Answers

Applied Skills, LW – MLA

Corporate and Business Law – Malta (LW – MLA) December 2019 Answers

Section A

1 Constitutional Court
The Constitutional Court is regarded as the most superior court in Malta and has jurisdiction over all other courts.

2 Information which is not in the public domain

In terms of the 2005 Act, inside information is defined as information which is not in the public domain and, therefore, it is not
accessible by the general public.

3 Nine weeks
The Employment and Industrial Relations Act provides for a notice period on termination of employment which varies depending on
the length of continuous employment. In the case of employment lasting between seven to eight years, notice of nine weeks has to
be given.

4 They are enacted by Parliament

A secondary source is binding, authoritative and a tool of interpretation used by the courts but is not enacted by Parliament. Primary
sources are enacted by Parliament.

5 The Registrar
In terms of the Companies Act, particular persons are authorised to present an application to place a company into corporate
recovery. Members, creditors and directors are so authorised. The Registrar of Companies is not.

6 Both parties have to externally manifest their acceptance to each other

In order for a contract to be validly concluded, there has to be unison of wills. Therefore, both parties have to externally manifest
their acceptance to each other. The acceptance cannot therefore be tacit or from one party.

7 Management of the affairs of a third party without mandate

The Civil Code provides for a definition of the quasi-contract of negotiorum gestio as the management of the affairs of a third party
without a mandate.

8 The shareholders lose the benefit of limited liability

The shareholders of a limited liability company are protected by the corporate veil and are generally not held personally liable for the
debts of a company. However, in certain instances the ‘veil’ is lifted and the shareholders lose the benefits of limited liability.

9 1, 3 and 4
As an accountant, Michael is responsible to ensure that the financial statements give a true and fair view of the company’s affairs
and include correct information. Failure to do so will render him liable to possible imprisonment, cancellation/suspension of the
warrant and/or a fine.

10 In fraudulent trading there is fraudulent intent

The Companies Act, 1995 provides for various offences including fraudulent and wrongful trading. The main distinguishing feature
between the two offences is the fraudulent intent.

11 To the extent of the unpaid part of the share capital

The liability of the shareholders of a limited liability company is limited to the unpaid part of the issued share capital.

3
12 Compensatory liquidation
Conventional, statutory and judicial are ways in which damages can be liquidated, while compensatory liquidation is not.

13 A voluntary and unlawful act of the debtor

Tort and quasi-tort are defined in the provisions of the Civil Code and both refer to voluntary and unlawful acts of the debtor.

14 3 only
An auditor is only contractually bound with the client as the auditor–client relationship is deemed a contract.

15 Absence of authority
Absence of authority is not a ground on the basis of which a contract can be invalidated for lack of consent. Absence of authority
would impinge on capacity.

16 The Industrial Tribunal

Under the Employment and Industrial Relations Act, 2002, the Industrial Tribunal is vested with jurisdiction in cases of unlawful
dismissal of an employee.

17 Appointing bank signatories

The company secretary has several duties which include the keeping of the register of members, minute book and filing of the annual
return. The appointment of bank signatories is carried out by the directors.

18 50% + 1 of the voting rights

The Companies Act, 1995 provides for the procedure for the removal of a director of a company. A director can be removed by a
vote representing at least 50% + 1 of the voting rights.

19 Interest may be charged on an advance in salary

The law contains provisions which ensure that employees are guaranteed the payment of the wages for work they are employed to
do. Accordingly, wages must be paid in legal tender, they must be paid directly to the employee and to nobody else and wages may
not be assigned. Furthermore, if an employee receives an advance on their salary, although this may take the form of a loan, the
employee may not be charged interest on the same.

20 A self-employed person
A sole trader can be assimilated to a self-employed person as persons acting and working in their own name.

21 Private limited liability company

One of the limitations stipulated at law to apply in the case of a private limited liability company is that the transfer of shares be
limited and restricted. These limitations are normally provided for in the articles of association and in the absence thereof arise out
of the Second Schedule to the Companies Act.

22 Ordinary shares
The share capital of company can be divided into different classes of shares. The rights assigned to the different shares may be varied
as are voting rights and the right to receive dividends. However, all companies must always have ordinary shares issued.

23 On the date when the Registry of Companies issues the Certificate of Registration
A company is deemed registered as from the date of registration which is the date indicated on the certificate of registration.

24 A judgment of the Constitutional Court

While an Act of Parliament and legal notice are direct primary sources of Maltese law, a judgement is deemed a secondary source.

4
25 Maltese citizens may bring forward a petition before the European Court of Human Rights
One of the rights introduced by the European Convention Act, 1997 was the right given to Maltese citizens to bring forward a petition
before the European Court in Strasbourg where it is felt that their human rights and fundamental freedoms have been violated.

26 The existence of defects in law is presumed

There are several maxims of doctrinal interpretation of laws. However, the presumption of the existence of defects in the law is not
one such maxim.

27 The current members

The first directors of a company are appointed by the founding members while the subsequent directors are appointed by the existing
and then current shareholders of the company.

28 A private showing
One of the requirements for a valid offer to the public is that this is made to the general public and hence a private showing would
not comply with this requirement.

29 On reaching the age of 16

A person may open a bank account in their own personal name from age 16.

30 Partnership en nom collectif

A partnership en nom collectif is made up of limited partners and at least one unlimited partner.

31 Articles of association
The articles of association of a company regulate internal matters including the holding and convening of meetings of members and
of directors.

32 The creditor cannot take action against Sarah

A person can appoint someone to act in their stead when overseas. However, the creditors of such person cannot take action against
the mandatary instead of against the mandator.

33 An employee can be employed for a definite period of any duration

Employees can be employed for a definite or indefinite duration. A definite contract cannot be for longer than four years and all
contracts are regulated by a contract of employment. Therefore, an employee cannot be employed with a definite contract for any
period of time.

34 Privity
The doctrine of privity refers to obligations which are of a personal nature which only give rise to obligations between the parties.

35 Parliament
Parliament is the institution which drafts, enacts and repeals legislation. The executive and government are one and the same
institution which alone do not exercise such legislative powers.

36 When the company is unable to pay its debts

The law stipulates those situations where the court may and where the court shall place a company into liquidation. One situation
where the courts may liquidate a company is where it is unable to pay its debts.

5
37 An enabling Act of Parliament
Acts of Parliament often give the power to the Minister to issue regulations thereunder in the form of a legal notice which will not
need Parliamentary approval to come into force and effect.

38 Non-performance by one of the parties

Breach of contract results from the failure of one of the parties to comply with the terms of the contract.

39 When an offer is made to and accepted by the purchaser

A contract of sale is deemed concluded when there is a valid offer and acceptance and therefore when a valid offer is made by the
seller which is then accepted by the purchaser.

40 One week, where employment has lasted for more than one month
When a contract of employment is terminated during probation, a week’s notice will apply in the case of all employments which
have lasted for more than one month.

41 Delay in performance
Mora refers to a delay in performance of a contract which gives rise to a breach.

42 A public deed drawn up by a public notary

The law stipulates the formalities for the performance of a contract which may take the form of a private or public deed. The
purchase of business premises refers to the purchase of immovable property and this, therefore, requires a public deed which is
drawn up by a notary public.

43 Without cause giving the required notice

Employees employed on an indefinite basis can have their employment terminated by the employer during probation, on grounds of
redundancy and for a good and sufficient cause. An employee but not an employer can terminate without cause.

44 Capacity
A lame contract is one which is defective due to lack of capacity.

45 Entering into new trading activities with third parties

The powers of a liquidator are limited to the closing off of activities and winding down the activities of a company. Therefore, the
liquidator may not start any new trading activities on behalf of the company.

6
Section B

46 (a) John and Pat are considering purchasing the land from Andrew solely by means of a verbal agreement due to the fact that he
is illiterate. This is not possible and not in line with Maltese law.
The law requires certain formalities for the validity of some transactions – the transfer of immovable property is one of these
instances. There are various reasons why the law requires these solemn formalities, such as, for example, to warn the parties
of the seriousness of the contract or the consequences thereof. A solemn form provides tangible evidence of the conclusion and
terms of the contract and by requiring registration, the law is also allowing public access to the contract in the interest of the
parties thereto but also in the interest of third parties.
The solemn form required by law may either be a public deed or private writing. The Code of Organisation and Civil Procedure
provides for the conclusion of contracts where a person is illiterate. If a person cannot or does not know how to write, they
must set their mark which must be attested by an advocate or a notary together with a declaration that such mark has been
set in their presence and in the presence of two witnesses who must also set their signature, and together with a declaration
that they have personally ascertained the identity of the person setting such signature or mark.

(b) For the second plot of land, Pat and John are being encouraged to conclude the acquisition by means of a private agreement.
As noted above, the law requires that in the case of certain transactions, a solemn form is required, namely a private deed or
a public deed. A public deed is an instrument drawn up or received, with the requisite formalities, by a notary or other public
officer lawfully authorised to attribute public faith thereto. The contracts with regard to which the law imposes the most solemn
form, that is, the public deed, are those which relate to the transfer of immovables, whether the title be sale or exchange, and
whether the contract constitute an annuity or a donation. Therefore, in order to effect the transfer of land, the parties have to
enter into a public deed.
If the external requisites for a valid contract are not met, the contract for the transfer of immovable property cannot be said to
have been validly concluded. Pat and John should immediately contact a notary and have the transfer formalised as required
by law. Without a public deed and its registration, the transfer of property and the change of title is not valid and Pat and John
would not be able to claim that they are the rightful owners of the property.

47 (a) An employee has the right to receive their full wages in legal tender. The law provides that, except where otherwise expressly
permitted by law, the entire amount of the wages earned by, or payable to, any employee shall be paid to them in money being
legal tender in Malta, and every payment of, or on account of, any such wages made in any other form and any covenant in
any contract providing for other form of payment shall be null and void. However, payment by cheque or by means of a transfer
to one’s account is customary where this is acceptable, necessary or agreed upon by the employee. Therefore, ABC Ltd should
have paid Sam his entire wage in legal tender and not one part in legal tender and the other part in virtual currency.

(b) An employee is to receive their wages personally. Wages are to be paid directly to the employees to whom they are due.
Exceptions, however, do exist, namely: (i) as may otherwise be provided by any law; or (ii) in virtue of an order made by a
competent court; or (iii) where the employee or employer concerned agree to the contrary. Thus, the law permits payments to
be made to dependants of the employee in virtue of a court order.
Wages may not be attached or assigned. Garnishee orders against salaries may not be issued unless the creditor is suing
for maintenance. In such cases, a garnishee order may be issued against part or the balance of one’s wages which exceed
€698·82 a month unless the employee proves to the court that the wages which are attached are needed for the maintenance
of the employee or of the employee’s family. However, the law goes on to provide that wages may be attached to ensure the
payment of maintenance due to the spouse, minor, incapacitated child or ascendant of the employee and in such cases,
without providing a limit which the employee must receive notwithstanding the maintenance order. Therefore, Sam’s wages
may be attached through the required court procedures to pay maintenance to his wife.

(c) Sam is leaving the office early twice a week to collect his children from school. Clearly, therefore, the assumption is that he is
not working all the hours he is required to do so in terms of his contract of employment. Therefore, if an employee fails to work
the total number of hours in a week as agreed in the contract of service, the employer may deduct from the total wage due to
the employee only that part which corresponds to the hours lost.

48 (a) Although prima facie the rights carried by all the shares in the company rank pari passu, the capital of a company may be
divided into different classes. Here, the preference shares are redeemable cumulative preference shares.
The principal right of preference shares is that of receiving a fixed percentage of the distributable dividends in preference to the
other shareholders. Preference shareholders are only entitled to their preferential treatment if the company has distributable
profits. If there are no such distributable profits, the preference shareholder will not get anything unless they have a cumulative
right.
Preference shares can also carry the right for cumulative dividends. Dividends are said to be cumulative where if no dividend
is declared in a year, or if declared they do not cover the fixed rate, the outstanding balance shall be carried forward and shall
be paid out of the profits of subsequent years when the profits are available.

7
 Although preference shares entitle their holders to preferential treatment in the case of the payment of dividends, unless the
memorandum, the articles or the terms of issue specifically provide, the preference shares shall not entitle the holder to any
additional rights in a liquidation over shares issued at par.

(b) A further characteristic is that preference shares can be redeemed by their holder or by the company. In fact, this emerges from
the model articles of association found in the First Schedule of the Companies Act, 1995 as well as from article 115. The law
in particular provides that any preference shares may, with the sanction of an ordinary resolution, be issued on the terms that
they are, or at the option of the company are liable, to be redeemed on such terms and in such manner as the company before
the issue of the shares may by extraordinary resolution determine. It is important to note that such redemption is only possible
out of those profits of the company which would otherwise have been available for dividend, or out of the proceeds of a fresh
issue of shares made for the purpose of the redemption.

(c) The Companies Act, 1995 specifically provides that a company shall, at all times, have ordinary shares. Ordinary shares
usually carry the main financial risk of the company if unsuccessful; if, however, it is successful, they are entitled to most of
the profits. Subject to the rights of other classes, ordinary shares are unlimited in their possibilities; in fact, after dealing with
the distribution of profits as provided for in the articles, the remaining distributable profits will be available to them.
Furthermore, on liquidation of the company, the ordinary shareholders are entitled to the entire surplus of the assets remaining
after payment of the liabilities of the company and after the return of the capital of all classes of shares, unless preference
shareholders are given the right to participate in the distribution of the surplus assets.

49 (a) The Companies Act 1995 does not provide for a list of the powers vested in directors but merely provides that the business of a
company shall be managed by the directors who may exercise all such powers of the company, to the exclusion of those which
in terms of the Companies Act or the memorandum and articles of the company are required to be exercised by the company
in the general meeting.
To counter the wide powers vested in directors are their duties, which can be divided into managerial duties, administrative
duties, duties which are applicable in cases of insolvency and fiduciary duties. In the exercise of the above-mentioned powers
and duties, directors are said to owe fiduciary duties to the company. In fact, directors must act honestly and in good faith in the
best interests of the company. As a means to control conflicts of interest situations, the law provides for measures of disclosure.
An important fiduciary duty which is statutorily imposed on directors is that they must not create conflict between the duties
they owe to the company and their personal interests and those they owe to others. To avoid such situations arising, the law
provides for measures of disclosure. It may be argued that Michael may be seen to have breached these provisions by not
informing the board of MMM Ltd of his connections with PM Ltd and, more importantly, when he actually became a member
of the board of PM Ltd.
In terms of law, where a director is in any way interested, whether directly or indirectly, in a contract or proposed contract with
the company, they are to declare the nature of their interest to the other directors, either at the meeting at which the question of
entering in the contract is first taken into consideration, or, if the director was not at that date so interested in the said contract
or proposed contract, at the next meeting of the directors held after they became so interested. Any director who fails to declare
such interest shall be liable to a fine of approximately €2,330. Reference should be made to the UK case of Guinness v
Saunders (1990). The Companies Act, therefore, addresses such situations very clearly.
Besides disclosure of interest, the articles of association of a company may also provide that a director shall not vote at a
meeting of the directors in respect of any contract or arrangement in which they are interested, and if they shall do so, their
vote shall not be counted.

(b) The Companies Act, 1995 does not provide for a definition of ‘breach of duty’. From a review of case law, a breach can refer
to various matters such as failure to act in good faith, negligence and breach of duty. Directors are held personally, jointly and
severally liable for damages for any breaches of duty unless a particular duty is entrusted to one or more directors in which
case, only such director or directors shall be held so liable. Furthermore, a director shall not be held liable for the acts of their
co-directors where they prove either, (i) that they did not know of the breach of duty before or at the time of its occurrence
and that on becoming aware of it after its occurrence, they immediately signified their dissent in writing to the other directors;
or (ii) that, knowing that the co-directors intended to commit a breach of duty, they undertook all reasonable steps to prevent
it. Therefore, if it can be proven that MMM Ltd suffered damages as a result of the acts of Michael through his dealings with
PM Ltd and through his absence of disclosing his connections with PM Ltd, action could be taken against him. MMM Ltd
could dismiss Michael from the board and, depending on the evidence, could seek to recover damages from him for loss of the
agency agreement with the supplier.

50 (a) In order to determine the liability of Roger, one has to determine whether the acts fall within the purview of the Prevention of
Financial Markets Abuse Act, 2005.
The Act contains a definition of a person discharging managerial responsibilities within an issuer. Roger clearly falls under this
definition.
Roger’s liability is clearly provided for under the general prohibition found under the Act which provides that no person shall
use inside information to trade in any financial instrument admitted to a regulated market or in any other way to acquire or

8
 dispose of, or attempt to acquire or dispose of such financial instrument, whether for their own account or for the account of a
third party, either directly or indirectly, if they are in possession of information related to such financial instrument by virtue of
(i) their membership of the administrative, management or supervisory bodies of the issuer (as is Roger, since he is a director);
(ii) their holding in the capital of the issuer (also is the case with Roger); (iii) their having access to the information through the
exercise of their employment, profession or duties; or (iv) their criminal activities.
In terms of the Act, any person who possesses inside information is prohibited from (i) disclosing inside information to any
other person unless such disclosure is made in the normal course of the exercise of their employment, profession or duties,
whether or not they know or have reasonable cause to believe that such person or any other person will make use of the
information for the purpose of dealing; (ii) recommending or inducing another person, on the basis of inside information, to
acquire or dispose of financial instruments to which that information relates; (iii) counselling or procuring any other person to
deal, on a regulated market in those financial instruments.
Another important definition found under the Act which must be considered is that of inside information. ‘Inside information’
means information of a precise nature which has not been made public, relating, directly or indirectly, to one or more issuers
or to one or more financial instruments, including information regarding any takeover offer for a company, and which, if it were
made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related
derivative financial instruments; being information which a reasonable investor would be likely to use as part of the basis of
their investment decisions.
(b) Having established that Roger is deemed to be a primary insider, one has to establish Simon’s liability, if any, and whether he
can be considered as a ‘secondary insider’ or a ‘tippee’. The ‘tippee’ is that person who is given a tip on unpublished price
sensitive information by the tippor for them to act upon. In fact a person (tippee) who knowingly receives or obtains inside
information from a person who is connected to a company and who knows or has reasonable cause to believe that the latter
held the information by reason of the fact that they are so connected, the tippee will be guilty of a criminal offence if they deal
in those shares. Simon falls within the definition of tippee and will be guilty of dealing in BBB plc shares.

9
Applied Skills, LW – MLA
Corporate and Business Law – Malta (LW – MLA) December 2019 Marking Scheme

Section A

1–45 One or two marks per question; total marks 70

Section B

46 (a) Formalities for transfer of immovable property 1 mark

Alternative arrangements for illiteracy 1 mark
Verbal agreement invalid in this case 1 mark
(3 marks)

(b) Need for public deed 1 mark

Formalities required for public deed 1 mark
Private agreement invalid in this case 1 mark
(3 marks)
(Total 6 marks)

47 (a) Requirement for legal tender 1 mark

Requirement for any other form void 1 mark
(2 marks)

(b) Wages to be paid personally and directly 1 mark

Exceptions and application 1 mark
(2 marks)

(c) Deductions permitted for partial performance 1 mark

Deduction permitted in this case 1 mark
(2 marks)
(Total 6 marks)

48 (a) Right to fixed dividend if declared 1 mark

Explanation of cumulative dividends 1 mark
(2 marks)

(b) Need for ordinary resolution 1 mark

Limits on scope for redemption 1 mark
(2 marks)

(c) Relevant point about risk 1 mark

Relevant point about benefits 1 mark
(2 marks)
(Total 6 marks)

49 (a) Existence of duties under the Act 1 mark

Specific duties relevant to facts 1 mark
Michael in breach of these duties 1 mark
(3 marks)

(b) Personal, joint and several liability of directors 1 mark

Need to prove loss 1 mark
Recovery of damages from Michael 1 mark
(3 marks)
(Total 6 marks)

11
50 (a) Roger falls within the scope of the Act (primary insider) 1 mark
Identification of offences under the Act 1 mark
Roger has disclosed and recommended 1 mark
(3 marks)

(b) Offences committed by secondary insiders/tipees 1 mark

Simon as secondary insider/tipee 1 mark
Simon guilty of dealing 1 mark
(3 marks)
(Total 6 marks)

12