Operational Repercussions

What happens if company directors continue to disregard statutory obligations, leading to companies persistently failing to comply? Persistent non-compliance exposes companies to a significant risk of prompting a series of damaging consequences that extend beyond 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. The inability to keep your company in good standing will impact all of these, leading to regulatory enforcement actions, restrictions on business operations, and potential limitations imposed on individuals entrusted with corporate governance.

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. Those responsible for ensuring that the entity is maintained in good standing may face restrictions on assuming similar roles in other companies across Malta.

We’ve come across several situations where the MBR has rejected the appointment of a specific director to a newly incorporated entity. In most instances, investigation reveals the rejection is primarily due to the proposed director already being listed as a director of another company that is not in good standing. This often leads to numerous delays in the incorporation process, as the MBR will typically request that the situation with the other company is rectified first.

This means 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.

When companies become inactive, non-compliant with local regulations and face the risk of being struck off the register, banks are likely to close the respective corporate bank accounts until compliance is restored. The removal of a bank account directly limits or completely extinguishes a company’s ability to transact and conduct business, including receiving payments, settling supplier balances, and managing finances effectively.

We also come across cases where clients request a certificate of good standing or other official confirmations, typically in response to a request from their bank to maintain their banking relationship. A certificate of good standing confirms that up until a certain date, a company is still active and compliant with all applicable statutory obligations. However, if the company is not in good standing, this certificate cannot be issued, putting the company at risk of having its bank account closed.

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 are fully submitted and that any applicable penalties are also settled in full. A liquidation application will only be considered valid once a company is brought into good standing.

In practice, we 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.

From the imposition of significant fines and penalties to restrictions on holding office, 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 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.