Company Law Malta: The Role of the Company Director

According to Article 2 of the Maltese Companies Act 1995 a director is defined as including:

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’.

A person who carries out the most important functions and the daily running of the company, even if not officially called a director, is deemed to be a director of the company. This kind of director is also sometimes referred to as the ‘shadow director’.

A director of a Malta company can be either a natural person or a corporate entity.  

Corporate Directors within Company Law Malta

A company may have a corporate director as its director, with the exception of the following:

  1. Listed companies; and
  2. Exempt Companies

Executive vs. Non-Executive directors

The law does not specifically distinguish between executive and non-executive directors. However, there is reference made to the notion of non-executive directors in the model articles of association[1] which provide for the delegation of directors’ powers to other executive directors. Since there is specific mention of the executive directors, then, a contrariu sensu, there must exist non-executive directors.

In local case-law we can refer to the Ellul Sullivan[2] case which concerned the evasion of customs duty, whereby the Court clearly stated that non-executive directors were exonerated from responsibility. 

Other concepts within Company Law Malta

One might also encounter references to the de jure and the de facto directors. The main difference between these two types of directors is that the de jure directors are specifically appointed by means of the M&A or the appropriate Form K. On the other hand, the de facto directors are ones that act as such, even though they are not formally appointed to the board.

De facto directors must however be distinguished from shadow directors on the basis that the former act as directors with third parties, whereas the latter give instructions to someone else[3].

There also are the alternate directors who are persons that are appointed to act as such in someone else’s stead for a period of time. The right for a director to be able to appoint an alternate director must specifically exist in the company’s M&A and should this right not exist, then the directors will not be able to appoint alternate directors. 

Appointment

Each private company must have a minimum of one director and public companies must have a minimum of two directors.[4]Nonetheless the M&A may provide for a higher minimum requirement of directors. 

The first method of appointment of a director is through the registration of the company through its memorandum and articles of association. Following that, any additional appointment or substitution must be effected through a shareholder’s resolution approving the new director followed by the filing of the appropriate Form K. Any resignations must be notified to the company and to the Malta Business Registry by means of the appropriate Form K.

Appointment by the Court

Article 137 (7) provides for the Court appointment of a director. This situation can only arise if the number of directors falls below the established minimum (statutory or otherwise) and lasts for a period exceeding 30 days and an application is made by any[5] member of the company to this effect. The director appointed by the Court will only hold office until the next AGM and the remaining director (s) (if any) have the right to fill the vacancy as a casual vacancy.

Company Law Malta and Casual Vacancies

Should the minimum number of directors not be met, the ensuing vacancy can be filled in by the remaining director(s)[6] or by the general meeting. Thus, this is the sole situation whereby the directors are empowered to appoint a director. 

The main difference between the appointment by the directors and the appointment by the shareholders is that in the former case the newly appointed director will only assume office until the next AGM and will not be taken into consideration for any purpose involving the rotation of directors[7]. In the latter case, the director is deemed as having been appointed to the board on the same date as the director whose office was vacated had been appointed[8]. Thus, should the company use a system of rotating directors, the newly appointed director would automatically assume the position of the removed director.

Appointment in public companies

In accordance with article 139 (1) of the Companies Act, when a director is appointed as such on a public company he must express his consent by signing the memorandum and articles of association or by delivering to the company a declaration of acceptance of office.

Restrictions from appointment

Article 142 provides for the disqualification from appointment of directors and company secretaries. The reasons for disqualification are:

  1. Interdiction; incapacitation or being an undischarged bankrupt;
  2. Conviction of any of the crimes affecting public trust or of theft or of fraud or of knowingly receiving property obtained by theft or fraud;
  3. Being a minor who has not been emancipated; or
  4. Being subject to a disqualification order under article 320.

The local case ‘Dr. Kevin Dingli noe vs. Dr. Joseph Bonnici et noe[9] specifically dealt with the request of a disqualification order. 

Removal

A director may be removed from office by virtue of Article 140 of the Companies Act. However, in order to do so, the shareholders must request the directors to call an Extraordinary General Meeting, the agenda of which must make specific reference to the intention of removing such director. This notice of the EGM must be sent to all members as well as to the director whose removal will be discussed. 

The director concerned has the right to attend the meeting and defend his position but should the EGM decide, by a vote of more than 50% of the voting rights attached to shares entitled to attend and vote at the meeting  that the director should be removed, such removal will be effective[10].

In relation to classes of shares, a director appointed by a specific class of shares can be removed by an ordinary resolution of the members of the company unless this is specifically restricted in the Articles of Association of the company[11].

The local case Gavin vs. Donaldson dealt with a Court order to remove a director.

Powers and Duties of Directors

Article 137 (3) of the Companies Act specifically provides that the directors of a Malta company shall have all the powers of the company, except those powers required to be exercised by General Meeting.

Article 136A makes reference to the duties of the directors and specifically states that a ‘…director of a company shall be bound to act honestly and in good faith in the best interests of the company.’ This article also provides for the other duties of the directors such as promoting the well-being of the company[12] and exercising due care, diligence and skill[13].

The office of the director was described by the Court as being one of a mandatory nature[14].

The UK case Re City Equitable Fire Insurance Co. Ltd[15] established three limbs on how to determine the level of due care and skill:

  1. A director need not exhibit a greater degree of skill than a person of his knowledge (this is a subjective test);
  2. Duties are of an intermittent nature and the director is not obliged to attend all meetings;
  3. Directors are allowed to delegate their powers.

Liability of directors

Upon assuming office, the directors are also assuming a number of liabilities such as joint and several liability for any breaches of duty, unless:

  1. Individual directors have been given specific duties;
  2. A director specifically disapproves of an action in writing;
  3. The director takes steps to inform the shareholders and the company that a wrong is taking place.

Other liabilities that the directors may face are the ones of wrongful and fraudulent trading, which, according to Article 315 and Article 316 as well as the local case ‘Brian Theuma vs. Chris Cachia pro et noe[16] can be only invoked during the liquidation of the company.  

If you want to find out more contact us through the below form.


[1] S. 68-70 of the First Schedule to the CA

[2] Court of Criminal Appeal (Superior Jurisdiction)

[3] Such as a shareholder instructing the de jure director on how to act.

[4] Vide Article 137 CA

[5] No need for a majority

[6]Vide Art 140 (6) CA –  subject to this not being excluded in the M&A

[7] Vide Art 140 (6) (b)

[8] Vide Art 140 (6) (c)

[9] Court of Appeal (Superior Jurisdiction) 17th February, 2003

[10] This is without prejudice to any rights the director may have against the company. 

[11] Vide Bushell v Faith [1970] AC 1099

[12] Art 136A (2)

[13] Art 136A (3) (a)

[14] Dr. Ian Refalo noe vs. Albert Fenech Boweck (First Hall, Civil Court) (18.03.1983) 

[15] [1925] Ch 407

[16] Civil Court, First Hall (14.10.2004)