On April 29, 2022, a limited liability company, Petrozavodsk Gruppa Limited, asked the Civil Court (Commercial Section) to authorise its dissolution and consequential winding following an extraordinary resolution to that effect, in terms of Article 214(1)(a) of the Companies Act (Chapter 386 of the Laws of Malta).

The Companies Act prescribes three principal ways whereby a company may be dissolved and consequently wound up; by the court, by the creditors of the company to be so dissolved and wound up, or voluntarily by its members.

Petrozavodsk Gruppa Limited, a holding company established on May 9, 2014 for the purpose of holding shares belonging to Besedka Software & Services Limited, made its request on the basis that the latter company was no longer in operation, and had been inactive for years. Indeed, a simultaneous application requesting the dissolution and consequential winding up of Besedka Software had also been filed following an extraordinary resolution of its members and directors.

The Civil Court (Commercial Section) referred to the extraordinary resolution featuring the decision taken by its members to dissolve and wind up the company. The court considered that: "The extraordinary resolution of March 3, 2022 makes clear and detailed reference to the difficulties which the company had to continue operating and clearly explains the reasons that led the company to this resolution, i.e. that its purpose no longer exists."

The suspension of a company’s business operations for an uninterrupted period of twenty-four months may in fact constitute grounds for a request for a court dissolution and winding up, as explained in the Companies Act, in the same way that a company’s inability to pay its debts may also lead to said dissolution and winding up by a court judgment.

In delivering judgment, the court referred to the “Principles of Maltese Company Law”, by Professor Andrew Muscat, and cited the following extract regarding the ‘disappearance of the substratum’:

A company`s substratum is the purpose or group of purposes which it is formed to achieve – in other words, its main objects. If the company has abandoned all its main objects (and not merely some of them) or if in practice it cannot achieve any of them, then its substratum has disappeared…

Meanwhile, the Act also prescribes circumstances which shall lead to a court dissolution and winding up. Article 214(2)(b) provides that such circumstances include: instances where the number of members of the company is reduced to below two and remains so reduced for more than six months (except in the case of single member companies), where the number of directors is reduced to below the minimum prescribed by Law and remains so reduced for more than six months, or if the court believes that there are grounds of sufficient gravity to warrant the dissolution and consequential winding up of the company.

The Civil Court concluded that  Petrozavodsk Gruppa Limited was justified in requesting its dissolution and consequential winding up, which it had done by means of an extraordinary resolution.

The court said that: "When a company does not trade, it would be lacking a soul as it would not be serving its purpose.  It has been established that this company had reached the point of no return. 

"Having considered the documents presented and legal requirements, the court is of the view that the extraordinary resolution was legitimate in the particular circumstances the company found itself."

The court appointed a liquidator (stralċjarju) as envisaged in the Companies Act to verify the assets and liabilities of the company, take control of any assets it may have, make and/or defend any action or legal proceedings on behalf of and in the interest of the company, disclose the need for any measures whatsoever in the interest of the company’s assets, and draw up a report within the timeframe established by the judgment.

Nicole Vassallo is junior associate, Azzopardi, Borg and Associates, advocates.