Organisations to enjoy protection as legal persons

Government MPs yesterday underscored the benefits which a new law is offering organisations to be registered as legal persons. Justice Minister Tonio Borg explained that the administrators and members would no longer be personally liable for the obligations of such organisations.

This Bill, Dr Borg told Parliament, was an instrument to protect organisations and society in general. It laid down the duties and requirements which registered organisations and other bodies, such as foundations, had to meet in order to enjoy legal protection. At the same time it would serve to protect society from phantom organisations.

The Bill, which started being debated on Tuesday, amends the Civil Code through the introduction of schedules providing for the registration and administration of legal persons. It also lays down the definition of foundations and associations and regulates their administration.

Parliamentary Secretary Tony Abela, the first speaker in yesterday's sitting, recalled the creation of foundations to build and run private schools and said this legislation was important to ensure that such foundations continued to exist even after the children of the founders concluded their schooling. In view of the sharp decline in religious vocations, perhaps the time had come for several schools currently run by religious orders to also be run by foundations having precise aims as established by this Bill. This would ensure the continued existence of these schools.

This Bill, he said, followed recent legislation on trusts and was being enacted in parallel with a law on voluntary organisations. Foundations, trusts and voluntary organisations were different structures but the common thread in all the laws governing them was to ensure that the people could have confidence in their administration.

This Bill, he said, also included provisions on the recognition of organisations, foundations and other bodies based abroad, the purpose being to ensure that people were not in any way tricked by swindlers. Indeed, his suggestion was for the MFSA to carry out its investigation on foundations, as it did on trusts, before they were registered.

Perhaps it was also time for the law to enable firms formed by groups of lawyers and notaries to register and be recognised as firms conducting the administration of foundations or trusts.

Parliamentary Secretary Edwin Vassallo said this Bill was especially important for voluntary organisations, as it gave them the opportunity to be formally registered and recognised. Legal recognition was a means of protecting voluntary organisations for whom public confidence was key.

As in the case of Church schools, a decline in the number of volunteers meant that voluntary organisations now employed persons and engaged in some commercial activities. Regulation had therefore become a need. Some such organisations were seeing a need to be registered as foundations so that rather than being viewed as voluntary organisations, they would become not-for-profit organisations.

One could argue that such laws increased bureaucracy, but they were important because they protected the interests of the administrators and members of not-for-profit organisations as well as those who used their services. For example, one would henceforth be able to check whether an organisation soliciting funds was actually a phantom organisation or a front organisation set up to abuse of VAT laws or fraud.

Justice Minister Tonio Borg explained that the Civil Code already included a section on civil partnerships but that did not directly involve legal persons. One could recall several controversies in the past on whether associations of persons enjoyed fundamental human rights or whether such rights applied only to physical persons. Happily the courts had upheld the rights of associations. One could imagine many problems if they had not. For example would an association otherwise have been able to hold a public protest or meeting? Would it have had right for property and compensation if that property was taken away?

One of the most important consequences of this Bill was that organisations, including voluntary organisations, would be recognised as legal persons distinct from the administrators or members. As a result the administrators and members would not be personally liable for the affairs of the organisation. Such an advantage would not be enjoyed by organisations which were not registered.

Registered organisations had to have administrators to maintain possession and control of the property of the organisation and ensure compliance with the statutes. In order to deter phantom organisations, such administrators had to have a clean conduct sheet in the sense that they would not have committed crimes such as fraud.

Such registered organisations would be able to inherit property and receive assets through public deed. The courts would have the power to monitor such organisations to ensure compliance with their statutes.

Turning to foundations, Dr Borg said that to date such organisations had not been governed by specific regulation. This Bill now laid down the requirements for the creation of foundations, specifying, for example, that a foundation could not be set up for a commercial purpose. Foundations had to be set up by public deed, including a will.

It would be possible for a foundation, in its statute, to create a supervisory council to monitor its operations and ensure that its purposes were being met.

When an organisation or foundation having a social purpose was dissolved, its property had to be used for a social purpose, failing which it would be incorporated in the Voluntary Organisations Fund.

Dr Borg said many of the clauses of this Bill were included in schedules so as not to distort the numbering sequence of the Civil Code.

Winding up, Parliamentary Secretary Carm Mifsud Bonnici said the concept of limited liability companies as distinct from their administrators was now being extended to organisations recognised as being legal persons.

It was important, however, that administrators were well aware of their duties.

Registration, he said, was advantageous to organisations and society and would also facilitate research since the organisations would be listed under their own name.

The parliamentary secretary stressed that this Bill did not mean interference in the affairs of the various organisations. Indeed they could opt not to register. Nonetheless, registration was beneficial, not least because it made for seriousness and transparency and gave greater peace of mind for people who came in contact with such bodies.

This Bill, he said, also introduced procedures to be followed when a registered organisation was liquidated, safeguarding the interests of third parties.

The Bill was then given a second reading.