Inspection of companies in Egypt

The Egyptian legislator is keen to encourage investment in the Arab Republic of Egypt. The Egyptian Legislator has implemented numerous plans to attract both domestic and foreign investments by establishing a safe and stable investment environment, in order to enhance confidence in the Egyptian market and encourage investment.

The Egyptian legislator allocated an important role to monitor and inspect companies, as this oversight aims to ensure that companies adhere with the relevant laws and regulations in the Arab Republic of Egypt and to protect the rights of both investors and creditors.

The Regulatory body for supervising the companies in the Arab Republic of Egypt

As stipulated in Article No. (155) of the Egyptian Companies Law No. 159 of 1981 that the General Authority for Investment and Free Zones shall be responsible for monitoring companies in implementing the provisions stipulated in the Companies law and its executive regulations. The General Authority for Investment and Free Zones “GAFI” is considered a public entity with a public legal personality under the Ministry of Investment. It is responsible for and encouraging, developing, managing , and promoting investment in the country in accordance with the state’s economic development plan.

Furthermore, Article No. (300) of the Executive Regulations of the Companies Law added that the Financial Regulatory Authority “FRA” and the General Administration of Companies at GAFI shall undertake the implementation of the provisions of the law and its executive regulations.

The rights of the employees of the aforesaid authorities

The Egyptian legislator has granted certain rights to employees of GAFI and FRA for company’s supervision.

In accordance with Article No. (155) of the Companies Law and Article No. (300) of its Executive Regulations, the status of judicial officers is granted to technical employees of at least the third degree in GAFI and FRA This designation empowers them to investigate and document crimes related to violation of the provisions of the Companies Law and its Executive Regulations, whereas the aforesaid employees are granted this status by a decision issued from the Minister of Investment and the Minister of Justice.

In addition to the investigative powers outlined previously, the Egyptian legislator has granted employees with judicial officer status the right to access records, ledgers, and documents at the company’s premises or elsewhere, and obliged the company’s managers and those responsible for the management of the company to provide the requested data and documents upon inspection.

As stated in Article No. (156) of such law and Article No. (300) of its executive regulations, employees with judicial officer status for company supervision are granted the right to attend the ordinary and extraordinary general meetings of companies based on special permission from the CEO of GAFI and CEO of FRA, and the role of aforesaid employees during the general meetings is limited to record the proceedings and provide written observations. If they identify any legal violations of the Companies Law or its regulations during the meeting, they must notify the company with a written notice within ten days of the meeting’s date. This notification should include the specific details of the violations and supporting evidence from GAFI or FRA.

Minority rights to request inspection

The Egyptian legislator establish several guarantees to protect the rights of minority shareholders during inspections of the companies by incorporating various provisions in relevant laws and regulations.

Article No. (158) of the Companies Law grants shareholders owning at least 10% of the capital of a joint-stock company to request an inspection by the Ministry of Economy, in the event of strong evidence indicating serious violations committed by members of the Board of Directors or auditors. The inspection request must be accompanied by attaching supporting evidence and depositing the shares owned by the applicants, these shares remain mortgaged until the request is decided upon.

Procedures for submitting an Inspection Request

Firstly: Submit a written request from the company’s shareholders requesting inspection to be addressed to the Head of the Technical Office Sector of GAFI, to conduct an inspection of the work of the Chairman and members of the Board of Directors or the company’s auditor, accompanied by the following documents:

1. A detailed memorandum containing the violations attributed to the chairman and members of the company’s board of directors or the auditor, supported by documents.
2. A certificate from one of the approved banks stating that the shareholder submitting the inspection request has deposited the minimum percentage of shares required to initiate the process not less than 20% of the company’s capital shares for banks and 10% for other joint-stock companies, provided that the certificate states that these shares shall remain deposited in the bank until the completion of the inspection.
3. Receipt for Payment of Fees Minutes of the Board of Directors’ Meeting Approving the Inspection
4. Minutes of the Board of Directors ‘meeting approving the inspection (If the applicant for the inspection is a legal entity).
5. A copy of the company’s Article of Association as per to the latest amendment.
6. A certified certificate the stock exchange on stock trades all trading activities involving the company’s capital stock from it’s the date of incorporation to the date of submitting the inspection request.
7. A recent commercial register.

Secondly: Receiving a summons from GAFI requires the applicant present at the specified time at the place mentioned in the summons.

Thirdly: An official notification shall be sent to all the concerned parties by the outcome of the inspection committee.

Inspection committee

Upon receiving the inspection request submitted to the Minister of Economy; according to Article No. (158) of the Companies Law, the Minister shall form a committee to review the request, and an auditor from the Accountability State Authority shall be a member of this committee.

The committee may order an inspection of the company’s business and ledgers after conducting a confidential hearing from those who requested the inspection, and the company’s the board of directors, and the auditors. The legislator also has granted the inspection committee the right to assign one or more experts. to assist with the inspection process.

The committee shall set an amount to be deposited into the expenses account by those requesting the inspection, and the inspection shall not be conducted until this amount is deposited.

Obligations of Board Members, Employees, Auditors during inspection

Under Article No. (159) of the Companies Law, the Egyptian legislator has mandated that employees, board members, and auditors of a company undergoing inspection must cooperate fully with the authorized inspectors. This cooperation entails:

In accordance with Article No. (159) of the Companies Law, the Egyptian legislator has mandated that the employees board members, and auditors of a company undergoing inspection must fully cooperate with the authorized inspectors by Providing the access to records those charged with the inspection to view all ledgers, and documents related to the company that are in their possession or have the right to obtain them, Providing all the necessary information to the inspector. The legislator has further empowered the inspectors to interrogate anyone connected to the company’s affairs after taking the oath.

The Egyptian legislator also granted the inspector the right to review all documents related to the company. under inspection and which are in the possession of another company.”

Duration for submitting the Inspection Report

According to Article No. (160) of the Companies Law, the inspector is obligated to submit a detailed report on the findings within the specified period in the inspection decision issued by the inspection committee, or within only one month of depositing the amount that was determined by the committee and deposited by inspection requesters.

Grievance period against administrative decisions issued by GAFI

Grievances must be submitted within fifteen days from the date of notification of the decision or the or if the appellant’s knowledge of it, the competent committee shall issue its decision within sixty days from the date of submitting the grievance, and its decision is final and binding on GAFI.

The validity of the violations attributed to members of the Board of Directors

If the Inspection Committee confirms the validity of the violations attributed to the members of the Board of Directors and auditors, the General Assembly must be invited immediately to be convened under the chairmanship of the head of the competent administrative authority or one of the employees of this committee.

The Assembly may decide to remove the members of the Board of Directors and file a liability lawsuit against them, and its decision shall be valid if it is approved by the shareholders own half of the capital after excluding the shares of the board member whose removal is being considered.

Penalties for Violations by Board Members and Auditors in Egyptian Companies

According to Articles No. (162 and 163) of the Companies Law which outlines the penalties for specific violations committed by members of the Board of Directors and auditors. whereas the penalty shall be imprisonment for a period of not less than two years and a fine of not less than two thousand pounds and not more than ten thousand pounds, or one of these two penalties for anyone who falsifies the company’s ledgers or deliberately entering incorrect records or prepares or presents false or incorrect data reports to the General Assembly that could affect the Assembly’s decisions, without prejudice to any stricter penalties stipulated in other laws.

The legislator also stipulated that anyone who refrains from responding to the inspector inquiries shall be punished with a fine of not less than two thousand pounds and not more than ten thousand pounds, without prejudice to any stricter penalties stipulated in other laws.