The underlying rationale is that directors must act legally and in the best interests of the company, and therefore the directors’ duties towards creditors would be subordinated towards the primary duty of preserving the advantage of their company, save of course, the general and undiminished responsibility of acting lawfully and diligently.
This provision, acts as a general monitor to curtail directors from acting fraudulently against the creditors of their company.
The Companies Act seeks to establish a balancing act between allowing a series of checks and balances on the powers of directors, thereby restricting the possibility of abuse, whilst ensuring that the centralised management function, which rests directly with the directors, are not lost.
Article 136A of the Companies Act was a relatively recent development and sought to crystallise the directors – role and duties.
The Income Tax Management Act, for example, sets forth that all persons involved in the running of a company (therefore the directors) must do their best to effect payment of income tax, lays down that directors and managers of every company, shall pay tax out of the property of the company but that they shall be personally liable for payment if they had in their possession any property belonging to the company, which could have been used to pay the tax then due.
Likewise, the Social Security Act, states that “where anything required to be done under the Act is to be done by a company, such thing shall also be required to be done personally by the directors and managers of such company.” As a general rule, the main duty of directors is to act honestly and in good faith in the best interests of the company, to promote its well-being, to exercise due care, diligence and skill, not to engage in self-dealing and not to misuse their powers.
Any acts of wrongful trading, fraudulent practices, misconduct, serious mismanagement by the directors, would therefore run directly contrary to the interests of the company, since the directors would be exposing the Company to a grave risk, with potentially far-reaching consequences.
The other basic principle is that directors must stay within the powers granted to them – in other words they cannot misuse their powers.The scope of this information, is to give a broad, yet highly informative overview of the most salient aspects of Maltese Company law.For more thorough information, and bespoke advice, you are kindly requested to contact one of our officers.The litmus test for achieving the aforesaid goals, are ones based on “common sense” i.e directors must act in good faith in what they consider to be in the interest of the company.Again, the very wording, interest of the company precludes the directors from acting in the interest of individual shareholders.
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