The director’s disqualification order : a critical analysis of article 320 of the companies act and its application in practice

Abstract

The luxury of having the concept of limited liability readily available to the public must have in turn legal regimes available as counter measures for protection against those who seek to abuse of it. The advantages that limited liability creates are easily accessible in practice allowing those who manage companies to protect themselves against fears of personal liability. As a result, the law has provided for strict laws of disqualification, stripping such persons of these benefits and imposing punitive restrictions if such persons do not act in conformity with the standards expected of them. The disqualification order is an important tool for the enforcement of standards of competence and proper conduct of directors and other significant players in the running of a company. In the fight against improper conduct of directors, the disqualification order as a legal concept has had a substantial impact on seeking out unfit behaviour of directors, whilst affording the appropriate protection to the various stakeholders in a company by penalising the perpetrators and deterring any other persons tempted to act inappropriately. Simultaneously, the disqualification order contributes to the reduction of corporate collapses by identifying and disqualifying unfit directors that have contributed to the insolvency of company, and banning them from forming part of a company again in the future. The Maltese disqualification order encompasses three grounds upon which disqualification may be issued by the Courts, the effects of which impose restrictions on the subject person that may extend to a maximum period of fifteen years. However, as is the case with any other functional legal, the ultimate factor behind the success of such legislation depends highly on having an effective enforcement system in place and awareness of the public that such laws are available. Unfortunately, the disqualification order in Malta lacks these essential ingredients that have resulted in absence of applicability, experience and knowledge on disqualification matters. Since the laws governing the disqualification order as presented in the Maltese Companies Act have been largely influenced by United Kingdom disqualification legislation, whose disqualification system and procedure has been functioning successfully and efficiently for many years, the United Kingdom’s disqualification regime can be used as a point of reference and comparison to understand the potential that our local system might have once the proper elements are realised and strung together.