A legal analysis of Article 110 of the Companies Act 1995 : the prohibition on the provision of financial assistance for the acquisition or subscription of shares

Abstract

The Maltese Companies Act 1995, Article 110, lays down the prohibition on companies from providing financial assistance, whether directly or indirectly, by way of a loan, guarantee, provision of security or otherwise for the purpose of acquisition or subscription of shares in the same company or in the holding company. The intention of the prohibition is to curb abusive practices in company financing and takeovers by barring the depletion of the company's share capital. Maintenance of the company's share capital ultimately protects the assets of the company and safeguards the interests of shareholder and corporate creditors. The thesis analyses the historical development and the key elements of Article 110 of the Companies Act 1995. In the light of the exiguous local legal materials and in the absence of Maltese judgments on the subject matter, the thesis identifies and as far as reasonably possible attempts to clarify difficulties in the interpretation and application of Article 110 of the Companies Act. The thesis is divided into three main parts. Part I of the thesis outlines the historical development of the prohibition on the giving of financial assistance in the United Kingdom, European Union and Malta. Part II analyses in detail the key elements of Article 110 of the Companies Act 1995. Finally, Part III concludes the thesis by highlighting the salient points of this study and briefly discusses the introduction of possible amendments.