Company Director – Duties and Liabilities under Maltese Law

2021-04-27T15:25:41+02:00April 27th, 2021|Publications|

The office of a Director has been repeatedly likened to that of a mandatary of the company, and thus, considered as an agent and a representative of the Company. In light of the importance of the role of the Director within a company, Maltese Company Law makes specific reference to both the duties and liabilities that come along with the office of a director.

Duties of the Director under Maltese Law

The duty to Act in Good Faith and in the Best Interests of the Company

As encompassed in Article 136A of the Maltese Companies Act, every director of a company shall be bound to act honestly and in good faith and in the best interests of the company. This is a central duty that comes with the office of a director and it is applicable to every decision or action which is taken by the said director.  The central notion here also relates to the fact that directors have the duty to act in the best interest of the company as a whole and not in the best interests of the shareholders, notwithstanding the fact that the particular director has been appointed by a particular shareholder.

General Duties

The directors of a company shall promote the well-being of the company and shall be also responsible for:

  • The general governance of the company and its proper administration and management — This fundamentally refers to the duty to meet certain requirements and maintain certain statutory registers imposed by law. Also, directors must make sure that the company is acting intra vires and within its powers according to the Company’s M&As.
  • The general supervision of its affairs. — This duty relates to the supervisory function of the office of the director where each director has the duty to monitor the company’s current financial position.

Personal Profits/Conflict of Interest

A director has the duty not to make secret or personal profits from their position without the consent of the company, nor make personal gain from confidential company information. Also,  a Director has the duty to ensure that his/her personal interests do not conflict with the interests of the company.

These no-conflict and no-profit rules are very important rules when it comes to the duties of a Director. Essentially, these rules refer to the fact that a director must never put himself in a conflicting position between his duties to the company and his personal interests.

Furthermore, directors must not use any property, information or opportunity of the

company for their own or anyone else’s benefit, nor obtain a benefit in any other way in connection with the exercise of their powers.

Degree of Care, Diligence and Skill

A director of a company shall also 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; (i.e the objective test)
  • (ii) The  knowledge,  skill  and  experience  that  the director has (i.e the subjective test)

The objective test is one that all directors must meet and essentially refers to the fact that a director must have the knowledge, skill and experience that is reasonably expected of a person, carrying out the same functions as are carried out by, the director in question and is not dependent on the particular director’s capabilities. On the other hand, the subjective test refers to the particular knowledge,  skill and experience that the director currently possesses.

Liabilities of the Director under Maltese Law

Fraudulent Trading

If in the course of winding-up of the company,  it appears that any business of the company has been carried on with intent to defraud the creditors of the company or creditors of any other person or for any fraudulent purpose, such person shall be held personally responsible, without any limitation of liability for all or any of the debts or other liabilities of the company as the court may direct. In an action for fraudulent trading, fraudulent intent needs to be proved.

Wrongful Trading

Similar to fraudulent trading, liability for wrongful trading as set out in Article 316 of the Companies Act arises where a company which has been dissolved and is insolvent, and it appears that a person who was a director of the company knew, or ought to have known prior to the dissolution of the company that there was no reasonable prospect that the company would avoid being dissolved due to its insolvency.

This essentially occurs when a company that is facing financial difficulties continues to trade and incur liabilities when it was known by the directors, or ought to have been known by the directors that the company was facing insolvency. In such a case the directors would be held personally liable and action would be brought against them.

Liability for administrative fines under the Companies Act

Directors may also be personally held liable for fines arising from the failure to perform a wide variety of administrative duties envisaged under the Companies Act. An example of such would include the failure to file the required forms with the Malta Business Registry within the provided time frame, such as the company’s annual returns, the company’s audited accounts and other forms including  Form Ts, Form Hs, Form Ks.

In such a case the company shall be jointly and severally liable with its officers for the payment of any administrative penalties imposed under the Companies Act.

The article is intended to serve as a general guide on the subject matter.

 

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