After reading our previous article of our series “The Essential Guide to Keeping a Maltese Company in Good Standing”, you might now be wondering, what happens if company directors continue to disregard these statutory obligations, leading to companies persistently failing to comply with these requirements? This is a crucial question. Persistent non-compliance exposes companies to a significant risk of prompting and unleashing a series of damaging consequences that extend beyond the enforcement of fines and penalties.
Maintaining your company in good standing is essential for safeguarding its reputation, preserving credibility with regulators, and importantly ensuring the continuity of business operations. This therefore means that the inability to keep your company in good standing in a persistent manner will guarantee to have these impacted, leading to regulatory enforcement actions, restrictions on business operations, and potential limitations imposed on the individuals who are entrusted with the corporate governance of your company.
In this article we examine some of the key repercussions that business owners and company directors may face upon persistently failing to maintain their company in good standing. These repercussions can result into the following:
Directors or officers could be blocked from holding office
An immediate consequence for company directors and officers is the risk of being prohibited from holding executive or similar positions until compliance is restored and good standing is confirmed. This means that those responsible for ensuring that the entity is maintained in good standing may face restrictions on assuming similar roles in other companies across Malta.
As we guide our clients with their ongoing requirements, we’ve come across several situations where the MBR has rejected the appointment of a specific director to a newly incorporated entity. In most of these instances, further investigation reveals that the rejection is primarily due to the fact that this proposed director is already listed as a director of another company that is not in good standing. This often leads to numerous delays in the incorporation process of the new entity, as the MBR will typically request that the situation with the other company needs to be rectified first, before accepting the director’s appointment to the new entity. This means that the company must be brought back into good standing, all outstanding filings updated and submitted, and any related late filing penalties settled. Only once these steps are completed will the MBR approve the director’s appointment to the newly incorporated entity.
Loss of business bank account
Another serios repercussion relates to the potential loss of a company’s business bank account. When companies become inactive, non-compliant with the local regulations and face the risk of being struck off the register, banks are likely to close the respective corporate bank accounts of the company until compliance is restored. The removal of a bank account can result into significant operational repercussion, directly limiting or completely extinguishes a company’s ability to transact and conduct business, including receiving payments, settling supplier balances, and managing their finances effectively.
From a practical standpoint, we also come across cases where clients request a certificate of good standing or other official confirmations, relating to the company’s corporate details (pertaining to their registered address and list of directors), typically in response to a request from their bank to maintain their banking relationship.
Essentially, a certificate of good standing is a corporate document which illustrates and confirms that up until a certain date, a company registered in Malta is still active and that its compliant will all applicable statutory obligations. However, if the company is not in good standing, this certificate cannot be issued, thus putting the company at risk of having its bank account closed, which as discussed earlier, can significantly disrupt a company’s operations and its overall functionality.
Inability to formally liquidate the company
Ensuring that a company is in good standing is a fundamental requirement before a company can formally proceed with the liquidation process. Company officers must ensure that all outstanding filings relating to the relevant statutory obligations are fully submitted and that any applicable penalties are also settled in full. Importantly, a liquidation application will only be considered valid once a company is brought into good standing.
In practice, we even encountered instances where the MBR rejects liquidation applications and refrains from initiating the process due to a single outstanding filing. It is therefore imperative to ensure that the company is brought in good standing prior to submitting a liquidation request to the MBR. Doing so will help avoid the continued imposition of fines and penalties for late filing, and will simultaneously prevent unnecessary delays in the liquidation process.
The practical scenarios outlined in this article are drawn from practical experience of our in-house professionals while supporting clients with their respective corporate and accounting matters and assisting them to keep their company in good standing. In this respect, a key objective of this article is to share these insights to help you avoid similar circumstances and repercussions associated with non-compliance.
Key takeaways
From the imposition of significant fines and penalties to restrictions imposed on holding office to the loss of business bank accounts, and the inability to formally liquidate a company, the significance of adhering to regulatory requirements is clearly undeniable. To prevent such consequences, companies must remain proactive in fulfilling their obligations, safeguarding their business interests, and ensuring compliance before non-compliance matters escalate even further.
When a company persistently fails to meet its legal obligations, the MBR may initiate a formal legal process to strike it off the register, declaring it defunct, which we will explain in the next article. If you’re looking for further reasons to reinforce the importance of maintaining your company in good standing, we encourage you to continue reading through this article and gain deeper insights into the consequences your company faces when its struck off as defunct.