On 13th May 2020, the Minister for the Economy, Investment and Small Businesses tabled the Companies Act (Amendment) Bill (the “Bill”) which proposes certain amendments to the Companies Act, Chapter 386 of the Laws of Malta (the “Act”).
The Bill proposes:
- 1.new grounds for ineligibility and disqualification from holding certain offices under the Act;
- 2.new powers to the Minister to make regulations on winding up applications (including the suspension of the right to make winding up applications), regulations on wrongful trading (including the retrospective suspension of the wrongful trading provisions) and regulations on the suspension of time periods for holding general meetings and laying and approval of accounts;
- 3.new powers to the Official Receiver to make disqualification orders; and
- 4.new rules on special controllers.
Ineligibility for appointment as director or company secretary and Disqualification Orders
Article 142 of the Act currently provides that a person shall not be qualified for appointment or to hold office as director of a company or company secretary if:
- (a)he is interdicted or incapacitated or is an undischarged bankrupt;
- (b)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;
- (c)he is a minor who has not been emancipated; or
- (d)he is subject to a disqualification order.
Similarly, Article 320 provides that the Court, upon the application of the Attorney General or the Registrar of Companies, may make a disqualification order against any person who is found guilty of an offence under the Act (other than an offence punishable only with a fine) or who has infringed any requirement of the Act with the consequence that the person becomes liable to contribute to the assets of a company or becomes personally liable for the debts of the company.
Article 2(b) of the Bill is now proposing inter alia that a person shall also not be qualified to act as director or company secretary of any company if, during the time he has been a director or a secretary of a company, he breaches the provisions of the Act for three consecutive times in a period of two years to be reckoned from the first breach.
Insofar as disqualification orders are concerned, the Bill is proposing that the Official Receiver also be given the right to apply for any such order and that the grounds for such an order be increased to include those instances where any person, during the time he has been a director of a company, has been in breach of the provisions of the Act for the third consecutive time in a period of two years to be reckoned from the first breach.
The effects of this proposal could be extremely far-reaching in that even certain minor breaches that are committed by companies of which a person is a director or secretary – including breaches that simply arise as a result of a disagreement between the officers of a company – could result in that person not being eligible to hold the post of director or secretary of any company, and such person being subject to a disqualification order. The absence of any reference to periods of time in Article 142 of the Act also implies that any eligibility to act as a director or company secretary as a result of such breaches will not be limited in time.
Powers to the Minister to make Regulations in connection with Dissolution and Winding Up applications and the remedy of Wrongful Trading
In what appears to be a reaction to the current COVID-19 pandemic and the anticipated effects it will have on companies operating across all areas of the economy, Article 3 and 4 of the Bill are proposing that the Minister be empowered to make regulations that will suspend the right of anyperson to file a winding up application against a company and to suspend – even retrospectively – the provisions on wrongful trading.
While this is only a preliminary step, it would therefore appear that there are plans for certain provisions in the Act relating to insolvency and winding up of companies to be amended in a manner that will seek to protect certain distressed companies and their officers with a view to allowing them to trade out of a precarious financial situation that was brought about by the COVID-19 pandemic.
Naturally, the extent to which these laws will be amended is still to be seen and it will be very important for the right balance to be struck between the needs of businesses that are in distress and the rights of their respective creditors.
Transitory provisions as to winding up of commercial partnerships
In order to address the logistical difficulties encountered by companies in the current COVID-19 pandemic, Article 7 of the Bill also proposes the introduction of a new provision to Article 429 of the Act which will allow the Minister to prescribe regulations for electronic filing and/or electronic signing of notices required by the Act, electronic signatures, the issuing of electronic certificates, letters, and any other documents issued by the Registrar and any other ancillary matters.
Moreover, it is being proposed that the Minister may, by regulations:
- (i) extend the term for the holding of the annual general meeting and for the laying and approval of accounts;
- (ii) provide for suspension of any periods for the holding of general meetings, whether ordinary or extraordinary; and
- (iii) provide for the holding of virtual annual general meetings and other meetings.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Michael Psaila