In terms of Maltese law, directors are accountable for the governance of a company and are tasked with its administration and day-to-day management, except for those matters reserved for the shareholders. In fulfilling their obligations, directors must act in the best interests of the company, demonstrating honesty and good faith. This fundamental principle is enshrined in various provisions of the Companies Act, 1995, Chapter 386 of the laws of Malta, which governs the role of directors. The Companies Act applies equally to both executive and non-executive directors, making no distinction between them.
Following the introduction of fiduciary obligations within the Civil Code, Chapter 16 of the laws of Malta, directors are also recognized as fiduciaries of the company. They are entrusted with safeguarding the company’s best interests, holding a position of trust, exercisingfiduciary powers and maintaining confidentiality regarding company-related information. Consequently, directors owe fiduciary duties tothe company, including loyalty, skill, care and the diligence of a “bonus paterfamilias” to secure the company’s well-being.
Directors’ responsibilities under the Companies Act can be categorized as follows:
General Duties: These stem from their legal status under established legal principles and include: (i) acting with honesty and in the company’s best interests; (ii) enhancing the company’s welfare; (iii) ensuring proper governance, administration and management; (iv) exercising general oversight over the company’s affairs; (v) demonstrating a level of care, diligence and expertise commensurate with their role and knowledge.
Administrative Duties: These are established by specific regulations and provisions of the Companies Act and include: (i) maintaining statutory records and minute books; (ii) submitting required filings and documents with local competent authorities; (iii) participating in and voting at board meetings; (iv) maintaining records and financial statements; (v) handling company liquidation, when necessary.
Directors, due to their position of trust, are also subject to certain restrictions in relation to company affairs, such as: (i) prohibition from secretly profiting from their position or using confidential company information for personal gain; (ii) preventing personal interests from conflicting with the company’s interests; (iii) not utilizing company property for personal or external benefit; (iv) deriving benefits only as permitted by the company’s regulations; (v) avoiding misuse of their powers or acting beyond their authority.
Breach of these duties may result in personal liability for directors, typically shared jointly and severally. However, exceptions may applywhere specific responsibilities are delegated, making only those directors liable for any resulting damages.
As mandataries of the company, directors’ actions on behalf of the company vis-à-vis third parties are generally regarded as actions of the company itself. Therefore, directors’ duties extend beyond their obligations to the company and apply when they act on its behalf in dealings with third parties. The alignment of the company’s interests and the directors’ duty to act honestly and in good faith is fundamental to proper company management.
Directors must prioritise the company’s best interests. Existing and prospective directors should familiarise themselves with the obligations and duties inherent to their position.
VB Advocates provides expert guidance and advice to companies and their directors, ensuring continuous compliance with their obligations. Contact our team to discuss how we can assist.