Corporate Governance and Directors Duties in Malta

Updated: July 03, 2020 | 4 minute read

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Introduction

By virtue of law, a limited liability company is given a legal personality that is distinct from that of its member or members and may thereby own property, enter into contracts and sue and be sued in its own name. 

A company, however, is an artificial person and cannot exercise any of its rights or meet any of its obligations other than through natural persons who act on its behalf. The directors of the company are appointed precisely for such purpose and are given the task of managing the business of the company. To that end, directors are given extensive powers which emanate from law and from the company’s memorandum and articles of association.

The Companies Act in Malta imposes certain general duties on a director of a Maltese registered company. As a director, also it’s important to be familiar with the articles of association as they may constrain your decision-making powers. Our guide provides directors with an overview of these fundamental duties.


Who is a Director? (Definition)

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 are effectively the agents of the company, appointed by the shareholders to manage its day-to-day affairs.

What are the Duties of a Director?

The primary duty of a director is to act bona fide in the interests of the company. Directors owe no duties to the individual shareholders. This applies even when a director is appointed by a class of shareholders - his overriding responsibility remains to the company as a whole.

Other duties include:

  • The directors must not make secret or personal profits from their position without the company’s consent nor make personal gain from confidential company information;

  • Must ensure that personal interests do not conflict with the interests of the company;

  • Must not use any company property, information or opportunity for their own or anyone else’s benefit, nor obtain benefit in any other way in connection with the exercise of their powers;

  • Must exercise powers for the purposes for which they were given and shall not misuse such powers;

  • May not act in competition with the company, carry on business on their own account or on account of others, nor be a partner with unlimited liability in another partnership or director of a company which is in competition with that company- without approval in general meeting; and

  • Must, if in any way, whether directly or indirectly, interested in a contract/proposed contract with the company, declare nature of interest to other directors.

What are the Obligations of Directors?

Apart from the above general duties, directors are also required to fulfil a number of additional, largely administrative duties emerging from the Companies Act.  These include:

  • Prepare individual and consolidated accounts (CA S.167);

  • Prepare director’s report (CA S.177);

  • To prepare a report for any restrictions or withdrawal of pre-emption rights (CA S.88);

  • To appoint a Company Secretary (CA. S 138);

  • To lay accounts before the general meeting (CA S. 181);

  • To make a declaration of solvency when dissolution is proposed;

  • To prepare financial statements giving a true and fair view of the state of affairs of the company as at the end of each financial period and of the profit or loss for that period; and

  • Responsible for safeguarding the company’s assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

What are the Liabilities of Directors?

Under Maltese law, the liability of directors to the company is joint and several. This is because directors are meant to act collectively as a board. Directors are liable for:

  • Any breach of duty or negligence on the part of directors in their performance of duties will render the directors liable for damages sustained by the company;

  • Wrongful trading ie if the directors allow an ‘insolvent’ company to continue trading or incur debts when there was no reasonable prospect that the company would avoid being dissolved due to its insolvency; and

  • Fraudulent trading ie if a director carries on the company business fraudulently.

 However, there are exceptions to this rule, in particular when a duty is entrusted to one or more of the directors only.  A director will be absolved of liability for the actions of his co-director if he proves either that he did not know of the breach of duty before or at the time of its occurrence.

Conclusion

By virtue of their office, directors are entrusted with the management and control of the company and for such purpose, they are given extensive powers over the property and the affairs of the company. 

Directors are however also held to high standards both in terms of their duties emanating from the Companies Act as well as by virtue of their fiduciary relationship with the company which requires of them that they act with the utmost good faith. Should they fail in their duties directors may face serious consequences including personal liability for the debts of the company unlimited or otherwise, as well as criminal proceedings and disqualification from holding the office of director.

Nexia BT’s team is able to provide directorship services by offering widely experienced company directors and company secretaries in different role types on behalf of our clients’ entities.

Know more about our Corporate services here.

 
Written By
Katya Tonna
Sr. Manager, International Corporate Services
Profile: Katya heads the International Corporate Service Department mainly specialising in setting up the new companies, secretarial work and assisting clients with corporate governance matters. She is also a Member of the Malta Institute of Accountants.

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