe, reflecting the seriousness that the legislator attaches to these violations.
Automatic Nullity
Any prohibited agreement is null and void by operation of law. This nullity has several characteristics:
- Absolute: cannot be covered by any confirmatory act,
- Invocable by any interested party: shareholders, corporate creditors, or injured third parties with a legitimate interest,
- Raised ex officio: the court may raise it on its own motion,
- Enforceable against third parties acting in bad faith.
In practice, nullity results in the return of any sums paid and the restoration of the prior situation.
Civil Liability
A director who enters into a prohibited agreement incurs civil liability toward the company. They must repair the damage suffered by the company, which may include repayment of misappropriated funds, late payment interest, and damages.
Criminal Liability
On the criminal side, entering into a prohibited agreement may constitute misuse of corporate assets (abus de biens sociaux), an offense punishable by imprisonment of 1 to 6 months and a fine of 100,000 to 1,000,000 MAD, or one of these two penalties only. Learn more about criminal liability of directors in Morocco.
Practical Examples of Prohibited Agreements
To better understand the scope of these prohibitions, here are concrete cases frequently encountered in practice:
- Loan to a director: the chairman of the board of directors asks the company to lend him 500,000 MAD to finance a personal project. This transaction is null and void by operation of law.
- Guarantee for a manager: an LLC acts as guarantor with a bank for its manager’s personal mortgage. This is a prohibited agreement.
- Advance to a director’s spouse: the company pays a cash advance to the spouse of the chief executive officer. The prohibition extends to spouses.
- Current account overdraft: a managing partner maintains a permanent debit balance in their shareholder current account. This situation constitutes a prohibited overdraft.
- Interposed person: a director has the company lend funds to a real estate company (SCI) of which he is the beneficial owner. The arrangement is sanctioned under the interposed person provisions.
Distinction from Regulated and Free Agreements
Understanding the distinction between the three categories of agreements is essential for any company in Morocco. Each is subject to a different legal framework.
Free (Normal) Agreements
Free agreements are those concluded in the ordinary course of corporate management and involving routine transactions carried out under normal conditions. Example: the company signs a contract with a completely independent supplier or pays its regular invoices. These agreements require no special authorization and fall within the ordinary operations of the business.
Regulated Agreements
Regulated agreements are more sensitive. They concern contracts concluded between the company and:
- its directors,
- its chief executive officer,
- its managers (in the case of an LLC),
- or a company in which these individuals have interests.
These agreements are not prohibited but must be supervised:
- they must be disclosed to the board of directors or the assembly,
- they are often subject to prior authorization or subsequent approval,
- and they must be communicated to the statutory auditor who will report on them in a special report.
Prohibited Agreements
Prohibited agreements go much further: these are agreements that the law completely forbids, with no possibility of authorization or ratification. Unlike regulated agreements, which can be validated by the board of directors or the general assembly, prohibited agreements are struck with an absolute nullity that nothing can cure.
Why This Distinction Matters
The separation between these three types of agreements reflects the philosophy of company law in Morocco:
- Preserving the corporate interest above all, by preventing directors from enriching themselves at the expense of the company,
- Ensuring transparent governance by subjecting certain transactions to control procedures,
- Protecting minority shareholders and creditors by offering them recourse in the event of a violation.
For a foreign investor or a local entrepreneur, complying with these rules is essential to securing operations and avoiding costly litigation. A regular financial audit helps detect any prohibited agreements and take the necessary corrective measures.
Comparative Table
| Type of Agreement | Definition | Examples | Legal Framework |
|---|---|---|---|
| **Normal Agreements** | Routine management acts with no particular conflict of interest | Purchase from an independent supplier | No authorization required |
| **Regulated Agreements** | Contracts with executives or related companies, presenting a risk of conflict of interest | Service contract with a company owned by a director | Mandatory authorization or approval + disclosure to the statutory auditor |
| **Prohibited Agreements** | Acts prohibited by law because they blur the line between corporate and personal assets of executives | Loans, advances, guarantees granted to executives | Null and void by operation of law + civil and criminal liability |
How to Safeguard Against Prohibited Agreements
To avoid falling into the trap of prohibited agreements, Moroccan companies should implement preventive measures:
- Educate directors on the applicable legal provisions, particularly Articles 62 of Law 17-95 and 63 of Law 5-96,
- Establish a governance charter that clearly outlines prohibited operations,
- Regularly monitor shareholders’ current accounts to detect any irregular debit balances,
- Appoint a statutory auditor to verify the absence of prohibited agreements during the annual audit,
- Consult a chartered accountant before any transaction involving a director or related person.
Upsilon Consulting, a chartered accounting firm in Casablanca, supports Moroccan companies in achieving governance compliance and preventing risks associated with prohibited agreements.
Frequently Asked Questions
What are prohibited agreements under Moroccan company law?
Prohibited agreements are contracts between a company and its directors or managers that the law strictly forbids. They include loans, advances, current account overdrafts, and guarantees granted by the company to its directors. These agreements are struck with absolute nullity and cannot be ratified.
Who is covered by the prohibition on agreements in Morocco?
In PLCs, the prohibition covers natural person directors, chief executive officers, permanent representatives of legal entity directors, and members of the executive board, as well as their spouses, ascendants, descendants, and any interposed persons. In LLCs, it extends to managers, individual shareholders, and their family members.
What are the sanctions for entering into a prohibited agreement?
Prohibited agreements are automatically null and void, requiring the return of all sums paid. The director involved may also face civil liability to repair damages suffered by the company, and criminal prosecution for misuse of corporate assets, punishable by imprisonment of 1 to 6 months and fines of 100,000 to 1,000,000 MAD.
How do prohibited agreements differ from regulated agreements?
Regulated agreements are contracts with directors that are permitted but require prior authorization from the board of directors and approval by the general assembly. Prohibited agreements, by contrast, are absolutely forbidden by law with no possibility of authorization or ratification. Any prohibited agreement is null and void by operation of law.
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