The annual general meeting of a company is an essential part of the corporate cycle of every company in Malta.
A general meeting is an opportunity for the members of a company to discuss the affairs of the company, an opportunity to hold the directors of the company accountable to the shareholders while the annual general meetings is the time when the companies’ accounts, the directors’ report and the annual audit are presented to the shareholders.
The law provides detailed rules of how such meetings are to be held and their contents. However, in practice, some elements might differ from the word of the law – which in reality could have significant consequences.
In terms of Article 128 of the Companies Act, every company is required to hold an annual general meeting. In addition, Article 130 goes on to state that, for the annual general meeting to be valid, a 14-day prior notice should be sent to the shareholders, unless a shorter period is agreed between the shareholders.
While these provisions are dutifully followed for publically-listed companies, with private companies, mainly small businesses, it could occur that the annual general meetings are not held properly – or not held at all.
This could pose quite a number of issues due to the fact that under Article 128 (3), officers of the company, including the company secretary, are held liable for such breaches.
The annual general meeting is an utterly essential and crucial part of the running of any company in Malta and is the only meeting mandated by the law. The law allows additional meetings to be held during the year to deal with other issues in the company as they may arise; however, such meetings are optional.
In the event that the annual general meeting is not held, what would be the consequences of such omission? In addition, what remedies would be available to the shareholders in such a situation?
Under the Companies Act, if the annual general meeting is not held and thus the accounts are not approved by the general meeting, the directors would be liable to penalties in terms of the law – in their personal capacity. These fines can become quite significant if ignored. In addition, the shareholders also have a number of options at their disposal.
Firstly, in terms of Article 129 of the Companies Act, the shareholders of the company, holding at least 10 per cent of the paid-up share capital of the company who have voting rights, may ask the directors to hold a general meeting. The directors are obliged to do so within 21 days of such a request, failing which the shareholders may on their own, without the due process carried out by the directors, hold a general meeting of the company. Here the shareholders could move a motion to remove the directors of the company if they have refused to conduct the annual general meeting.
The second option of the shareholder, which would be deemed to be ancillary to the first one (since this act necessitates the holding of a general meeting) would be the removal of the directors. In the event the directors are not acting in the interest of the company, the shareholders can, through a vote of more than 50 per cent of the shareholders, remove the directors and appoint new ones. However, there is a specific procedure to remove non-performing directors, in terms of Article 140 of the Companies Act, since the law specifically states that a simple signed resolution is not enough, unless the removal is done through a general meeting, and a notice of such is sent to the directors being removed, giving them the chance to defend their removal.
Finally, in terms of Article 132 of the Companies Act, the shareholders have the power to apply to the courts to hold a meeting of the company. This power can be deemed to be the last resort of the shareholders if the company is unable to hold a meeting.
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Aldo Zammit is an audit partner at KSi Malta.