On the 17th May 2024, Act XVIII of 2024, the Companies (Amendment) Act (the "Amendment Act") was enacted, introducing, as its name implies, a number of amendments to the Companies Act (Chapter 386 of the Laws of Malta) (the "Companies Act" or the "Act").
While the changes brought about to the Act in May 2024 relate to a variety of matters, including the submission of a company's memorandum and articles of association to the Malta Business Registry electronically whenever any changes or updates are made thereto; the new requirements for certain large undertakings and branches to report on income tax information, and updates to the procedure for convening of extraordinary general meetings on requisition, the purpose of this article is to highlight the latest changes implemented to the Companies Act in the context of share buybacks and reduction of share capital.
Reduction of share capital
The capital maintenance doctrine is a fundamental principle of Maltese corporate law and the provisions on the reduction of a company's share capital, enunciated principally in terms of Article 83 of the Companies Act, set out the strict confines in terms of which a Maltese limited liability company may reduce its issued share capital.
The Amendment Act has introduced a number of procedural clarifications as to how a company may reduce its issued share capital. Article 83 of the Companies Act has been entirely substituted with a new article and it is now clearly set out that a company may, by extraordinary resolution of its general meeting (or any higher voting threshold which may be set out in the company's constitutive documents), reduce its issued share capital or undistributable reserves including for the purposes of creating a distributable reserve. By virtue of the Amendment Act, it is now clarified that a company may reduce its undistributable reserves, aligning with Article 114 of the Companies Act which provides that a company's share premium account is considered as issued share capital for reduction purposes. Moreover, the reserve resulting from a reduction will be considered as authorised profit for distribution purposes under the relevant provisions of the Act. In connection with this change, it is somewhat unclear as to what the term 'authorised profit' is referring to, given that this does not exist as a standalone term elsewhere in the Act.
Additionally, the amended Article 83 specifies the requirement for directors or the company secretary to submit a copy of any extraordinary resolution that gives effect to a reduction of capital to the Registrar of Companiesfor registration. While this submission requirement was implied in Article 83 as it was previously worded, the Amendment Act now clarifies the point.
Once a share capital reduction procedure is rendered effective in terms of Article 83, there is now the requirement, subject to certain exceptions, for the company to deliver to the Registrar of Companies a notice of reduction of issued share capital within 14 days from the effective date of reduction.
Share buybacks
Articles 106, 107, and 109 of the Companies Act are amongst the suite of provisions set out in the Act which regulate the conditions and instances when a company may acquire its own shares otherwise than by subscription. These articles have been amended by means of the Amendment Act.
Article 106 has been amended by means of the addition of three new sub-articles (6), (7) and (8). In brief, these provide that any shares acquired by a company pursuant to a buyback carried out in terms of Article 106 may be cancelled and the share capital of the company in question shall be reduced with immediate effect. Effectively, this entails that the provisions of Article 83 of the Companies Act and the three-month creditor contestation period set out therein would not apply to such cancellation of shares. From a procedural perspective, there is, similar to the case with share capital reductions in terms of Article 83, a new requirement for a company to deliver to the Registrar of Companies a notice of cancellation of shares within 14 days from the effective date of cancellation. In both cases, while it seems as though the notice will not take the form of a new statutory form, penalties for late filing will apply.
Furthermore, the proviso to Article 109(b) has been amended to clarify that once shares held by a company are cancelled pursuant to Article 106(6) or Article 107(2), the previous undistributable reserves held by a company for the same amount of the shares held by it shall become distributable.
On a concluding note, the changes brought about by the Amendment Act to the provisions on share capital reductions and share buybacks in the Companies Act generally aim to bring about clarity and transparency from a largely procedural perspective. One point which remains somewhat ambiguous at this stage relates to the new term 'authorised profit' and clarity on this front would be welcome.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.