For almost thirty years, Maldivian companies ran under the Companies Act of 1996 (Act No. 10/96). Its replacement, the Companies Act (Act No. 7/2023), was ratified in late December 2023 and took effect within days. Existing companies had until the end of 2024 to bring their affairs into line.
Many of the changes are administrative, but several fall directly on directors. Under the old law, directors' duties came mostly from court decisions. The new Act states them.
Duties written into the law
According to a summary of the Act by SHC Lawyers, the Act requires a director to act in the best interests of the company and to use the skill and care that a reasonable person in that position would use. Directors must declare conflicts of interest and keep company information confidential.
These are familiar duties, but having them in the Act changes how they are tested. A director who signs off a large contract with a relative's business without declaring it, or who approves accounts without reading them, now has a clear statutory standard to answer to.
Who can be a director
A private company may now have a single director. Every company must have at least one director who is resident in the Maldives. A private company owned entirely by Maldivians or Maldivian-owned entities may only have Maldivian directors; foreign investment companies are treated differently.
Board meetings and reporting
The Act asks for at least four board meetings a year. The directors must prepare a directors' report each year and file it with the Registrar after the members' meeting. Any change of director has to be notified to the Registrar within 15 days.
Companies must also keep a register of significant beneficial owners: the individuals who ultimately own or control 25 percent or more of the company. For a company held through other companies or nominees, that can take some work to establish, and the register has to be kept up to date when ownership changes.
Fines
The Registrar of Companies can now fine companies and directors directly. Guides by RCO Lawyers and Sanda Lawyers list fines for directors of MVR 1,000, 2,000 or 5,000 depending on the breach, and between MVR 1,000 and MVR 100,000 for failing to follow a direction from the Registrar. Those amounts are small next to the cost of a dispute between shareholders, where the questions are usually whether the directors met their duties and whether the board can show how it reached its decisions.
What this means for state-owned companies
Directors of state-owned companies answer to the Companies Act like any other director, and also to the corporate governance code issued by the Privatization and Corporatization Board. Listed companies follow the Capital Market Development Authority's code as well. Where the codes ask for more, such as independent directors or board committees, the board has to meet both sets of rules.
A short checklist for boards
- Confirm that at least one director is resident in the Maldives, and that the board's make-up suits the company's ownership.
- Put four board meetings a year in the calendar and keep proper minutes of each, including the reasons for major decisions.
- Keep a register of directors' interests and ask for declarations at the start of each meeting.
- Check that the beneficial ownership register is complete and has a named person responsible for updating it.
- Make sure every director, including those appointed for their sector experience, has had a briefing on their duties under the new Act.
We run training for board directors on their duties and on how a board should work, and carry out board governance reviews for private and state-owned companies.
This article is general information, not legal advice. The official text of the Act is in Dhivehi; for a specific question, take advice from a lawyer.