Shares buyback
While not a common occurrence, the Maltese Companies Act (the "Act") caters for the possibility that a company buys back its own shares. When a share buyback occurs in Malta, these shares would be referred to as treasury shares and are, in their nature, flexible when considering the capital structure of the company, especially since its sale does not constitute either an allotment or issue of shares, meaning that the restrictions imposed on them would be inapplicable.
The procedure a company must adhere to, in these cases, is that outlined in the Act under Articles 106 and 107. These provisions are applicable to both public and private companies, unlike Article 19 of the Second EC Company Directive, even though said Directive heavily influence local provisions.
To commence, per Article 106, a company may only buy back its own shares if this is authorised by its Memorandum and Articles of Association (M&A). Moreover, the Act mandates that, for a share buyback to occur, a company's net assets, as set out in its annual accounts of its last accounting period, are not, or would not be, exceeded by the company's issued share capital and any non-distributable reserves following acquisition. Another important condition is that a buyback must necessarily be made from the proceeds of a fresh issue of shares or out of distributable profit.
Where the above conditions are met, the next step would be that of obtaining shareholder authorisation by means of an extraordinary resolution taken in accordance with the provisions of the Act. The terms of the buyback should also be included, these being:
- The number of shares to be acquired, the nominal value of which may not exceed fifty percent of the issued share capital. The Act also stipulates that any shares bought back by the company ought to be fully paid-up;
- The duration of said authorisation, which should not exceed 18 months; and
- If made for a valuable consideration, the maximum and minimum consideration
Once completed, a copy of said resolution would need to be delivered to the Malta Business Registry ('MBR') for registration. However, the law does not specifically cater for a time limit for said resolution to be filed. Where a buyback is necessary to prevent the company from being seriously harmed, this resolution need not be prepared and filed. This caters for those situations where, for instance, it is necessary to prevent that the company's shares substantially depreciate.
Furthermore, this resolution need not be prepared when shares are acquired so that they may be distributed to the company's employees, its parent or any of its subsidiary undertakings. Here, the distribution is to take place within a year of the acquisition.
The Companies Act continues by highlighting scenarios in which it is not mandatory for a company to comply with the requirements set out in Article 106. This is by virtue of Article 107, which provides for instances such as when the shares are:
- Forfeited or surrendered in accordance with Article 112 of the Companies Act;
- Acquired in procedures for the conversion, amalgamation or division of companies;
- Acquired in procedures for the changes of status of a company; or
- Acquired by the company following an order made by the Court for the repurchase of shares held by dissenting shareholders.
When any of the above occur, however, the company would need to dispose of the acquired shares within thirty months of their acquisition. Where this is not done and the value of the shares exceeds 10% of the issued share capital, the said shares must be cancelled within the following six months through an extraordinary resolution in accordance with article 83 of the Act. Where the company does not do so, members or directors may apply to the court to order that they be cancelled.
If there is an objection to the cancellation of treasury shares acquired for a valuable consideration on the part of a creditor, the court shall order that adequate security be afforded to said creditor, provided that good cause be shown. In cases where this security is not made readily available, the court shall order that adequate is given when this becomes so available. Until such moment, no distribution of dividends to shareholders would be effected.
The law provides for other instances to which Article 106 is not applicable, these being where the shares are:
- Acquired in the process of a reduction of the company's share capital;
- Fully paid-up and acquired by investment companies with fixed share capital or by another company forming part of the same group at the member's request, provided that such acquisitions shall not reduce the company's net assets below its issued share capital together with reserves considered to be undistributable by law; or
- Acquired by the company in the process of preference shares redemption.
Maltese law regulates the notion of share buybacks in an extensive manner. This ensures that, while companies may buy back their own shares, this is done in limited instances and not capriciously. Therefore, it is imperative that Articles 106 or 107, depending on the circumstances, be satisfied so that the share buyback procedure may commence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
