An Iraqi company may receive one instruction from its managing director, another from a majority shareholder and a third from an overseas parent. The practical temptation is to follow the most senior or commercially influential person. Legally, the relevant question is which person or body has authority over the particular decision and whether that authority has been exercised through the required procedure.
The Companies Law No. 21 of 1997, as amended, allocates corporate powers in Federal Iraq. The Civil Code No. 40 of 1951 is relevant where instructions are given through an agency arrangement or concern contractual obligations. These rules require the company to distinguish ownership influence from management authority and from an external representative’s mandate.
Classifying the proposed decision
The company should first identify the act being requested. An instruction to pay an approved invoice raises different questions from an instruction to borrow, sell a major asset, change the constitution or appoint a new manager. The legal form and constitution determine which company body must act and which additional approvals are needed.
In a joint-stock company, the board and general assembly have distinct functions. In other company forms, the general assembly or owner procedure and the managing director’s defined powers must be examined. An instruction should not be accepted merely because it is described as a board decision where the body issuing it does not hold the relevant statutory role.
The company should also check whether the instruction concerns a transaction already approved. A direction about implementation may be within management’s authority, while a material change to the approved terms may require a fresh decision.
Shareholder influence and corporate action
A shareholder exercises rights through the mechanisms recognised by the Companies Law and the company’s documents. A majority interest may be commercially decisive, but an individual message from the majority owner is not necessarily a general assembly resolution.
The distinction remains relevant for an overseas parent. The parent may have internal approval rights or contractual controls over the subsidiary, yet local corporate action may still be required. The company’s staff should be able to identify whether an email is an investor consent, a shareholder instruction to its representative or a decision intended to bind the subsidiary directly.
Etihad’s corporate services can help map these different capacities and establish a decision process that employees and counterparties can apply without guessing.
Conflicting authority documents
Conflicts often arise because the records have not been updated together. A manager may have been replaced internally while an old power of attorney or bank mandate remains in circulation. Alternatively, an internal delegation may impose limits that do not appear in the external authority document.
The company should compare the dates, issuing bodies, scope and continuing validity of each document. It should establish whether a later decision actually revoked or amended the earlier authority and whether any required notification has occurred. A newer date alone does not prove that a document overrides an earlier legally effective instrument.
Where third parties have already relied on an instruction, the legal effect requires separate assessment. The company should avoid assuming that an internal disagreement automatically invalidates an external commitment or, conversely, that possession of a signed document resolves every authority issue.
Instructions that may breach legal duties
Even an instruction from a competent body must be assessed against mandatory law. The Companies Law addresses proper management, conflicts of interest and misuse of ownership powers. Management should not treat shareholder approval as sufficient justification for diverting company assets or concealing a material liability.
If an instruction appears unlawful, the issue should be recorded and referred promptly for legal review. The record should identify the transaction, the concern and the decision required. This is more useful than an unexplained refusal that leaves the company unable to distinguish a legal objection from a commercial disagreement.
The manager should also consider obligations that cannot be postponed, such as payments or filings already due. A dispute over future strategy does not necessarily justify withholding performance of existing lawful commitments.
An escalation process for competing instructions
A practical escalation record should identify:
- The precise act requested and its financial or legal effect.
- Each person issuing instructions and the capacity claimed.
- The documents establishing the relevant authority.
- Any unresolved conflict, restriction or missing approval.
- The body competent to resolve the issue and the deadline for action.
Where possible, the company should obtain a clear written decision through the proper procedure. The resulting instruction should state what is approved and what remains outside the delegation. Staff should not be expected to reconcile incompatible messages from several group functions without an agreed escalation route.
Banks and counterparties
External communications should accurately describe the company’s authority position without making unsupported allegations. A bank or supplier may need certified decisions, identity documents or other evidence before accepting a changed instruction. The company should establish what the recipient requires and when the update becomes operational.
If competing shareholders seek to control an account or direct contract performance, the available legal remedies should be considered on the specific facts. Etihad’s dispute resolution practice can support that assessment, including whether urgent protective action is appropriate.
A decision record that remains usable
Once the issue is resolved, the company should update the relevant delegations, mandates and internal guidance. Earlier records should be retained so that commitments made during the disputed period can be assessed accurately.
As corporate legal counsel in Iraq, Etihad Law Firm can assist with both the immediate conflict and the underlying governance documents. The aim is to give the company a lawful, intelligible decision process in which authority depends on the relevant role and procedure, rather than on competing assertions of seniority.