Law to better define legal persons, foundations

The House of Representatives yesterday started debating amendments to the Civil Code aimed at better regulating legal persons, foundations and associations.

Parliamentary Secretary Carm Mifsud Bonnici said this was a complex and technical Bill.

For the first time schedules were being attached to the Civil Code to define and regulate natural and legal persons.

With regard to the latter, he said that legal personality was being defined as being the status granted by law to an organisation which was established for a lawful purpose stated in a document; which had a patrimony of assets and liabilities and which had its own governing body. The Bill provided for such organisations to be registered by a Registrar for Legal Persons. This would not be mandatory but it was important because it removed the personal liability of the administrators, Dr Mifsud Bonnici said.

In view of the freedom of association guaranteed by the Constitution, however, an association of persons would not be required to qualify as a legal person as a pre-condition for such an association to carry out its activities.

This Bill, Dr Mifsud Bonnici said, did not relate to commercial companies, regulated by the Companies Act. It could relate, however, to the Voluntary Organisations Bill, currently also before the House.

The concepts in this law were not new, Dr Mifsud Bonnici said, but they were being better defined.

The Bill laid down that any organisation, at all times, had to have administrators. Legal representation of an organisation could be delegated as long as there were no restrictions which could prejudice other parties. There could be retroactive rectification of acts made before an organisation was registered as long as responsibility continued to be assumed. Legal persons would be able to inherit or receive donations and the legal person may not serve as a screen for fraud or other violations of the law.

Dr Mifsud Bonnici said the government was seeking to encourage the registration of organisations. In the case of unregistered organisations, the Bill said these too had to be constituted by a written document featuring the fundamental elements of a legal person. Such organisations, however, would not have the same force as a legal person and promoters and administrators therefore, would continue to shoulder personal liability.

Nonetheless, unregistered organisations may enter into transactions and contracts in their own name, open bank accounts and engage contractors to provide services. Property held by such organisations would be considered as being held in co-ownership among its members. Dr Mifsud Bonnici said disputes involving the internal workings of organisations would be handled by the Second Hall of the Civil Code in its voluntary jurisdiction.

Turning to the definition of foundations, Dr Mifsud Bonnici said a foundation was "an organisation consisting of a universality of things, constituted in writing, including by means of will, by a founder or founders, where assets are destined either for the fulfilment of a specified purpose or for the benefit of a named person or class of persons and entrusted to the administration of a designated person or persons". The assets and liabilities of the foundation had to be kept distinct from that of its founder, administrators or any beneficiaries.

An association was being defined as being "an agreement between three or more persons to establish an organisation with defined aims or purposes to be achieved through the dedication of efforts and resources by such persons and others who may join voluntarily". The assets and liabilities of any association had to be distinct from that of the members, its administrators or any beneficiaries. Associations would not be bound to register as legal persons, but they would be entitled to.

Dr Mifsud Bonnici said the term "foundation" included all organisations, institutes and similar bodies set up through bequests, endowment or the appropriation of assets for a stated purpose or for the benefit of a named person or class of persons, which had to be achieved through a designated administrator. This excluded trusts.

The Bill laid down a framework on the structure and operation of a foundation, making a distinction between private and philanthropic foundations.

The Bill, he said, also went into areas such as registration, supervision, dispute resolution and liquidation.

Concluding, he said that this law would give a stronger legal basis for the different forms of legal bodies, which had to date relied heavily on caselaw.

Dr Mifsud Bonnici thanked Max Ganado for his input in the drawing up of this Bill.

Anglu Farrugia, opposition spokesman for justice, said this law was certainly needed for better definition of the various bodies which existed.

Much of the debate on this highly technical Bill had to take place in committee stage. One had, for example, to discuss when the legal person came to an end and liability was assumed by natural persons.

Another aspect which needed further debate included the clause providing that a person claiming the legitim from a trustee, the heirs or any other person in relation to property settled in trust would lose any benefit under the trust. The Bill, he observed, also laid down that the settlement and holding of property under trust would not be considered to be in breach of the law relating to the reserved portion of any person if the trust held that property, among other reasons, for a person who suffered from a mental or physical disability.

Indeed, the House needed to legislate further to help parents of disabled people who wished to set up, or contribute to, a foundation. Such a foundation, he said, should include the participation of the state, which would in this way be responsible for the welfare of such children after their parents passed away.

Dr Farrugia said it was good that old, pious foundations established for purposes defined in applicable religious laws would continue to be regulated by those laws. The same applied for marriage legacies.

The Labour MP said provisions on donations which may be made to foundations, trusts or similar bodies needed to include safeguards and proper explanation to prevent abuse.

Proper safeguards also needed to be put in place with regard to delegated authority for representation of organisations, foundations and associations.

What would happen when somebody left a donation in his will to an organisation which was not registered? Could other heirs take legal action?

Dr Farrugia called for further clarification in the Bill on the procedure to be followed when an organisation was taken to court because it did not have an administrator or members and the actions which the court could take apart from de-registration.

The Labour MP noted that practically all organisations in Malta were currently not registered but they had a statute which specified their aims.

The internal management of an organisation and its administration should also be regulated in the statute. The requirements of legal representation should be clear in such statutes, along with the manner how funds were to be used.

The opposition, he said, agreed that organisations should be registered as a means to assuring the people of transparency and accountability.

Dr Farrugia said he did not agree that the minister for justice could issue regulations on what the statutes of organisations should include.