The Companies Amendment Act was enacted on the 23rd of June 2020 and introduced certain changes to the main act, the Companies Act, Chapter 386 of the laws of Malta.
The 4 main changes are the following:
– New grounds for the ineligibility and disqualification from holding certain offices under the Companies Act
– New powers have been awarded to the Minister to make regulations on winding up applications and on the deemed dissolution date of companies. The Minister now has the right to make regulations on wrongful trading, suspension of time periods for holding general meetings, and laying and approval of accounts.
– New powers to the Official Receiver to make disqualification orders
– New rules on special controllers
1. Ineligibility for appointment of officers.
This restriction concerns directors and company secretaries. Article 142 provides that a person shall not be qualified for appointment or to hold office of director or company secretary, if he is interdicted, incapacitated or is an undischarged bankrupt; he has been convicted of any crimes affecting public trust, theft, fraud or of knowingly receiving property obtained by theft or fraud; he is an un-emancipated minor; and/or he is subject to a disqualification order.
The new introduction to this article is a list of different time periods for which the ineligibility for crimes affecting public trust, theft, fraud, or knowingly receiving property resulting from theft or fraud, is to remain in force. The ineligibility and its respective time period for its duration is to be determined by the gravity of the offence for which the individual is convicted.
A new sub-article (4) has also been introduced to Article 142. The Registrar has now the discretion to restrict a person from being appointed into one of the 2 offices if he has already occupied the post of director and/or secretary of an existing Maltese company and he has breached the provisions of the Companies Act for 3 times within a period of 2 years. The 2 years shall be reckoned from the date of the first breach and the individual shall be precluded from being appointed officer of the new company if he has not yet remedied all the breaches. The breaches need not be consecutive, so they may be 3 separate and different breaches for the same company.
It was originally proposed that the ineligibility or disqualification would arise automatically, however the legislator opted to leave a degree of discretion to the Registrar of Companies. The effects of this amendment can be serious and far-reaching since minor breaches committed by companies of which a person is secretary and/or director could result in precluding that person from being appointed as officer on a different unrelated company.
The amendment act has not addressed the severity of the breaches and there are no provisions indicating the period for which the ineligibility would last should the Registrar exercise his discretion to restrict a person from being appointed as officer of a company. The Registrar must in such cases exercise his powers in a reasonable and proportionate manner, and moreover, the aggrieved director/secretary may file an application before the court against the Registrar for the removal of the restriction. There are however no guidelines as to the parameters for the exercise of the Registrar’s discretion and thus the grounds for a person to bring such challenge before the Court is also unclear.
2. Disqualification Orders
Before the Amendment Act, only the Court, upon the application of the Attorney General or the Registrar of Companies, had the power to make a disqualification order against any person who is found guilty of an offence under the Companies Act (excluding offences punishable only with a fine) or who has infringed any requirement under the Act with the consequence that the person becomes liable to contribute assets of a company or becomes personally liable for the debts of the company.
This power to file an application for disqualification orders has now been extended to the Official Receiver. New grounds similar to those found under article 142 (4) have also been introduced.
3. Powers given to the Minister to make Regulations in connection with Dissolution and Winding Up applications and the remedy of Wrongful Trading
As a result of the COVID-19 pandemic and the anticipated effect it will have on companies and the economy, the Amendment Act has introduced new provisions empowering the Minister to make regulations that will suspend the right of any person to file a winding up application against a company and to suspend (even retrospectively) the provisions on wrongful trading.
The Minister may also make regulations for the better implementation of provisions of Article 223 relating to the deemed dissolution date of a company, and may by the same regulations prescribe new rules in relation to the deemed date of dissolution of a company.
These provisions aim to protect distressed companies and their officers from provisions of the Act relating to insolvency and winding up, with the intention of allowing them to trade out of a precarious financial situation that was brought on by the Covid -19 Pandemic. Only time will tell to what degree these laws will be amended and it will be very important that a fair balance is kept between the interests of businesses and their owners and those of their respective creditors.
4. Transitory provisions as to winding up of commercial partnerships
The Minister may now make regulations for electronic filing and electronic signing of notices required by the Companies Act, electronic signatures, the issuing of electronic certificates, letters and any other documents issued by the Registrar and other ancillary matters. These new provisions also aim to address logistical issues which have been emphasized by the Covid-19 pandemic.
The Minister is also empowered to make regulations which:
– Extend the term for holding of the annual general meeting and for the laying and approval of accounts
– Provide for suspension of any periods for the holding of general meeting, either ordinary or extraordinary, and to provide for the holding of virtual annual general meetings and other meetings.