The Updates to the Companies Act in a Nutshell
The main aims of this Amendment Act were to transpose the Prospectus Regulation1, introduce new duties upon the Registrar of Companies (the “Registrar”), and to strengthen the regulatory framework of commercial partnerships with the aim to provide legal certainty for matters such as the reduction of share capital of companies and cancellation of shares.
Key Legal Issues to be Discussed
- Reduction of Share Capital
- Share Buy-Backs and Cancellation of Shares
- Requisitioned Meetings
Strengthening of the Regulatory Framework
Reduction of Share Capital
The reduction of issued share capital for companies regulated by Article 83 of the Act was substituted in its entirety by the Amendment Act, an amendment that was considered necessary.
A reduction of a company’s issued share capital or undistributable reserves, including those for the aim of creating distributable reserves, may be done by extraordinary resolution of the general meeting. Prior to the Amendment Act, no guidance as to why a company may decide to reduce its share capital was provided. Furthermore, the clarification that undistributable reserves may be reduced, is aligned with Article 114 of the Companies Act which states that for reduction purposes, a company's share premium account is treated as issued share capital. As a consequence of the reduction of capital, this reserve is to be considered as “authorised profit” for distribution of profits and assets purposes. However, no definition of “authorised profit” is provided for in the Act, and therefore, further legal intervention to define such term may be required.
Furthermore, the law did not specify what documentation is to be delivered to the Registry to affect such reduction in the issued share capital, whereby now it is clear that an extraordinary resolution of the general meeting is to be delivered by the directors or company secretary.
The newly introduced Article 83(9) states that where the reduction of capital is to include sums of money in a reserve, such amounts arising from the reduction of capital may not be used to make payments or distributions to shareholders, or discharge shareholders from their obligation to pay calls on their shares. Nonetheless, Article 83(10) further clarifies that this is not applicable where the reduction is authorised by an extraordinary
resolution of the general meeting and delivered to the Registrar, and no objection is made by creditors during the 3-month notice period following the publication of a notice by the Registrar in this regard.
The Amendment Act has also introduced the requirement to submit a specific notice to the Registrar within the customary 14-day period from the effective date of the reduction in the issued share capital. To date, no statutory form for such purposes has been introduced by the Malta Business Registry (“MBR”).
Share Buy-Backs and Cancellation of Shares
Amongst the provisions under the Companies Act regulating the acquisition of a company’s own shares are Articles 106, 107, and 109, which were updated by virtue of the Amendment Act.
Additions to Article 106 which regulate conditions in which a company may acquire its own shares now allow for a company to cancel any of its share following a share buy-back, and the provisions regulating the reduction of share capital will not apply in such cases. The amendments further stipulate that a notice is to be delivered to the Registrar within 14 days of the effective date of the cancellation of shares. However, to date, no statutory form for such purposes has been introduced by the MBR.
Article 107 which regulates the acquisition of own shares, other than by subscription, without the requirement to satisfy the conditions of Article 106 was also updated. The Amendment Act introduced another possibility where a company may acquire its own shares in this manner, this being in cases whereby the shares are acquired by the company from dissenting shareholders or following a Court order in relation to the re-purchase of shares held by dissenting shareholders. The law does not clarify the process in which a company may acquire shares from dissenting shareholders, and therefore, further legislative amendments may be required to set out such a process as this may lead to creditors’ interest being prejudiced.
The new proviso under Article 109(b), has clarified that once shares are cancelled according to the applicable laws, the undistributable reserves deemed to be assets in the company’s balance sheet, shall become distributable.
Requisitioned Meetings
Article 129 regulates requisitioned meetings which are special meetings held by the directors, following a request by the shareholders holding not less than one tenth of the paid-up share capital of the company, for a specified reason. This article was substituted in its entirety by the Amendment Act and has now clarified that such meeting, must be convened within 21 days and held within 2 months from the date of deposit of the requisition. This change has addressed the lacuna in the previous provisions whereby no timeframe within which the meeting must be held was outlined.
The remainder of the provisions under Article 129 are similar to the previous provisions. These include the details that the requisition order must have, the procedure the requisitionist must take should the directors not convene the meeting within the 21-day prescribed period, and the repayment of reasonable expenses incurred by the requisitionist as a result of the failure of the directors to hold the meeting.
Other Matters Introduced in the Amendment Act
The amendments to Article 79 of the Act, enabled companies to submit a copy of their memorandum and articles of association by electronic means to the Registrar, in accordance with the electronic authentication requirements outlined in the Act. This minor amendment has enabled companies and their corporate service providers to submit such documentation more efficiently.
The Amendment Act also introduced two further instances where specific notices in the prescribed form are to be submitted to the Registrar:
- Persons appointed by a Court order or a competent authority as administrators, legal representatives or the person de facto responsible for the management and administration of the company are to submit a return with their details and date of appointment, resignation or removal from such position, within 14 days of their appointment, resignation or removal;
- Companies are to submit a return within 14 days upon the appointment of the first auditor of the company, and any subsequent appointment of a new auditor following the auditor’s resignation or removal.
What this means for you
These amendments have brought about legal clarity, most importantly in relation to Share Buy-Backs and the Reduction of Share Capital.
How we can help
At Chetcuti Cauchi, we seek to apply a pragmatic business approach to each client’s needs. Our lawyers strive to keep abreast with the latest legal developments to ensure that our clients are informed and enabled. Get in touch to find out how we can assist.
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1 Regulation (EU) 2017/1129of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC
