Related Parties Transaction Policy and Procedures Manual
1. Definition
2.1 A Related Party Transaction is a transfer of resources, services or obligations
between the company and a related party, regardless of whether a price is charged.
Related Party Transactions includes but not limited to the following dealings
between the company and its :
2.1.1 Key management personnel, including CEO , CEO Assistants , Executive
managers and other persons having authority in decision making.
2.1.2 Board members ,Shari’ah Board Members and Board Members representing
Shareholders;
2.1.3
Board members’ Companies, or their related parties, including the mutual
lending and trading transactions.
2.1.4
Shareholders owning more than 5% of company’s Capital.
2.1.5
Subsidiaries
2.1.6
An affiliate, the company owns 20% or more of its capital and has significant
influence.
2.1.7
External Auditors.
2.1.8
Close members of the family of Board members and Key management
personnel.
A related party should be defined based on IAS and IFRS (based on CBK
requirements)
2.2
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of the entity, directly
or indirectly, including any Board Member (whether executive or otherwise) of that
entity.
2.3 Close members of the family of a person are those family members who may be
expected to influence, or be influenced by, that person in their dealings with the
entity and include:
2.2.1. That person's father, mother, children and spouse or domestic partner;
2.2.2. That person's second degree relatives e.g. Brothers and Sisters;
2.2.3. Children of that person's spouse or domestic partner; and
2.2.4. Dependants of that person or that person's spouse or domestic partner.
2.4 Significant influence is the power to participate in the financial and operating
policy decisions of an entity, but is not control over those policies. Significant
influence may be gained by share ownership, statute or agreement.
Related Parties Transaction Policy and Procedures Manual
2. General and Specific Goals
The Goals of the Policy are in accordance with the Company’s overall business plans
and objectives. The following summarize the general and specific goals of the policy:
3.1 General Goals
3.1.1 To ensure that all transactions with, or for the benefit of, any related party are
on terms and conditions that are acceptable and within safe and sound
Company practices as set by the Board of Directors. (i.e., on an arm’s length
basis)
3.1.2 To approve guidelines used in defining types of related party transactions,
adequacy of documentation, and to decide on appropriate levels of approval
authority.
3.1.3 To delegate this authority to the Financial Controller whenever appropriate.
3.2 Specific Goals
3.2.1 Require that all transactions be handled at fair market value, properly
collateralized if required, and represent a bookable asset.
3.2.2 Fees / Profits charged to related party/ affiliates by the holding Company or
between related party will be paid on a timely basis and will be calculated in a
consistent and uniform manner, and will be based on:
3.2.2.1
Reimbursement of Cost
3.2.2.2
Cost plus a reasonable profit( Limited to certain types of transactions
),or
3.2.2.3
Fair market value
3.2.2.4
All charges will be calculated in a consistent and uniform manner
3.2.2.5
Overall expense control of inter-affiliate services, transactions, etc.
3.2.2.6
Compliance with regulatory requirements, including laws and
regulations.
Related Parties Transaction Policy and Procedures Manual
3. Materiality and Types of transactions
Related party/affiliate transactions will be material if book or fair market value,
whichever is less, exceeds the limits set by the management. Consolidation of related
party/affiliate transactions also should be considered when the total of transactions of
similar nature exceeds the limits set by the management.
4.1.
Examples of non-recurring transactions includes
4.1.1 Sales of equipment between related party
4.1.2 Financing participations
4.1.3 Lease of equipment or real estate between related party
4.1.4 Sale of real estate between related party
4.1.5 Execution of contracted services over a period of time to a related party
4.1.6 Providing of services by one related party /affiliate to another, without
contract.
4.2.
Recurring transaction examples include contracts or lease between related
parties for goods and services such as:
4.2.1 Maintenance supplies
4.2.2 Advisory/ support/ outsourced services
4.2.3 Audit or compliance department fees
4.2.4 Fees under a long term management agreement
4.2.5 Credit transactions with related parties
Related Parties Transaction Policy and Procedures Manual
4. Recording and Approval of Related Party Transactions
5.1. The Company under the control of the Finance Department shall maintain
computerized records for the dealings with the related parties.
5.2. The dealings with the related parties shall be disclosed in accordance with the
provisions of the International Accounting Standards (IAS) and International
Financial Reporting Standards (IFRS), and applicable local regulations.
5.3. In the event that a related party transaction is contemplated, the transaction should
immediately be discussed with the Company’s General Manager.
5.4. All related party transactions should be approved in accordance with the delegation
of authority matrix approved by the Board of Directors.
5.5. Related Party transactions except lending with parties listed in the definition
(Section 2) should be approved by The General Assembly according to Article 230
of the Company’s Law.
Related Parties Transaction Policy and Procedures Manual
6.
Review of Related Party Transactions
6.1 No Board Member shall vote on any discussion or approval of a Related Party
Transaction for which he or she or any member of his or her immediate Family
Member is a Related Person. However, it is the responsibility of that Board Member
to provide all material information concerning the Related Party Transaction to the
Audit Committee.
6.2 The Audit Committee shall review disclosures required to be made in respect of
related party transactions.
6.3 The Audit Committee shall annually review the absence of any conflicts or related
party transactions with respect to key employees and his/her significant business
and investment transactions.
6.4 The Audit Committee shall review the following information with reference to a
material Related Party Transaction:
6.4.1
The terms of such transaction;
6.4.2
The Related Person’s interest in the transaction;
6.4.3
The purpose and timing of the transaction;
6.4.4
Whether the Company is a party to the transaction, and if not, the nature of
the Company’s participation in the transaction;
6.4.5
If the transaction involves the sale of an asset, a description of the asset,
including date acquired and costs basis;
6.4.6
Information concerning potential counterparties in the transaction;
6.4.7
The approximate value of the transaction and the approximate value of the
Related Person’s interest in the transaction;
6.4.8
Description of any provisions or limitations imposed as a result of entering
into the proposed transaction;
6.4.9
Whether the proposed transaction includes any potential reputation risk
issues that may arise as a result of or in connection with the proposed
transaction and
6.4.10 Any other relevant information regarding the transaction.
6.4.11 The approvals of the related party transaction.