What Is Article 189 of the Bahrain Commercial Companies Law (2026)?

Understanding what is Article 189 of the Bahrain Commercial Companies Law is essential for every director, general counsel and corporate secretary operating in the Kingdom. Article 189, as codified in Legislative Decree No. 21 of 2001 and reinforced by the governance reforms introduced through Decree‑Law No. 38 of 2025, sets out the mandatory rules governing board conflicts of interest, related‑party transaction approvals and the circumstances under which a company contract may be declared null and void. The provision sits at the intersection of fiduciary duty and transactional compliance, and non‑compliance carries consequences that range from personal liability for directors to the complete unwinding of executed agreements.

With the 2025 amendments raising the bar on managerial accountability and shadow‑management exposure, the practical importance of Article 189 for Bahraini‑incorporated companies has never been greater.

At a glance, three things every board must know:

• Disclose immediately. Any director with a direct or indirect interest in a transaction before the company must notify the board before the vote takes place.
• Secure the right approval. Depending on the nature and materiality of the transaction, board‑level authorisation may not be enough, general assembly approval may be required.
• Failure = nullity. A contract concluded in breach of the disclosure and approval requirements may be treated as null and void, exposing the conflicted director to personal liability for any losses the company suffers.

What Article 189 Says, Statutory Summary and Plain English

Article 189 of the Bahrain Commercial Companies Law 2026 (Legislative Decree No. 21 of 2001, as amended) prohibits a board member from having a direct or indirect personal interest in transactions or contracts concluded with or on behalf of the company without complying with prescribed disclosure and approval procedures. The operative language of the statute provides, in relevant part, that “a member of the board of directors may not have a direct or indirect interest in transactions or contracts made for the company” without following the steps set out in the law. Breach of these requirements renders the affected contract liable to be declared null and void, and the director concerned may be held personally responsible for any resulting loss.

Exact Statutory Triggers

Article 189 is engaged whenever the following conditions are present:

1. Personal interest. A sitting board member holds a direct or indirect financial, commercial or personal stake in a proposed transaction.
2. Company nexus. The transaction or contract is concluded in the name of, or for the account of, the company.
3. Absence of authorised disclosure or approval. The interested director has not disclosed the interest to the board, has participated in the vote, or has failed to obtain general assembly approval where required.

Each of these three elements must be assessed independently. A director who holds an indirect interest, for example, through a family member’s shareholding in the counterparty, triggers the provision just as surely as one who contracts directly with the company.

Scope and Definitions

The article 189 commercial companies law framework casts a wide net. “Interest” is not limited to equity ownership; it encompasses any benefit, financial, contractual or otherwise, that a reasonable observer would regard as capable of influencing the director’s judgment. The term “contracts made for the company” covers purchase agreements, service contracts, loans, guarantees, leases and any other binding obligation the company enters into. Industry observers expect that post‑2025 enforcement will also scrutinise informal arrangements, such as advisory mandates or referral commissions, that confer benefits on directors or their associates.

Who Is Covered: Directors, Managers, Shadow Managers and Related Parties

The obligation under Article 189 extends beyond the individuals named on the commercial registration. The Bahrain Commercial Companies Law 2026 recognises that de facto control can be exercised by persons who are not formally appointed to the board, and the 2025 amendments have strengthened the framework for holding such individuals accountable.

Shadow managers liability in Bahrain is a growing area of enforcement focus. Under the 2025 amendments, a person who exercises effective management authority without formal appointment may be treated as a director for the purposes of the conflict‑of‑interest and liability provisions. The practical consequence is that majority shareholders, family patriarchs and embedded advisors all need to be identified and, where applicable, included in internal conflict registers.

Board Conflict of Interest in Bahrain: Disclosure, Recusal and Minutes

When a board member has an interest in a proposed transaction, the Bahrain Commercial Companies Law prescribes a step‑by‑step compliance process. Skipping any step risks triggering the nullity clause and exposing the director to personal claims.

1. Immediate oral disclosure. The interested director must declare the conflict at the board meeting, or, if the interest arises before the meeting, by notifying the chairperson in advance.
2. Written notice to the company secretary. The oral declaration must be followed up with a written notice that identifies the nature and extent of the interest and the identity of any related counterparty.
3. Abstention from the vote. The conflicted director may not participate in the deliberation or vote on the resolution approving the transaction.
4. Minute entry. The company secretary must record the disclosure, the abstention and the outcome of the vote in the board minutes. The conflicted director’s name and the nature of the interest should be stated explicitly.

Timing, When to Notify and When to Escalate to the General Assembly

Disclosure must precede the vote. A director who learns of a conflict after the board has voted must notify the board at the earliest opportunity; in such cases, the board should consider whether the resolution needs to be revisited or referred to the general assembly for ratification. Escalation to the GA is mandatory when the transaction exceeds the materiality thresholds set out in the company’s articles of association, when the counterparty is a controlling shareholder, or when the board itself determines that the matter warrants shareholder scrutiny.

Practical Drafting: Sample Director Conflict Disclosure

The following sample language may be adapted for use in a director’s written conflict disclosure:

“I, [Director Name], hereby declare that I hold a [direct / indirect] interest in the proposed [describe transaction] between the Company and [Counterparty Name]. My interest arises from [describe nature of interest, e.g., shareholding, family relationship, advisory engagement]. I confirm that I shall abstain from deliberation and voting on any resolution relating to this transaction and request that this disclosure be recorded in the minutes.”

Maintaining a standardised disclosure form ensures consistency across meetings and provides a documentary trail that can be produced to auditors, regulators or the courts if the transaction is later challenged.

Related‑Party Transactions in Bahrain: General Assembly Approval Thresholds and Documentation

Not every conflicted transaction requires a full shareholder vote. Article 189 works alongside the broader governance provisions of the Bahrain Commercial Companies Law 2026 to create a tiered approval structure. Understanding where a particular deal sits in that structure is the single most important compliance task for a general counsel dealing with related party transactions in Bahrain.

Decision tree, board or GA?

• Board approval suffices when the transaction is at arm’s length, on ordinary commercial terms, below any materiality threshold in the articles and the conflicted director has properly disclosed and abstained.
• General assembly approval is required when the counterparty is a director or a controlling shareholder (or their related parties), the transaction involves a material asset disposal, the company extends a loan or guarantee to a related party, or the articles of association expressly mandate GA sign‑off for transactions above a stated value.

Required Documentation

Regardless of whether the approval sits at board or GA level, the following documents should be prepared and retained:

• Conflict disclosure form. Signed by the interested director (see sample above).
• Independent valuation or fairness opinion. Particularly critical for asset disposals, loans and guarantees, demonstrates that the terms are commercially reasonable.
• Board minutes showing abstention. Must name the conflicted director, describe the interest and confirm that the director did not vote.
• GA resolution (where applicable). A special or ordinary resolution, depending on the articles, approving the specific transaction and noting the conflict.
• External auditor sign‑off. For listed companies or entities regulated by the Central Bank of Bahrain, external auditor confirmation may be an additional requirement.

Special Cases: Wholly Owned Subsidiaries and Intra‑Group Recharges

Where the company is a wholly owned subsidiary, general assembly approval in Bahrain may be a formality, the sole shareholder passes the resolution. However, the disclosure and documentation obligations still apply in full, because the law does not exempt intra‑group transactions from the conflict‑of‑interest provisions. Intra‑group recharges (management fees, shared services, IP royalties) must be priced at arm’s length and supported by transfer‑pricing documentation if they are to withstand scrutiny under both Article 189 and applicable tax regulations.

When Contracts Are Null and Void: Common Fact Patterns and Examples

Article 189’s nullity clause is its sharpest enforcement tool. Contracts that breach the provision may be declared null and void contracts in Bahrain, meaning they are treated as though they never existed, with restitution obligations flowing from that determination.

Scenario A, Undisclosed director interest. A board member’s spouse owns the company that supplies IT services to the firm. The director participates in the board vote approving the contract without disclosing the family connection. The contract is voidable under Article 189 once the interest comes to light, and the director may be liable for any overpayment or loss.

Scenario B, Missing GA approval. The board approves the sale of a significant asset to an entity controlled by the company’s majority shareholder. The articles of association require GA approval for disposals above a specified percentage of total assets, but no GA is convened. The sale is potentially null and void, and the buyer may be required to return the asset or its equivalent value.

Scenario C, Shadow manager directing the transaction. A non‑board member who is the de facto decision‑maker instructs management to enter into a lease at above‑market rent with a property company he controls. No disclosure is made. The lease may be voided, and the shadow manager faces personal liability for the excess rent paid by the company.

Can later GA ratification cure the defect? In some circumstances, a subsequent general assembly vote may validate a transaction that initially lacked proper approval, provided full disclosure is made to the shareholders and the GA passes the required resolution. However, industry observers expect that ratification will not cure a transaction where the underlying conflict was deliberately concealed or where the company has already suffered irreversible loss. Boards should treat retroactive ratification as a last resort, not a planning tool.

Liability: Directors, Shadow Managers and Remedies

The consequences of breaching Article 189 are personal and potentially severe. The Bahrain Commercial Companies Law 2026, especially following the Decree‑Law No. 38 of 2025 amendments, provides the following remedies:

• Contract avoidance. The company, or any shareholder on its behalf, may seek a court declaration that the conflicted contract is null and void.
• Restitution. The counterparty (and, where applicable, the conflicted director) must return any benefit received under the voided contract.
• Damages for loss. The director is personally liable for any loss the company suffers as a result of the breach, including opportunity costs and consequential losses.
• Regulatory action. The Ministry of Industry and Commerce may impose administrative penalties, and in serious cases the director may be barred from serving on boards of Bahraini companies.
• Shadow manager exposure. Persons who exercise de facto management authority without formal appointment face the same liability as appointed directors, including personal liability for losses and potential regulatory sanctions.

Where a breach is discovered internally, best practice is to commission an independent investigation, engage external legal counsel, and pass a board resolution documenting the findings, the remedial steps taken and any decision to refer the matter to the GA or the regulator.

How to Run Article 189 Approvals: Checklist, Templates and Minutes Language

The following ten‑step checklist is designed for company secretaries and general counsel managing a conflicted transaction under Article 189 of the Bahrain Commercial Companies Law:

1. Circulate the proposed transaction summary to all board members at least five business days before the meeting.
2. Request written conflict disclosures from every director using the standard disclosure form.
3. Collect and file any returned disclosure forms; flag identified conflicts to the chairperson.
4. Obtain an independent valuation or fairness opinion if the transaction involves an asset disposal, loan or guarantee.
5. Prepare the board agenda to include the transaction as a separate item, noting the identified conflict and the requirement for the conflicted director to abstain.
6. At the meeting, record the oral disclosure verbatim in the draft minutes; confirm that the conflicted director has left the room (or has been removed from the virtual meeting) before deliberation begins.
7. Record the vote count excluding the conflicted director; note the resolution outcome.
8. Determine whether GA approval is required (check articles of association thresholds, counterparty identity and transaction type).
9. If GA approval is required, prepare the notice of GA meeting, the explanatory memorandum (including full conflict disclosure) and the draft resolution.
10. File the approved minutes, disclosure forms, valuation report and GA resolution (if applicable) in the company’s governance records and make them available for audit.

Sample GA resolution text:

“RESOLVED that, having considered the disclosure made by [Director Name] regarding their [direct / indirect] interest, and having reviewed the independent valuation dated [Date], the General Assembly hereby approves the [describe transaction] between the Company and [Counterparty Name] on the terms set out in Annexure [X] to this notice.”

Approval Route by Transaction Type, Comparison Table

Note: The percentage threshold for a “material asset” is set in each company’s articles of association. Where the articles are silent, industry observers expect that any transaction exceeding 10–15 % of total assets should be treated as requiring GA approval as a matter of best practice. Boards should review their articles and, where necessary, amend them to include a clear threshold.

Practical Risk Mitigation: Internal Policy and Sample Clauses

Compliance with Article 189 should not be managed on an ad‑hoc, transaction‑by‑transaction basis. A standing internal policy, adopted by board resolution and embedded in the company’s governance manual, is the most effective safeguard.

Recommended policy elements:

• Related‑party transaction policy. Define related parties, set materiality thresholds, mandate pre‑approval by independent directors and require annual reporting to the GA.
• Conflict register. Maintain a central register listing every director’s interests, updated at least annually and whenever a new interest arises.
• Articles of association amendment clause. Insert a provision requiring board and GA pre‑approval for all related‑party transactions above a specified value, for example: “No transaction between the Company and a Related Party (as defined) with a value exceeding [amount / percentage] may be entered into without the prior approval of the General Assembly.”
• Annual disclosure and training. Require each director to submit an annual declaration of interests and provide annual training on the Article 189 requirements, updated to reflect any legislative changes.

Conclusion

Understanding what is Article 189 and implementing its requirements correctly is not optional, it is a legal obligation with real financial and reputational consequences. The three non‑negotiable compliance actions are: disclose every conflict before the vote, document the disclosure and abstention in the minutes, and secure general assembly approval where the transaction crosses the materiality thresholds. With the governance reforms introduced by Decree‑Law No. 38 of 2025 expanding the scope of liability to shadow managers and raising the bar on board accountability, companies that lack a standing related‑party transaction policy are operating at unnecessary risk. For tailored guidance on your next board approval, consult a qualified corporate governance specialist through the Global Law Experts lawyer directory.

This article provides general information on Article 189 of the Bahrain Commercial Companies Law and does not constitute legal advice. Specific transactions should be reviewed by qualified legal counsel in the Kingdom of Bahrain.

Sources

1. Ministry of Industry & Commerce (MoIC), Commercial Companies Law (Official PDF)
2. Ministry of Legal Affairs (MOLA), Legislative Decree No. (21) of 2001 (L2101)
3. Ministry of Legal Affairs (legalaffairs.gov.bh), Full English Law Document (L2101)