Faith Spearing is a Corporate administrator at Fenlex Corporate Services. She joined Fenlex in July 2020 after graduating from the University of Malta with a Bachelor of Honors in European Studies. Faith’s main responsibilities include managing client companies and assisting them in their respective day-to-day needs, which include the preparation of corporate documentation and other statutory documents to be filed with the Maltese Registry.
Good corporate governance is critical to the wellbeing of all companies, with the board of directors playing a key role in this regard As the officers in charge of running the company, directors are obliged to ensure that the best interests of the company are always safeguarded, especially in times of uncertainty.
Although there are no specific requirements in the Maltese Companies Act as to the number of board meetings that need to be held, directors need to ensure that sufficient meetings are held so as to allow the Board to take effective decisions. When convening a board meeting, proper notice is necessary, especially in cases where the Articles of Association are drafted in a manner whereby directors are obliged to hold physical meetings in Malta and the Board, in part or as a whole, is composed of non-resident directors.
The Covid-19 pandemic and restrictions on travel have made physical meetings almost impossible in such cases. To ensure the continuation of effective management, Board members may resort to at least one the following options which are in line with the requirements of the Articles of Association and the Companies Act:
1. A permanent solution is for companies to amend the provision of the Articles of Association to allow for Board meetings to be held via telephone conference, video conferencing and/or other electronic means, or;
2. As a stop gap arrangement, that does not affect the Articles of Association, obtain a shareholders resolution by means of which the shareholders recognise the unprecedented times faced by the company and resolve to allow directors to attend board meetings remotely until such time that travel is not restricted.
In cases where the Article of Association has provisions catering for alternate directors, directors may also appoint an alternate director/s residing in Malta to attend said meeting.
It must be highlighted though, that irrespective of whether a board meeting is being held in person or remotely, the general proceedings must always remain unaffected so as to allow for a smooth and effective transition. Having said this, special arrangements must be made when holding a meeting remotely such as ensuring that all board members can communicate clearly, that the role of the company secretary, to take minutes of the meeting, is unaffected and that the integrity of the vote taken is preserved.
When holding meetings remotely, directors must also consider tax implications such as change in tax residency or dual tax residency as the place of effective management of a company, which includes the place where board meetings are usually held, may change.
However, the Organisation for Economic Co-operation and Development (OECD) has reconfirmed in a recently published update, following a first report issued in April of 2020, that due to public health measures and the inability of Board members to travel for board meetings it does consider this to be “an extraordinary and temporary situation due to the Covid-19 pandemic and such change of location should not trigger a change in treaty residence” citing guidelines issued by the likes of the US, the UK, Australia and Ireland among others that recognise these are extraordinary times.
However, the OECD remarks that this is at the discretion of the respective tax authorities and therefore, local guidelines need to be referred to. The OECD guidelines go beyond the issue of place of management and control and delve into the home office and the risks of employees temporarily working outside of the country, which is also pertinent to many a Malta-based company.
Ultimately it can be said that extraordinary times require extraordinary measures and the pandemic has challenged companies to reinvent their usual ways of conducting business. Resorting to electronic means to hold board meetings was very quickly adopted and has been a very useful tool that allowed for directors to take effective and timely decisions in uncertain times, across borders and from their living rooms. Not a bad thing for business, not a bad thing for the environment either. But once this is all over, what view will the OECD take?