Liability of the Managing Director and Executive Management for Crimes Committed by Company Employees

The liability of the managing director and executive management for crimes committed by company employees depends on distinguishing management and supervision, civil liability for the acts of subordinates, and personal criminal participation in an offence. An employee may forge an invoice or misappropriate an advance without management’s knowledge; a manager may issue instructions concealing unlawful disbursements; or an executive may independently breach their duties when handling clear reports of misconduct. The legal consequences differ in each case according to the manager’s responsibilities, available evidence, and applicable law. This distinction is particularly important for Egyptian companies and international groups that allocate management and compliance authority across multiple teams.

What Is Meant by the Liability of the Managing Director and Executive Management?

A managing director is a board member entrusted by the board with the company’s actual management, whose powers are defined under Article 79 of Companies Law No. 159 of 1981, subject to the requirement that the member devote their time to management. A chief financial officer, procurement manager, or compliance officer may undertake some of these functions under a specific delegation or job description. This does not make every manager liable for all acts of their subordinates: the source of their authority, their duties, and the period during which they exercised them must be established.

It is necessary to distinguish the employee’s liability as the possible perpetrator of an offence, the manager’s independent criminal liability, the company’s civil liability towards third parties for its employees’ acts, and disciplinary liability within the employment relationship. None of these forms of liability automatically establishes another.

The Egyptian Legal Framework

Companies Law No. 159 of 1981: Article 79 defines the scope of delegation to carry out actual management, while Article 102 governs civil liability actions for errors committed by board members in performing their duties. The specific offences under Articles 162 and 163 may apply where the executive commits the acts described in those provisions, such as deliberately recording inaccurate facts in company records or committing certain disclosure violations, subject to the requirements of each offence.

Penal Code No. 58 of 1937: Articles 39–41 govern the status of perpetrators and accomplices and the effect of incitement, agreement, or assistance. Depending on the circumstances, offences involving fraud, breach of trust, or forgery may arise. However, a person’s managerial position or employment relationship with the employee does not, in itself, establish their status as an accomplice.

Civil Code No. 131 of 1948: Under Article 174, a company may be liable as an employer for damage caused by an employee’s unlawful act committed in the course of or by reason of their employment, where the relationship of subordination and other requirements are established. Article 175 regulates the person liable for another’s act seeking recourse against the person who caused the damage. Imposing personal damages liability on the managing director for their independent fault requires a legal basis and the applicable elements of liability, including those under Article 163.

Labour Law No. 14 of 2025: Article 141 governs safeguards in disciplinary investigations, including written notification of the allegations, hearing the employee’s defence, documenting it in minutes, and commencing the investigation within the statutory period. Article 142 regulates the body conducting the investigation, while Article 145 addresses the circumstances and requirements for temporary suspension. An internal investigation does not replace an investigation by the Public Prosecution where a crime is suspected.

When Does the Managing Director Incur Personal Criminal Liability?

Criminal liability requires a criminalised act attributable personally to the manager or criminal participation established by evidence. If a manager instructs an employee to issue fictitious invoices, agrees with the employee to transfer company funds, or knowingly supplies the means to commit an offence, their role as perpetrator or accomplice may be examined in light of the circumstances. Conversely, the manager’s approval of an ordinary transaction on the basis of documents that appeared valid, followed by the discovery of concealed forgery committed by an employee, does not by itself establish knowledge or agreement.

A manager’s duty to prevent or report misconduct depends on the applicable special provisions, corporate governance arrangements, and powers delegated to them. Ignoring clear warning signs may constitute administrative or civil fault or a regulatory violation, but it does not automatically amount to criminal complicity. An omission is criminal only where the requirements of the applicable provision are met. A manager’s silence or failure to detect an incident must not be treated as conclusive evidence of collusion.

Is the Company Liable for a Crime Committed by an Employee?

The company’s civil liability must be distinguished from criminal liability. Article 174 of the Civil Code applies to damage arising from a subordinate’s unlawful act committed in the course of or by reason of employment, provided the employer’s actual authority to direct and supervise the employee is established. The employment connection may exist even where an employee exploited their position for personal gain, if their employment enabled them to commit the act in the manner recognised in case law.

Criminal liability of a legal person, on the other hand, requires a specific statutory provision and satisfaction of its conditions. It does not arise for every company in respect of every offence committed by its employees. The company may sustain financial losses, face claims from injured parties, or incur independent regulatory liability, while the offence attributed to the employee remains subject to individual proof.

When Does a Manager Incur Civil Liability for Negligent Supervision?

Where a managing director has authority to approve suppliers and payments and review exceptions, but disregards specific warnings or neglects a material control within their responsibilities, causing damage, their personal civil liability may be examined in light of their fault, the damage, causation, and the special rules governing liability actions. Describing the control system as weak in general terms is insufficient. The action the manager was required and able to take, and its connection with the loss, must be identified.

Conversely, meeting minutes, periodic reports, requests for corrective action, and earlier investigations may help demonstrate the care exercised by a manager in managing risk. They do not provide general immunity or extinguish the company’s civil liability towards third parties where the requirements of Article 174 are met.

Three Practical Scenarios Commonly Encountered Within Companies

Procurement manipulation: An employee creates a fictitious supplier and transfers funds to an account connected to them. The employee’s role, supplier creation records, and bank approvals must be examined, followed by the manager’s involvement in payment reviews or granting permissions. Depending on the evidence, the manager may be a victim of the fraud, an accomplice, or separately liable for a supervisory failure.

Falsification of accounting records: An accountant changes entries to conceal a shortfall. Where a manager ordered the alteration or approved a report they knew to be false, their liability under forgery provisions or other applicable offences must be examined. Merely signing a report based on fabricated information is not, in itself, sufficient to prove knowledge of the offence.

Concealment of misconduct: A manager receives a report about suspicious transfers and either preserves the evidence and refers it to an independent team or, conversely, orders records deleted and witnesses intimidated. Liability differs according to each action, the statutory duty, and the criminal provisions covering it. Internal handling is not, in itself, a crime, nor is every settlement prohibited.

Practical Procedures Upon Discovering a Potential Offence

The initial response should assess the risk of ongoing harmful conduct and preserve documents and electronic records in a lawful, proportionate manner. High-risk operational permissions should then be suspended by a person authorised to make that decision. An investigation team should be appointed with due regard to conflicts of interest; a manager under suspicion must not lead the investigation into their own conduct. Special reporting obligations must also be reviewed where the company is financially regulated or subject to a regime requiring notification of the relevant incident.

When investigating an employee covered by Labour Law No. 14 of 2025, the employee must be notified of the allegations in writing, heard, allowed to present their defence, and the proceedings recorded in minutes, with the statutory periods and rules governing sanctions and temporary suspension observed. Company investigation records should not describe the employee as a criminal before the allegations have been adjudicated, and the manager’s criminal liability must not be inferred solely from the outcome of a disciplinary investigation.

Documents That Must Be Preserved

The resolution appointing the managing director, the authority matrix, and delegations in force at the time of the incident.
Original contracts, invoices, purchase orders, receiving documents, transfers, and related bank-account records.
ERP records, business emails, approval logs, modification logs, and access permissions, with the source and method of extraction documented.
Board meeting minutes, internal audit reports, earlier warnings and reports, and the responses to them.
Investigation minutes, suspension or permissions-amendment decisions, and the evidence chain-of-custody log.

Commercial and Operational Risks for the Company

Employee offences may cause direct financial losses; disrupt procurement or collections; prompt claims by customers or partners; undermine confidence in financial statements; and generate investigation and digital-recovery costs. Risks also arise where a particular manager is assigned blanket responsibility without examining their delegated powers, potentially resulting in a biased investigation and failure to identify genuine systemic weaknesses. Remediation of controls, individual accountability, and recovery of funds should be addressed separately.

Special Considerations for International Groups and Companies

An Egyptian subsidiary of an international group must define the local manager’s powers and the extent to which decisions require approval from headquarters. Group-wide internal reviews may be conducted, but Egyptian law must be observed when extracting employee data, transferring it across borders, or engaging experts outside Egypt. The US Foreign Corrupt Practices Act or UK legislation does not automatically apply to every incident; applicability depends on the relevant legal and international connections.

Directors’ and officers’ liability insurance may be helpful depending on the policy, but it does not provide a general guarantee of coverage for intentional fraud or criminal fines. Coverage limits, defence costs, and claim-notification conditions should be reviewed.

Common Errors and Best Practices

Common errors include imposing criminal liability on the managing director for every offence committed by a subordinate, treating delegation as an exemption from all managerial duties, confusing the company’s civil liability with the manager’s personal liability, and conducting an investigation without preserving evidence or respecting employee safeguards. Allowing one person to create a supplier, approve an invoice, and authorise payment may also increase the risk of collusion.

Prevention is strengthened by segregating duties, assessing transaction risks, verifying suppliers and related parties, protecting change logs, establishing independent reporting channels, and documenting the remediation of material findings. The board should receive clear periodic reports on unresolved risks, and managers should retain evidence of their decisions and the alternatives they considered.

When Is Specialist Legal Counsel or Local Counsel in Egypt Necessary?

Legal intervention becomes especially important where suspected misconduct implicates the managing director, chief financial officer, or related-party transactions, or where forgery or misappropriation is discovered and may give rise to substantial civil claims, a criminal complaint, or regulatory reporting duties. Legal counsel helps establish each person’s liability, define lawful investigation parameters, coordinate financial and digital experts, and prepare the measures needed to preserve evidence and rights.

How Can Specialist Legal Support Help?

El Rouby Law Firm reviews authority structures, compliance, and governance; prepares internal policies and contracts defining managers’ responsibilities; manages legal investigations and financial crime risks; negotiates settlements and recovers rights; and represents clients before Egyptian judicial and regulatory authorities. The firm also provides Local Counsel services to international companies and investors, including reviews of subsidiary obligations and coordination with headquarters.

Conclusion and Contacting El Rouby Law Firm

An employee’s offence does not automatically become a crime committed by their manager. Equally, managerial status does not preclude liability where incitement, participation, or the commission of an independent criminal act is established. The company’s civil liability towards third parties is a separate issue from the board member’s personal liability. Companies facing suspected internal financial misconduct may engage El Rouby Law Firm to assess the facts, preserve evidence, and identify appropriate legal responses consistent with Egyptian legislation.

Frequently Asked Questions

Is the Managing Director Criminally Liable for Every Crime Committed by an Employee?

No. Personal liability requires a criminal act or participation established under the elements of the offence, or a specific statutory provision applicable to the managing director.

Must the Company Compensate a Person Harmed by an Employee’s Crime?

The company may be liable as an employer under Article 174 of the Civil Code where the relationship of subordination, the connection with employment, and the requirements for compensation are established.

Is Negligent Supervision Sufficient to Establish the Manager’s Complicity in Embezzlement?

No. Negligence may give rise to separate civil or regulatory liability, but it is not equivalent to criminal incitement, agreement, or assistance without proof of their elements.

May an Employee Be Dismissed Immediately When a Crime Is Suspected?

The statutory procedures and safeguards must not be disregarded. The rules governing investigations, disciplinary sanctions, and temporary suspension under Labour Law No. 14 of 2025 must be examined.

Does Delegating Payment Authority to a Financial Manager Exempt the Managing Director from Liability?

Delegation does not confer an automatic exemption. The duties retained by the managing director, their actual role, and any fault must be established.

Must a Criminal Complaint Be Filed Immediately Upon Receiving an Anonymous Report?

The report, evidence, and any specific statutory duties must be assessed. Documents should be preserved, and any mandatory notification must not be delayed. The mere receipt of an anonymous report does not establish that a crime has occurred.

Legislative and Official References

Companies Law No. 159 of 1981, as amended, particularly Articles 79 and 102 and the specific penal provisions.
Civil Code No. 131 of 1948, Articles 163, 174 and 175.
Labour Law No. 14 of 2025, Articles 141, 142 and 145.
General Authority for Investment and Free Zones: company legislation and corporate governance services.