Pre-emption, the Self-Dealing Manager and the Warehouse Sale
Al-Amal Contracting Co. Ltd is a private limited company registered in Ramallah with a capital of 100,000 JD divided into 1,000 shares of 100 JD. Kamal holds 500 shares and is general manager; Nabil holds 300; Samir holds 200. Article 12 of the articles of association provides that no shareholder may transfer shares to a non-shareholder unless he first offers them to the existing shareholders 'on the same terms', and that transfers take effect only when entered in the shareholders' register. In March 2025 Samir signed a sale of his 200 shares to an outside investor at 240 JD per share without notifying anyone. In January 2025 Kamal, acting as general manager, sold the company's warehouse in Al-Bireh to his brother-in-law for 150,000 JD when two valuers had estimated it at 190,000 JD, and separately took a 10,000 JD 'commission' from the buyer. Nabil learned of both matters in June 2025 and wants to act.
1. Can Nabil block Samir's sale or step in as buyer, and does his three-month delay matter?
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Is the restriction valid? Yes. A private limited company may restrict share transfers in its articles, and a restriction accepted by the shareholder binds him as a contract. Article 12 is therefore enforceable against Samir, not merely an internal formality.
What the restriction required. A prior offer to the existing shareholders on the same terms. Samir gave none, so the sale to the outsider is in breach.
What 'same terms' means. This is where clients go wrong. It means the real price actually negotiated, 240 JD per share including the premium over nominal value, not the 100 JD nominal figure. If Nabil is substituted, he must pay 240 JD per share for whatever proportion he takes, otherwise the restriction would let insiders buy cheap at the outsider's expense.
Remedies. Before completion, an injunction restraining the transfer plus a claim for specific performance of the offer obligation. If Nabil pays, the company must enter him in the register. The company may also lawfully refuse to register the outsider, since registration is the step that confers membership. If the shares have already been registered, Nabil's primary remedy becomes damages against Samir, unless the outsider knew of the restriction, in which case bad faith may support rectification.
Timing. Three months is not fatal, because the breach is continuing and the register can still be corrected. But delay weakens an urgent injunction, may allow the outsider to argue detrimental reliance, and will be weighed on costs. Advise Nabil to send a written objection and lodge a caveat against the register immediately.
Extra check: whether the articles also require a general assembly resolution approving new members - if so, the outsider fails on that ground too.
2. What remedies does the company have over the warehouse sale to Kamal's brother-in-law and the 10,000 JD commission?
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Characterise the transaction. Kamal is both general manager and a shareholder, and the buyer is his brother-in-law. This is a conflict-of-interest transaction entered into by the person whose duty it was to obtain the best price. The law treats directors and managers as fiduciaries: they must not place themselves where their interest conflicts with the company's, and they must account for any benefit taken by reason of their office.
The commission. The 10,000 JD is a secret profit. It was received because Kamal controlled the sale, and it belongs to the company in equity; the company may claim it by an account of profits irrespective of whether the sale itself is set aside, since a fiduciary cannot keep a bribe or secret commission even if the principal suffered no loss.
The sale. The transaction is voidable at the company's option unless it was fully disclosed and approved by the general assembly with Kamal's vote excluded. Approval by the very man who benefited, sitting in the chair, is worthless. If the company rescinds, the property returns and the buyer recovers the price; if the buyer is a good-faith purchaser for value who has already registered, rescission may not be available and the company is confined to damages against Kamal.
Quantum. The shortfall is 40,000 JD against the higher valuation. The company cannot recover both the full shortfall and the commission if they overlap; plead the commission as a separate secret profit and the shortfall as damages, and let the court avoid double counting.
Procedure. Nabil, as a minority shareholder, may bring a derivative action in the company's name after notifying the board and the general assembly; the Companies Law sets thresholds for such actions. A parallel criminal complaint for breach of trust is possible, but it requires proof of entrustment and intent, and should not be used as a bargaining chip in a commercial dispute.