Closing a deal electronically under Maltese Law amidst COVID-19
News    ·   14-04-2020
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AUTHOR: Andrei Vella; Donald Vella; Gabriella Chircop; Maria Magro

The rapid spread of the COVID-19 virus, has made social distancing - whether it is mandated or strongly advised by governments - somewhat of a rule to live-by. Businesses are naturally feeling the deleterious economic impact of the various forms of (imposed or voluntary) lock-down measures in the most widespread of manners, including by not being able to physically meet and conclude deals.

Is it possible to conclude contracts electronically?

The creation of a binding contract fundamentally necessitates amongst other things, the key elements of offer and acceptance. However, the existence of these essential elements is not always reliant on the adoption of a specific medium, whether technological or otherwise. Indeed, some agreements may be verbal. In other instances however - and quite beyond the obvious benefit of generally evidencing agreements by written means - some types of contracts need to be reduced to writing. The crux of the matter is then, can the writing, offer and acceptance be done remotely?

The Electronic Commerce Act (Chapter 426 of the laws of Malta) (the “Act”) allows contracts to be formed and concluded by electronic means and further provides that such electronic contracts are not to be denied legal effect, validity or enforceability solely on the grounds that they are wholly or partly in electronic form or have been entered into wholly or partly by way of electronic communications or otherwise. Electronic contracts are defined under the Act as contracts that are concluded wholly or partly by electronic communication or wholly or partly in an electronic form and therefore, include contracts concluded over electronic mail. The Act further establishes that the form of the offer and its acceptance and any related communication, including any subsequent amendment, cancellation or revocation of the offer and acceptance of the contract may be communicated electronically in such form as the parties agree between them. This applies unless the parties thereto are consumers.

It follows that as long as the key elements of a contract subsist and the underlying offer and acceptance are agreed in form and duly manifested in the electronic communication or within an electronic form, the contract will be legally binding between the parties in the same manner as though concluded through an ordinary physical contract. The broad practical effect of this is that contracts may (unless involving consumers) be concluded by a click on an “I Agree” icon just as much as they may be concluded on the basis of any other evidence of consent agreed to between the parties.

Which are those contracts which may not be concluded electronically?

Notwithstanding the flexibility inherent in forming electronic contracts, certain matters such as tax agreements, public deeds for the acquisition of immovable property, affidavits, contracts of suretyship and agreements for collateral furnished by persons acting for purposes outside of their trade or profession, may not be concluded electronically.

The signing of contracts: are e-signatures recognised in Malta?

Electronic contracts do not necessarily equate to e-signatures. Generally speaking, e-signatures are valid in Malta and are governed by the European Regulation No 910/2014 on electronic identification and trust services for electronic transactions in the internal market (the “Regulation”). The aim of this Regulation is to create a better harmonised framework of e-commerce laws, given that a regulation has direct effect in all EU Member States, including Malta. The Regulation defines an ‘electronic signature’ (“e-signature”) as data in electronic form that is attached to, or logically associated with, other data in electronic form and is used by the signatory to sign.

The different types of e-signatures

The Regulation distinguishes between various types of e-signatures, these being simple, advanced and qualified.

A qualified e-signature is an advanced electronic signature which is additionally (i) created by a qualified signature creation device, and (ii) is based on a qualified certificate for electronic signatures.  Therefore, whereas a platform provided by a software issued by a qualified trust service provider would meet the requirements of the Regulation, the simple insertion of a JPEG of the person’s wet ink signature would not be suitable for this purpose.

In terms of Maltese law, the qualified e-signature is considered to have legal effect equivalent to a handwritten signature. It is furthermore important to ensure that the signatory has the authority to apply the e-signature to the document in question.

Conducting internal affairs – Corporate documents

In these trying times, businesses are facing uncertainty not only on how to conclude transactions but also in conducting and adhering to their own corporate filing obligations with the Malta Business Registry (“MBR”).

To this effect, conducting internal affairs is facilitated through the MBR’s Online System, allowing electronic forms to be filed and signed electronically using a personal digital certificate.  Businesses may avail of the electronic filing tool vis-à-vis the following corporate documents:

  • Annual Returns;
  • Annual Accounts;
  • Memorandum and Articles of Association;
  • Form BO - Declaration on Beneficial Owners;
  • Form B1 - Notice of resolution for dissolution and consequential winding up;
  • Form B2 - Declaration of solvency;
  • Form F - Notice to Registrar to exercise his power to appoint an auditor;
  • Form F1 - Notice of the removal of an auditor;
  • Form F2 - Notification by partnership/company of the resignation of an auditor;
  • Form H - Return of allotments of shares;
  • Form I - Notice that a company has become a Single-Member Company;
  • Form I1 - Notice that a company has ceased to be a Single-Member Company;
  • Form K - Notification of changes amongst directors or company secretary or in the representation of a company;
  • Form L - Notice of appointment of liquidator;
  • Form L3 - Notice of resignation of a liquidator;
  • Form Q - Notification of change in registered office of a company;
  • Form S - Declaration of compliance with Article (110(4)) relating to financial assistance given by a private company for the purchase of its own or its parent company's shares;
  • Form T - Notice of transfer or transmission of shares;
  • Form T1 - Notice of redemption of preference shares;
  • Form T2 - Notice of pledge of securities;
  • Form T3 - Notice of termination of a pledge of securities;
  • Report in terms of Sec. 73(6) - Non-Cash Consideration;
  • Increase in Issued Share Capital

Board and shareholder resolutions can also be passed electronically, and moreover should be valid if signed using e-signatures and it will be possible to sign most resolutions remotely (using board and shareholder written resolutions) and separately (if directors are in different places), unless this is expressly prohibited by the Company’s statute.

Companies may furthermore, conclude transactions online, including the hiring of employees, through electronic contracts signed by means of an e-signature.

Kindly note that the above is not a substitute for legal advice and only sets out our generic views, which may change when assessing specific circumstances.

 

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