An Overview of the Recent Amendments to the Companies Act

On 15th April 2024, Bill No. 96 titled the ‘Companies (Amendment) Bill’ was presented to Parliament by the Minister for the Economy, Enterprise and Strategic Projects for its first reading. The Bill was subsequently passed as Act No. XVIII of 2024 (the ‘Act’) on the 17th May 2024.

The Act specifically seeks to clarify certain provisions related to inter alia the reduction of companies’ issued share capital and share cancellation following a share buy-back, the requisition of general meetings by shareholders and to improve the quality of reporting standards to the Registrar of Companies (the ‘Registrar’).

The aim of this article is to provide a brief overview and analysis of the main amendments introduced by the Act.

Article 79 of the Companies Act

Article 79 of the Companies Act has been amended to reflect the efforts of the Malta Business Registry (‘the MBR’) to assist companies and company service providers through the recent updates of their online filing system [1]. The Act removes the word ‘printed’ from Article 79(2) and allows for a copy of the memorandum and articles of association to be delivered to the Registrar by electronic means, provided that such electronic copy is authenticated in accordance with the provisions of the Companies Act [2].

Article 83 of the Principal Act

Article 83 of the Companies Act was substituted in its entirety by a new provision.

The newly amended Article 83 of the Companies Act allows a company to reduce its issued share capital or undistributable reserves by means of an extraordinary resolution of the general meeting of the company, even for the purposes of creating a distributable reserve. This amendment is a welcome and necessary development, particularly in the context of cross-border intragroup transactions involving Maltese companies and other group companies located in jurisdictions where such transactions are permitted.

It is interesting to note that the newly amended Article 83(1)(b) provides that a reserve arising from the reduction of the issued share capital or the reduction of undistributable reserves is to be treated as “authorised profit”. This term is not defined neither in the Act nor in the Companies Act, and we would expect to see further legislative interventions to clarify the matter or to define the term in the near future.

The former Article 83(5) has also now been split into two separate provisions which provide for the reduction of the issued share capital for the purpose of offsetting losses [3] and for including such sums of money in a reserve [4]. In both cases the Act provides that the reduction of issued share capital for the relevant purpose shall take effect immediately on the registration of the relative extraordinary resolution. Unfortunately, the reference to such reductions as taking effect “from the date of registration of the resolution” (and not from the date of the relative shareholders’ resolution) will give rise to certain difficulties in determining the effective date of certain reductions and will not make it possible for such reductions to be immediately followed by other steps that may be required in the context of a larger group restructuring.

The new Article 83(9) states that in cases where the reduction of issued share capital is for the purposes of including sums of money in a reserve, the amounts deriving from the reduction may not be used for making payments or distributions to shareholders or to discharge shareholders from the obligation to pay calls on their shares. Nevertheless, should any sums that were previously included in a reserve be required for the purposes of making a payment or distributions to shareholders or discharging shareholders from their obligation to pay calls on their shares, this would still be possible through the passing of a new extraordinary resolution followed by the three month “waiting period” within which creditors are given the opportunity to object to the reduction [5].

The above [6] does not appear to exclude the possibility for a company to immediately reduce its issued share capital for the purposes of including such money in a reserve in accordance with the provisions of Article 81(3) (where the resolution would take effect three months following the publication of the statement referred to in Art 401(1) (e) of the Companies Act). In such a case, it would be possible for such reserve to be utilised for making payments or distributions to shareholders or to discharge shareholder from the obligation to pay calls on their shares at any time following the reduction.

Lastly, the Act has introduced the requirement for companies to deliver a notice of a reduction in the issued share capital to the Registrar for registration within 14 days after the effective date of the reduction. In practice, companies which would have reduced their issued share capital were already submitting the updated memorandum and articles of association (post reduction) and the Forms BO2 to indicate any changes in the beneficial ownership following the reduction, and it now remains to be seen whether the MBR will issue a prescribed statutory form for this purpose or whether the submission of the said updated memorandum and articles of association (possibly with a covering letter to confirm the effective date of the reduction) will suffice to satisfy this requirement.

Article 106 of the Companies Act

The amendments to Article 106 now provide for the possibility for a company to cancel any shares acquired by the company itself in terms of Article 106 of the Companies Act and introduces a new requirement to file a notice of such cancellation within 14 days from the effective date of the cancellation. It is yet to be seen whether new statutory forms will be issued by the Malta Business Registry for this purpose.

Article 107 of the Companies Act

The Act also amends Article 107 of the Companies Act, which allows for the acquisition by a company of its own shares by a company without the need to satisfy the requirements of article 106.

A new Article 107(1)(f) provides that a company may acquire any of its own shares, otherwise than by subscription, without complying with the provisions of Article 106, where the shares are acquired by the company from dissenting shareholders in accordance with the provisions of the Companies Act and regulations issued thereunder, or pursuant to an order of the Court made under the provisions of the Companies Act and regulations issued thereunder for the re-purchase of shares held by dissenting shareholders including any order made in terms of Article 402(3)(d) of the Companies Act [7].

While the law currently does not provide for the manner in which dissenting shareholders can be bought out by a company and under which conditions, it ought to be highlighted that unless the proposed procedure and requirements will include a requirement for any buy-back of shares to be made from distributable profits, or the proceeds of a fresh issue of shares, there is a risk of an erosion of the company’s capital. This would dovetail with the current capital maintenance rules in the Companies Act and could ultimately prejudice the interests of creditors of the company in question.

Article 129 of the Companies Act

Article 129 of the Companies Act was substituted in its entirety by a new provision in the Act [8].

In terms of the previous text of Art 129 of the Companies Act, directors were bound by a timeframe within which they had to call the requisitioned meeting but the law was silent as to when the meeting had to take place. As a result, if the directors called a meeting within the period of 21 days but resolved that such meeting be held much later (even years later) would in effect be satisfying their legal obligations and prohibiting the requisitionist from invoking his/her right to call the meeting him/herself.

This lacuna has been addressed by the new Art 129(1) which states that the requisitioned meeting is to be convened within 21 days and held within 2 months from the date of the deposit of the requisition.

Furthermore, new Article 129(2) provides that the requisition for the convening of the extraordinary general meeting shall state the objects of the meeting, shall be signed by the requisitionists and deposited at the registered office of the company. The requisition may consist in several documents in like form, however each of these counterparts are required to be signed by all the requisitionists (and not the relative requisitionists) which seems to be onerous and may result in logistical difficulties.

Lastly, new Article 129(4) provides that any reasonable expenses incurred by requisitionists due to the failure of directors to hold a meeting shall be repaid to the requisitionists by the company, which can in turn claim the amounts so paid from “the directors who were in default”. Unfortunately, the use of the term “default” could give rise to considerable doubt as to what will in effect be necessary in order for such liability to be imposed.

Article 146 of the Companies Act

With a view to ensuring consistency with the reporting/notification requirements with similar appointments, the Act has introduced a requirement for any person who is appointed by an order of the Court, or other competent authority, to be the administrator, legal representative or person de facto responsible for the management and administration of the company to submit a return to the Registrar in the prescribed from within 14 days from the said appointment, and to submit the relevant return within 14 days from the resignation or removal from said office.

Article 151 of the Companies Act

The Act also introduced a new Article 151(9) [9] which imposes an obligation on companies to submit a return in the prescribed form within 14 days from the appointment of the first auditor of the company and the appointment of any subsequent new auditor following a resignation or removal of a previous auditor.

[1] https://mbr.mt/2024/03/25/launch-of-mbrs-new-online-platform/
[2] Article 4 of the Act
[3] New Article 83(7)
[4] New Article 83(8)
[5] New Article 83(10)
[6] New Article 83(9)
[7] Article 8(b) of the Act
[8] Article 10 of the Act
[9] Article 13(b) of the Act