Part A:

Procedural Matters Generally at Law (The Companies Act, 1995 [Chapter 386 of the Laws of Malta])

What are the legal requirements for board meetings?

While the Companies Act, 1995 goes into considerable detail in connection with general meetings of shareholders, there is very little regulation on the manner in which directors’ meetings should take place.

Absent detailed regulation, most of the direction is given by the First Schedule to the Companies Act which sets out the model regulations for limited liability companies (the “Model Regulations”). The onus falls on the shareholders adopting the first set of Articles of Association of the company to draft the first regulations which the directors need to follow when regulating and holding their meetings. Generally, directors are given a free hand, in the Articles, to regulate their meetings as they deem fit.

Please follow this link to access the Companies Act and the Model Regulations included therein: https://legislation.mt/eli/cap/386/eng/pdf

Is there a need for board meetings and/or a duty to attend and participate in same at law?

While there is no express statutory requirement at law to hold and attend any specific number of board meetings each year, directors of a company are duty-bound to promote the well-being of the company. They must act in the best interest of the company and are responsible for its general governance and proper management. The “need” to hold board meetings therefore stems from the fact that, in order to take important and effective decisions, directors need to discuss and meet to share ideas before effectively coming to the right decision collectively.

Of course, directors need not necessarily attend every single board meeting or participate in every transaction discussed and decided upon at a board meeting.

In practice, the regularity of board meetings depends on the practice of different boards and the particular circumstances encountered and is often driven by tax considerations or imposed by regulations, as in the case of licensed entities.

What are the main matters discussed at board meetings (approval of accounts, dividends, liquidity, assets)?

The law does not specify or limit the matters to be discussed during board meetings but there are certain basic minimum requirements such as the approval of accounts and the recommendation of dividends which fall within the directors’ powers and responsibilities and which must be discussed and resolved upon annually.

How are board meetings convened and is there a specific notice period required to be followed at law in convening board meetings?

Article 62 of the Model Regulations provides that a director may, and a company secretary on the requisition of a director must, at any time, summon a meeting of the directors. Typically, notice must be given to all the directors. The Companies Act does not effectively stipulate any notice period within which board meetings are required to be convened. This makes sense as urgent matters may occasionally arise which would require directors to meet immediately and without time to give such prior notice. The matter concerning notice is therefore generally determined by the Articles of Association of each particular company.

While this is not obligatory, it is a matter of good practice that notice of a board meeting includes a formal agenda together with a copy of the documentation to be discussed during meeting so as to allow the directors to effectively prepare themselves for the meeting.

The Quorum - How many directors need to be present at a board meeting?

In order for a board meeting to proceed to business, a quorum must be present – which is generally determined by the Articles of Association. If a quorum is not present at the beginning of the meeting or at any point, then the meeting should be adjourned.

Is there an alternative to holding a physical board meeting?

The holding of board meetings is a matter of good corporate practice and should be encouraged at least a certain number of times a year. However, it may not always be possible or even efficient at times to wait for a meeting in order to take certain decisions (of which everyone agrees).

The Model Regulations include a provision which allows for resolutions of the board to be taken in writing. This provision is almost always included in a company’s Articles of Association. The main “restriction” in this respect is that said resolution will need to be signed by all the directors for the time being entitled to receive notice of a meeting of the directors, and if so signed shall be as valid and effectual as if it had been passed at a meeting of the directors duly convened and held.

PART B:

Procedural Matters during the COVID-19 Pandemic or other Crisis situations

What are the main clauses which need to be considered in the M&As to ensure that remote board meetings are effective?

It is generally accepted that unless the Articles of Association of a company specifically forbid the holding of remote board meetings, board meetings may be conducted by telephone or any other electronic means, and it is very unlikely that the Maltese courts would not uphold an otherwise validly held meeting – especially in a scenario where social distancing restrictions are imposed.

In order to eliminate any possible doubt in case statutes are silent on the matter of remote meetings (or if they deliberately forbid this), it would be advisable for directors to recommend to the shareholders to allow for this possibility. In order to amend the statutes of a company, an extraordinary resolution of the shareholders would be required.

Any such new clause in the M&As could be worded in such a way so as to cover certain practical points relating to effective participation, for example that all directors present at the remote board meeting can hear each other and themselves, and that the number of directors be not less than the required quorum.

How can participation in remote meetings effectively take place?

The following practical pointers should be considered to ensure an effective remote board meeting:

  1. The requirements for a properly constituted quorum must always be met;
  2. Should the telephone or video-conferencing technology being used fail during the remote meeting, the meeting should be adjourned and reconvened when all communication lines are working efficiently again;
  3. Any communication disruptions should be duly noted in the minutes;
  4. The Chair should control the meeting as he or she would in a physical boardroom;
  5. Directors must be able to effectively engage in the meeting as they would in a physical boardroom.

In keeping with the above, it is advisable to consider the following practical pointers prior to the remote board meeting:

  1. The means of communication to be adopted i.e. whether to opt for a telephone or video conference meeting;
  2. The platform to be used (also factoring in security requirements);
  3. The availability of IT support during any such meeting;
  4. Whether any voting software is available on the video conferencing platform chosen, which could facilitate the voting process;
  5. Directors should familiarise themselves with the platform and voting software which will be made available before the meeting to avoid any disruptions on the day.
What role does the Chairperson play?

Although this is not specified at law, in practice, crisis management demands that the Chair takes on a leadership role with respect to the board and its management. A good Chair must essentially keep the board united in its approach, ensure that communication between members, committees, the board and top officials is effective, ensure that meetings are regular and ensure that committees, if any, continue to discuss on-going matters that they are typically entrusted with so that regular business continues to flow. The Chair may even propose setting up new sub-committees for specific discussion on crisis related measures. S/he should update the shareholders as necessary on discussions and decisions the board is taking during the crisis, however still ensuring that the board is the main decision-taker when it comes to actually running the business. The Chair should liaise with the Company Secretary especially in connection with minute taking and circulation of minutes.

What is the function of the Company Secretary in a crisis situation?

According to the Companies Act, it is not permissible to incorporate a company without having a company secretary appointed. The company secretary does not engage in the management of the company; however, it is essential that the company secretary engages in active dialogue with the directors and keeps the directors informed of their legal responsibilities.

Engagement with the board is also important to sufficiently plan in advance of any remote meetings, so as to ensure that meetings are conducted as smoothly and efficiently as possible, and to limit the risk of anything going wrong or remaining unclear during the meeting.

In general, although the law does not specify the exact role the company secretary must play, the Model Regulations state that generally, the said officer of the company shall be responsible for keeping:

  • the minute book of general meetings of the company;
  • the minute book of meetings of the board of directors;
  • the register of members;
  • the register of debentures; and
  • such other registers and records as the company secretary may be required to keep by the board of directors.

The company secretary must also ensure that proper notices are given of all meetings and that all returns and other documents of the company are prepared and delivered in accordance with the requirements of the Companies Act, 1995. Said duties should be exercised with even greater caution and responsibility during a crisis situation to ensure that the company is at all times up to date with its records and filings.

What is the importance of minute taking especially during a crisis situation?

The Companies Act requires every company to cause minutes of all board meetings to be taken and to be kept in minute books. Minuting decisions becomes even more important for directors when they may be facing a situation where they have to justify their decisions, especially should they be faced with an insolvency scenario and in particular, claims for wrongful trading.

Company secretaries should record accurate and detailed minutes of all board meetings, including the discussions that have taken place and the reasons behind the adoption of such decisions. The approval process should also be recorded in full, including any disputes which may have arisen, and the minutes should also indicate the name of any director who may not have approved of the final decisions taken.

Minutes of remote meetings should additionally expressly confirm that the meeting was held via electronic means and should state the enabling provision of the Articles of Association (if any) regulating same.  As a matter of good practice, draft minutes of each virtual board meeting should be circulated to each director following the meeting to ensure agreement by all in attendance that the minutes accurately reflect the business transacted at the meeting. The minutes should be signed by the Chairman wherever he is physically located.

Can meetings be recorded without the express consent of the directors or persons attending?

Meetings cannot be recorded without the express consent of the directors and persons present. A majority vote taken by directors cannot be equated with consent for all. A director, or any person attending a meeting, becomes a data subject and, as a data subject, they cannot have their personal data processed simply because the majority so decide.

Together with the notice of the meeting, a specific consent form should be sent in connection with recording of meetings. If this is not possible, at the outset of the meeting, the Company Secretary or the Chair should ask whether all persons present on the online platform for the particular meeting give their consent to the recording of the meeting. They should specify that any objections should be stated clearly at the start of the meeting.

The Company Secretary or Chair should specify:

  1. the precise reason or purpose behind the recording of the meeting;
  2. that the recording may not be accessed or used for any purposes which go beyond the purposes of record keeping for that particular (or future) board meetings;
  3. the length of time for which the recording will be kept and
  4. the participants’ right to access it.

Unless the consent form or the consent obtained during the meeting which is clearly minuted, squarely states that all future board meetings will be recorded, then the consent should be narrowly interpreted for that particular meeting.

The consent must be obtained in a fixed format i.e. written, email or even minuted.

Naturally, any and all recordings taken of board meetings must be subsequently set out in writing and retained by the company secretary in the minute books.

For Further assistance in connection with the recording of meetings, please contact:

Dr. Antonio Ghio on antonio.ghio@fenlex.com

Dr. Deo Falzon on deo.falzon@fenlex.com

Should directors continue to delegate their authority?

Apart from the legal and judicial representatives appointed by the shareholders by means of the company’s Memorandum of Association, directors are also empowered by law and the statutes to appoint attorneys or delegates to act in their stead.

Having attorneys or delegates of directors present in key areas of business to sign documents may help speed up processes and transactions especially during periods where physical movement and/or presence is restricted.

Directors should assess the current board and/or management and/or attorney appointments and consider whether additional appointments may be required. They should also obtain regular updates on the actions of their appointed delegates/attorneys especially in a crisis situation such as the COVID-19 pandemic.

Is there an alternative to having one document signed by all directors?

When obtaining signatures is not so straightforward, round robin signing and/or the use of electronic signatures may be useful tools to increase practicality. It is recommendable for Articles of Association to have specific reference to same if the shareholders and the board would like to adopt such practices.

With respect to electronic signatures, these are already allowed at law (unless exceptions apply), but inclusion of specific provisions in the company’s statutes expressly consenting to their use would add clarity for interpretation purposes.

For Further assistance in connection with electronic signatures, please contact:

Dr. Antonio Ghio on antonio.ghio@fenlex.com

Dr. Deo Falzon on deo.falzon@fenlex.com

Is there any specific guidance on the frequency of board meetings – especially in a crisis situation?

The law does not expressly enforce a minimum number of directors’ meetings to be held annually. However, regular board meetings are vital to ensuring that businesses remain resilient to both the immediate challenges as well as long-term challenges which could arise from the COVID-19 pandemic.

A distinction must be drawn between the situation where a company is comfortably solvent and when it is insolvent or veering towards insolvency and this in light of the potential personal liability of directors which may arise in terms of the “wrongful trading” provisions.

Directors should monitor and assess, even more regularly than ever during the COVID-19 pandemic and thereafter, that the company they manage is not insolvent or likely to become insolvent any time soon. The need for increased meetings of course becomes much more significant in this context because if it is shown that the directors of the company knew or ought to have known that there is no reasonable prospect that the company could have avoided insolvent liquidation, a court may declare the directors liable to make payment towards the company’s assets, as the court deems fit. In this scenario, the directors’ sole defence is whether they have taken every step to minimise any potential loss to the company’s creditors. Regular and properly minuted meetings may therefore aid in this endeavour.

For Further assistance in connection with Board Meetings, please contact:

Dr Krista Pisani Bencini on krista.pisanibencini@fenlex.com

Dr Sarah Grima on sarah.grima@fenlex.com

Dr Maria Debono on maria.debono@fenlex.com