Statutory duties and criminal offences in companies facing financial difficulty

This is the second article in a series on company directors’ duties and liabilities

The pari passu principle

A fundamental tenet of Maltese law is the principle of pari passu, in terms of which all the creditors of a company rank equally for their claims unless there is a lawful cause of preference. Accordingly, the property of a company must be applied in satisfaction of its liabilities pari passu, subject to the provisions of the Companies Act and of any other law as to preferential debts or payment.

In principle, until a company goes into liquidation and a liquidator is appointed, the directors should ensure that the principle of pari passu and preferential payments is strictly adhered to. Failure by the directors to abide by this principle may render the transaction “vulnerable” (under the rules outlined later on in this contribution) and will constitute a breach of duty potentially leading to personal liability.

Statutory duties

Directors of financially distressed or insolvent companies are subject to a number of duties, many of which are enshrined in the Companies Act. A breach of many of the duties that will be discussed hereunder could potentially lead to the imposition...