A number of key amendments have been introduced to the Companies Act, Chapter 386 of the Laws of Malta, by virtue of Act XXXI of 2020, published on the 23rd of June, 2020.
Disqualification for appointment as director or company secretary
Article 142, dealing with the qualification of a person for appointment or to hold office as either a director or a company secretary, has been amended by virtue of this Act. Article 142(1) lists scenarios where such person would not be considered fit for such office, such as if the person is interdicted, incapacitated, is an undischarged bankrupt, has been convicted of any of the crimes listed in the same article, if the person is a minor who has not been emancipated for trade, or if the person is subject to a disqualification order under Article 320 of the Companies Act.
The amendment sees the inclusion of a proviso in 142(1), establishing time frames during which a disqualification in terms of Article 142(1)(b) shall remain valid i.e. in instances where the person will not be considered as fit and qualified to hold office as a director or company secretary if he has been convicted of any of the crimes affecting public trust or of theft or of fraud or of knowingly receiving property obtained by theft or fraud.
A disqualification in terms of this sub-article shall only remain valid for established time frames. The time frames are directly linked to the duration and the nature of the punishment for the crime the person has been convicted of. Therefore, in accordance with the proviso, amongst the other time frames established, any such disqualification shall remain valid in perpetuity if the punishment for the crime he has been convicted of is of imprisonment for life, but only for a period of three (3) years if the punishment for the crime he has been convicted of is of imprisonment for less than four (4) years. It is provided further that, in any case, the disqualification period in terms of this proviso shall not be less than the term of imprisonment that the person would have been awarded.
Two further sub-articles 142(4) and 142(5) have been included in Article 142 by virtue of this Act. The Registrar is now endowed with the power to restrict a person from being appointed as a director or company secretary of a proposed commercial partnership, or of an existing company, if the person is (or has been) a director or secretary of an existing Maltese company, in relation to which the person has breached the provisions of the Companies Act for three (3) times within a period of two (2) years, and is still in default as to one or more of such breaches. Such time frame shall be reckoned from the first breach of the person in question.
An appeal procedure has also been introduced, whereby any person who feels aggrieved by a restriction from being appointed as director or company secretary in terms of this sub-article may bring an application before the court against the Registrar for the removal of such restriction.
The Court may now make a disqualification order against any person found guilty of an offence under this Act, other than in the specific instances outlined in Article 320, upon the application of the Official Receiver as well as from the Attorney General or the Registrar.
Disqualification orders may also be made by the court following the conditions imposed by law if it is satisfied that “such person is or has been a director of a company which at any time has become insolvent, whether while he was a director or subsequently, and that his conduct as a director of that company, either taken alone or taken together with his conduct as a director of any other company or companies, makes him unfit to be involved in the management of a company”.
This amendment to the Companies Act adds another criterion which must be satisfied for the disqualification order to be issued if the court sees fit. Whereas previously, the sub-article in question spoke only of instances where the person’s conduct as a director of the company would make him unfit to be involved in the management of a company, the amendment states that the disqualification order may be made against the person where such person is or has been the director of a company which at any time has become insolvent, whether while he was a director or subsequently, and that his conduct has made him not suitable for purpose.
Company Recovery Procedure and Special Controllers
Company recovery procedure is regulated by Article 329B of the Companies Act, in instances where a company is unable to pay its debts or is imminently likely to become unable to pay its debts.
The court may issue a company recovery order upon hearing of an application made before it, which must be made in line with the requirements outlined in the same Article 329B, after having examined all the circumstances and options which are available, and only if the conditions outlined in the article have been satisfied, thereby triggering the company recovery procedure.
The amendments see changes made to the sub-article of Article 329B regulating the special controller. As amended, in the company recovery order, the court shall order that the remuneration and the disbursements of the special controller are initially paid out of a fund established by regulations in terms of sub-article (15), which expense shall be recoverable from the company in accordance with this article. Previously, the company would have to deposit a sum of money in Court or offer other suitable guarantee or appropriate arrangement to cover the remuneration and charges of the special controller, and the option for the payment out of a fund was left as merely an option for the court to consider.
Under the new procedure, the company shall then effect payment of expenses paid out pursuant to this article without delay, upon a request by the Official receiver.
A copy of the aforementioned request for payment, served by means of a judicial act on the company or its officers, shall constitute an executive title for all effects and purposes in line with the Code of Organisation and Civil Procedure.
Furthermore, as amended by Act XXXI of 2020, the Court may only appoint as the special controller a person from the list of individuals eligible to occupy the office of special controller held by the Official Receiver. The law states that regard will be given to the nature of the company to be restructured and the special controller’s experience and expertise in the management of business enterprises. The court shall ascertain that there is no conflict of interest in relation to his appointment.
Power of the Minister to prescribe regulations
The power of the Minister to prescribe regulations has been extended to specifically mention regulations for electronic filing, electronic signing of notices required by the act, electronic signature, issuance of electronic certificates, and other ancillary matters, as well as the holding of annual general meetings.
The Minister may also make regulations for the better carrying out of the provisions of Article 218(1), dealing with a request to the court for dissolution and winding up of a company, and may also by such regulations suspend the right of any persons mentioned in the said sub-article to file a winding-up application. The same applies to Article 316, dealing with wrongful trading, and Article 223, regulating the deemed date of dissolution, where the Minister may make regulations for the better carrying out of any of the Articles’ provisions, or prescribe new rules in relation thereto.
The above article is published for general information purposes only and does not constitute legal advice. For queries relating to company law in Malta, contact us here.