Directors’ Liability: A Critical Review

Introduction

Companies operating in Malta are subject to various regulations and laws governing their operations. At the heart of these regulations lies the concept of directors’ liability, where individuals appointed to manage and oversee company affairs are held personally responsible for any breaches or misconduct.

Under Maltese law, specifically the Companies Act, directors are required to exercise a reasonable degree of care, diligence, and skill in discharging their duties. This includes ensuring that personal interests do not conflict with those of the company and avoiding misuse of company property or confidential information.

Liability Under the Companies Act

In the event of a breach of duty, directors may be held personally liable under the Companies Act. This liability can arise from breaches of general duties, such as acting in the best interests of the company, or specific duties, such as failing to make statutory filings.

• The Companies Act provides for penalties against both the company and individual directors for certain breaches.
• It also allows third parties to sue directors personally for damages resulting from their negligence or breach of duty.

Liability Under Specific Legislation

Directors are also subject to personal liability under various administrative laws, including:

• Chapter 371 of the Laws of Malta (the Banking Act)
• Chapter 452 of the Laws of Malta (the Employment and Industrial Relations Act)

Standard of Care for Customers

When dealing with retail customers, financial services firms are required to act in their best interests, providing a higher degree of care and protection. The Conduct of Business Rulebook published by the Malta Financial Services Authority (MFSA) outlines specific requirements for customer protection.

• A lower degree of protection may be afforded to customers who have more investment knowledge and experience.
• However, even professional investors are still entitled to a certain level of protection under Maltese law.

Rule-Making Process

Legislative acts in Malta undergo a parliamentary process, involving:

• Three readings
• A consultation stage with relevant stakeholders

The MFSA, on the other hand, is empowered to issue rules regulating financial services without necessarily undergoing a formal consultation process. However, it is common practice for the MFSA to publish White Papers or consultation documents when introducing significant changes to laws or regulations affecting the financial services industry.

Conclusion

In conclusion, directors’ liability plays a critical role in ensuring accountability and transparency within companies operating in Malta. While there are various regulations and laws governing company operations, directors must be aware of their specific responsibilities under the Companies Act and other relevant legislation.

As the financial services sector continues to evolve, it is essential that regulators such as the MFSA remain vigilant in maintaining high standards of care for customers while ensuring that companies operate with integrity and transparency.