Party companies fail to submit accounts to MFSA for several years running

Two main media organisations as well as other companies owned by the Labour and Nationalist Parties have failed to comply with the legal requirement to submit audited accounts to the MFSA for several consecutive years.

Some companies have been in default of this requirement for as long as 12 years. 

The Companies Act requires companies to keep proper accounting records and to deliver to a copy of the annual accounts laid and the auditors’ and directors’ report every year to the companies registrar.

Annual accounts, along with other company documents and details of directors and shareholders, are publicly available for viewing, showing that currently seven companies owned by the two main political parties – five owned by PL and two owned by PN – are in breach of this obligation.

Asked for an explanation, PL chief executive Gino Cauchi said that while audited accounts for media arm One Productions had not yet been filed with the MFSA, they had been finalised and were “awaiting approval for submission”.

He added that the company’s accounts up until 2015 had been presented in court during proceedings brought against One Productions by the Performing Rights Society. Cauchi also said Consultancy & Research and MLP Holdings were non-trading companies, and that Sunrise Travel had not operated since 2003.

Nevertheless, the Companies Act makes no exceptions for non-trading or ‘non-operational’ companies.  

A PN spokesman acknowledged the company’s irregular position. “The updating process of Media.Link Communications Limited is currently in progress and the company confirms that it is focusing on regularising fully its position within the shortest time-frame possible,” he said. 

An MFSA spokesman confirmed that both Media.Link Communications and One Productions are currently incurring penalties for failure to submit accounts.  

“It may be fairly common for a number of companies to fail to submit their annual accounts as obliged to do by law,” said Dr David Fabri, the head of the Department of Commercial Law at the University of Malta and former MFSA director. 

Fabri said when companies are fined, their obligation to file accounts remains and they are obliged to do so “for the information of shareholders and the public and to guarantee a small degree of financial transparency.”

 “Publication and disclosure of the statute, any eventual changes, financial statements and other relevant information is the fair price companies and their shareholders and directors have to pay in return for having been given by the State the huge privileges of incorporation, a separate legal personality and the limited liability of shareholders,” he added. 

An MFSA spokesman confirmed that penalties have been issued and are being incurred for non-filing of annual accounts, specifically an annual penalty of €25 for non-submission or late submission of annual accounts and a penalty of €0.50c for every day until the accounts are filed was being imposed.

While the Companies Act lists the maximum penalties for failure to submit annual accounts as €2,329.37 annually and a daily penalty of €46.59 per day, the actual rate charged is at the discretion of the Registrar.

Directors and other officers of the company may be held personally liable for fines incurred as a result of a breach in the provisions of the Act.

The penalty rate currently in force adds up to less than €200 a year, which is “relatively low”, Fabri acknowledged – particularly in comparison to the sum a company might expect to pay to engage an auditor and accountant.

Fabri added that this was the result of a policy decision taken in 1996. “[The policy] should have lasted just a few years [but] as often happens, with time these policies acquire a sort of permanence,” he said.

Fabri added that fines must be recovered within five years as “otherwise, they lapse due to prescription.”

While a case could be made for increasing penalties, Fabri said this would be “inevitably and predictably” opposed by trade associations seeking to protect the interests of their members. “One may also not exclude political pressure not to increase these regulatory burdens on business,” he added. 

Although some companies can get away with not filing accounts, greater scrutiny is placed on publicly listed and licenced companies. Fabri would not be drawn into whether companies owned by political parties should face greater scrutiny, similar to the scrutiny faced by publicly listed companies. “All companies have the same obligations except that public and public listed companies have more onerous filing and disclosure requirements than smaller private companies, for reasons of investor protection. Companies owned by political parties are in the same boat as other companies and enjoy no special privileges,” he said.