Malta Company Directors: Role and Responsibilities

Dr. Priscilla Mifsud Parker | Published on 03 Mar 2014 | Updated on 30 Sep 2019

Malta Company Directors Role and Responsibilities

Malta Company Directors: Introduction

The Maltese Companies Act defines a director as being any person occupying the position of director of a company by whatever name he may be called carrying out substantially the same functions in relation to the direction of the company as those carried out by a director; the directors of a company are responsible for the management and day to day running of the affairs of the company since as a legal entity the company cannot act in any way other than through its directors. Directors have a fiduciary relationship towards the company and must act as a bonus pater familias. Directors are also deemed to be mandatories and agents of the company.

The duties of Malta company directors may be categorised in the following manner:

1.    Those general duties arising out of their juridical position under general principles of law;

2.    Administrative duties created through the specific provisions found in the Companies Act.

General Duties

The general duties of directors are two-fold:

a)    Duties of loyalty;

b)    Duties of care and skill.

These duties are laid out in Article 136A of the Companies Act, and have a ‘fiduciary’ character. 

 

The Duty of Loyalty

Directors should not carry out self-dealings and make a personal profit out of their position as director of a company unless they are otherwise entitled. Directors should not place themselves in a position where there is a conflict between their duties to the company and their own personal interest or the interest of others.

It is the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest to the other directors either at the meeting of the directors at which the question of entering into the contract is first taken into consideration, or, if the director was not at the date of that meeting interested in the contract or proposed contract, at the next meeting of the directors held after he became so interested.

A director of a company may not, in competition with the company and without the approval of the same company given at a general meeting, carry on business on his own account or on account of others, nor may he be a partner with unlimited liability in another partnership or a director of a company which is in competition with that company. Breach of this rule will give rise to the possibility of the company to take action against the director who is in such breach or demand payment of any profits made by him in contravention of this rule.

Duties of Care and Skill

Directors are bound to perform their duties with an adequate level of care and skill.

Article 136A sub-article (3) further provides that the directors of a company shall:

(a)  be obliged to exercise the degree of care, diligence and skill which would be exercised by a reasonably diligent person having both –

(i)            the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by or entrusted to that director in relation to the company; and

(ii)           the knowledge, skill and experience that the director has;

The Companies Act therefore establishes a twofold test:

·         An objective test – i.e. Article 136A sub-article (3) (i)

·         A subjective test – i.e. Article 136A sub-article (3) (ii)

This provision specifies that a director must exercise the degree of care, diligence and skill which is likely to be exercised by a reasonably diligent person having cumulatively: the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out or entrusted to that director in relation to the company (the objective standard), and the knowledge, skill and experience that the director has (the subjective standard). 

Directors as Fiduciaries of the Company

Malta company directors are deemed to be fiduciaries of the company. As such, they are bound by the fiduciary duties stipulated in Article 1124A of the Civil Code. . These include:

1.    The duty of loyalty;

2.    The duty of care, more specifically the duty to exercise the diligence of a bonus paterfamilias in the performance of his obligations,

3.    A number of the administrative duties,  which include:

·         The duty to keep any property acquired or held by him in lieu of his position as fiduciary segregated from his personal property;

·         The duty to maintain suitable records in writing of the interest of the person to whom such fiduciary obligations are owed;

·         The duty to render account in relation to the property subject to such fiduciary obligations,

·         The duty to return on demand any property held under fiduciary obligations to the person lawfully entitled thereto or as instructed by him or as otherwise required by applicable law.

The Duty to Promote the Well-Being of the Company

A final general duty imposed upon directors is the obligation to promote the company’s well-being and to ensure its proper administration and management. 

Statutory Duties

Apart from these general duties, directors are also required to fulfil a number of additional, largely administrative duties emerging from the CA.

Duties relating to the keeping of statutory registers and minute books. Such books and documents include:

a)    A register of members;

b)    A register of debentures;

c)    Board and general meetings’ minutes and minute books;

Duties relating to the filing of returns and documents:

a)    A report drawn up when shares are issued yet these aren’t paid by cash;

b)    A report issued when a non-cash asset is transferred within the first two years of the company’s existence, under certain conditions;

c)    Changes to the Memorandum and Articles of Association;

d)    Extraordinary or ordinary resolutions regarding:

               (i)    changes to the issued share capital;

               (ii)   the acquisition of its own shares by the Company itself;

e)    The removal of a director before the expiration of his term of office;

f)     Vacancies in the company’s representation;

g)    Copies regarding the issuance of shares on a pre-emptive basis;

h)    Return of allotments on a Form H;

i)      A notice of redemption of preference shares on a Form T (1);

j)      A notice of the transfer or transmission of shares;

k)    A notice of the pledging of securities on a Form T (2);

l)      Changes in the posts of officers and persons representing the company on a Form K;

m)  The appointment, removal and resignation of company auditor together with the required statements needed from the latter;

n)    The annual return;

o)    The directors’ report;

p)    Any compromise or arrangement taking place;

q)    The transformation of the company into a single – member entity;

r)     A notice of dissolution;

s)    Any draft terms of a proposed merger or a proposed division.

It is common for companies to engage the services of a corporate services provider in order to provide assistance with these matters. Our firm can provide such ongoing corporate services support.

Duties relating to board and general meetings

These are primarily duties relating to record keeping and financial statements, and include:

a)    The keeping of mandatory trade books identified in Articles 13 to 18 of the Commercial Code, supplemented by the provision in Article 163 (1) of the same Code specifically aimed at Companies, together with other duties arising from a number of other Legislation;

b)    The profit and loss account and balance sheet;

c)    The directors’ report together with its approval and signing;

d)    The distribution of the annual accounts to the relevant persons;

e)    The laying of accounts to the company in general meeting;

f)     The filing of these accounts with the Registrar of Companies;

Duties relating to the liquidation of the company

These include the duty to ensure that certain offences and prohibited conduct in the period prior to or during the winding of the company do not take place;

Miscellaneous duties which include:

a)    The verification and authentication of documents;

b)    The issuance and delivery of share certificates;

c)    The duty to provide all required information to auditors and to inspectors when company investigations are being conducted;

d)    The joint and several liability of company directors, together with certain exemptions from this liability.

It is worthwhile to note that on occasions, the Companies Act apportions particular duties to both the Malta company directors and to its company secretary. Also, where the Act imposes duties upon the company itself, without directly referring to any natural person such as director or secretary, Article 150 of said Act dictates that such persons are automatically assumed to take on such responsibilities: anything required to be done by a company under any provision of this Act shall be deemed also to be required to be done by the officers of the company.

Who do Directors owe their Duties to?

All directors, without distinction, owe duties of loyalty towards the company they act for. The Maltese courts have held that it is an established concept that directors’ obligations are to be directed towards the maximum interest of the company itself and not toward the same company’s shareholder.

Liabilities of Directors for Breach of Duty

The key provisions relating to liabilities of directors for breach of duty are laid out in Article 147 and 148 of the CA. Article 147 provides that the personal liability in damages of any director for breach of duty is joint and several, provided that where a particular duty has been entrusted to one or more directors, only such directors shall be liable in damages. 

A director shall not be liable for the acts of his co-directors if he proves either -

a)    that he did not know of the breach of duty before or at the time of its occurrence and that on becoming aware of it after its occurrence he signified forthwith to the co-directors his dissent in writing; or

b)    that, knowing that the co-directors intended to commit a breach of duty, he took all reasonable steps to prevent it.

Article 148 then provides that any provision, whether contained in the memorandum or articles of a company or in any contract with a company or otherwise for exempting any officer of the company or any person engaged by the company as auditor from, or indemnifying him against, any liability which by virtue of any rule of law would in the absence thereof have been attached to him in respect of negligence, default or breach of duty or otherwise of which he may be guilty in relation to the company shall be void

Other Instances of Personal Liability

The concept of separate legal personality for corporate entities is well established under Maltese law, however recent case law clearly indicates that directors can be held personally liable for acts of the company in certain circumstances, primarily in the context of wrongful trading and fraudulent trading. In addition, a number of laws impose personal liability on directors in relation to debts that would normally be due by the company. The principal laws in this context are:

·         The Income Tax Management Act

·         The Social Security Act

·         The Value Added Tax Act


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Key Contacts

Dr Priscilla Mifsud Parker

Senior Partner - Corporate, Trusts & Fintech

+356 22056422

Mr Steve Muscat Azzopardi

Senior Manager, Corporate & Fintech

+356 22056438

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