Authors: Adrian Mercieca, Manager and Rebecca Degiorgio, Corporate Administrator
20th May 2020

The fiduciary obligation conferred upon a corporate Board of Directors (the “Board”) by Chapter 386 of the Laws of Malta to act in bona fide and in the best interests of the company, has gained critical importance in the face of financial difficulty and other economic disturbances arising from the COVID-19 pandemic. In the normal course of business, the Board is primarily responsible for the strategy, proper administration and supervision of the company’s state of affair.

In the face of adversity, the Board is forced to change the way it ordinarily operates by defining and implementing a strategy to help carry the company through this period of uncertainty, the efficiency of which is subject to ongoing assessments and monitoring as the situation continues to evolve. Whilst retaining the statutory duties ascribed to them as directors, the Board may choose to appoint a competent consultant to assist in approaching the challenge of change forced onto the business by the pandemic. Understanding the Board’s fiduciary duty to the company in normal circumstances may shed light onto the increased level of responsibility and complexity of any decision taken in extraordinary circumstances, whereby the interest of the shareholders may run counter to, and are given priority over the interest of other stakeholders such as employees and suppliers.

In the same way that health authorities seek to prevent the virus from spreading by imposing selective and economically-painful restrictions, the Board has to proactively secure the day-to-day functioning of the company by adapting to the volatile situation accordingly while still acting in accordance with their responsibilities and duties as directors. Naturally, the administrative duties of directors have been temporarily dislocated since most companies had, in a matter of a few days, to adapt, where possible, to remote working conditions whilst still seeking to give their clients the best possible service in a seamless manner. Other companies have been forced to shut down almost completely freezing their revenues. Governments, Regulators and Authorities have recognized the difficulties faced by businesses and action has been taken to lighten the burden on companies. A case in point is  the Malta Business Registry (MBR) who has sought to cater for this difficult period by effectively waiving the penalties ordinarily imposed in the case of non-submission of specific filings.

More importantly, there are special directors’ duties that also come into effect in the event that the company has lost an irrecoverable amount of capital and/or is at the onset of insolvency and unable to pay its creditors, the reality of which may be faced by many companies during these trying times. At the prospect of insolvency there’s an observable shift from the directors’ fiduciary duty to act in the best interests of the company and its shareholders to that of its creditors. In respect of this, the Board is entrusted with convening a general meeting with the object of examining the company’s financial position and resolving to determine a corrective plan of action. Therein, the Board may also consider placing the company into dissolution or legally applying for a Company Recovery Procedure (CRP), the choice of which is strictly dependent upon the extent of financial hardship as well as the future prospect of recovery.

It is of utmost importance that directors act diligently during this challenging period. Our professionals at Fenlex Group may provide practical boardroom experience in a variety of industry sectors. Should you require any further information or assistance on this matter, please do not hesitate to contact us personally on or