Prohibition of Financial Assistance by Private Companies Removed
News    ·   01-01-2009

AUTHOR: Louis de Gabriele

The Maltese Parliament has recently approved an amendment to article 110 of the Companies Act (Cap. 386 of the laws of Malta), removing the absolute prohibition on the granting of financial assistance by a private company for the purchase of or subscription for its own shares or shares in its parent company. The amendment addresses concerns raised by practitioners that article 110 prohibited transactions which did not necessarily affect the rights of creditors or shareholders. Financial assistance may now be granted by a private company if a majority of the company’s directors authorise the grant for a specific transaction after taking into account the financial position of the company.

The amendment protects the company’s shareholders by requiring their approval of the directors’ decision by extraordinary resolution. Furthermore, a declaration signed by two directors is to be registered with the Registry of Companies before the grant of financial assistance.

The prohibition, however, still applies in the case of public companies.

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