On September 28, 2022, the Civil Court (Commercial Section) pronounced a judgement on case 94/2021 ISB involving issues on debts, or obligations, against a debtor company. The action was filed by a creditor against the Registrar of Companies for striking off the debtor company from the Registry of Companies.

Alarm bells should ring whenever this happens to a company with outstanding creditors. This case centred around a company with whom the plaintiff had entered a number of private writings according to which his rights were unfulfilled.

Of note is that this action was not filed against the debtor company. It was filed by the plaintiff against the Registrar of Companies on the basis of article 325(4) of the Companies Act, Chapter 386 of the Laws of Malta.

The debtor company was struck off by the Registrar on the basis of article 325 of the Companies Act. This particular article relates to “defunct companies” (“kumpaniji li ma joperawx” in the Maltese text is more precise). This is important to empower the Registrar of Companies to clean up the registry from companies “not carrying on business” or “not in operation”.

Registrar explains reasons for strike-off

In replying to the action, the Registrar submitted that the company concerned had failed to submit its annual returns since 2007 and its annual accounts since 2005. This was an adequately sufficient basis to exercise the registry's powers under article 325, by assuming that the company was not in operation or carrying on business.

The registrar said that in terms of article 325, it had communicated with the company by virtue of two letters sent to its registered address and informed it of the above and the intent of proceeding to strike off the company on the basis of article 325 of the Companies Act.

Over and above that, the Registrar of Companies had published a notice on The Times of Malta of March 27, 2020 listing the company with a number of others that were to be struck off if no objection was raised thereto within three months.

The Registrar of Companies further submitted that the plaintiff had never raised any objection to this modus operandi.

The Registrar of Companies declared that the action filed against it by the plaintiff was within the prescribed term of five years.

The Registrar also pointed out that following a striking off under article 325, sub-article (6) provides that the liability of every director or other officer of the company and of every member of the company shall continue and may be enforced as if the name of the company had not been struck off the register.

Rightly said, but that does not mean that article 325(4) does not apply.

The Registrar acted correctly and stressed that it expected that should the court order the restoration of the struck-off company within the register, then it is to be expected that it fulfilled its obligations as against the Registrar, being the submission of the relevant financial documentation and payment of penalties due by law.

Having covered its interests, the Registrar ultimately submitted that it left it in the court’s discretion and the proof in the acts of the proceedings to decide whether the struck-off company should be restored, adding that it did not object to the same so that the plaintiff could exercise any of his claimed rights against the company.

These type of declarations could seem redundant. However, they are very important in allowing the court to assess an adequate and fair solution to the action, and so to speak relax the litigatory tension between the parties to the suit.

In this sense, the position taken by the Registrar was commendable, in the public interest and fair towards the plaintiff.

So, was this essentially a walkover for the plaintiff? Yes and no.

Yes, because essentially the court acceded to the claims of the action, which were very broad and allowed the court wide discretion to provide a remedy.

No, but only in a certain sense, because choosing the right action to file is never a consideration to take lightly. Indeed, the right action was filed in a proper way to arrive to the required scenario allowed by law.

With their behaviour in litigation the parties opened the way for the court to accede to the plaintiff’s claims.

In such apparently plain sailing proceedings, the court does not merely say yes. The court still has to consider the acts of the proceedings and the law.

Court's discretion

In so doing the court exercised the ample discretion it was allowed by the action and at law, and observed that the plaintiff had substantial credits to exercise against the struck-off company, resulting in an adequate interest to apply article 325(4) (this applies for “any member or creditor of the company, or any other person who appears to the court to have an interest”).

The court considered a lack of objection towards the claims of the plaintiff and ordered the restoration of the debtor company with a clear warning to the plaintiff that should that company be struck off again this remedy might not be available again.

In fact, the court ordered the said restoration for a five-year term.

Of note, the court also stated that it was to be deemed that the debtor company was never struck off from the register in the first place.

However, expenses for the proceedings and for the restoration of the debtor company were to be borne by the plaintiff, and this is probably because the court rightly considered that the defendant Registrar acted fully within its prerogatives when it struck off the debtor company.

Dr Edric Micallef Figallo is an Associate at Azzopardi Borg and Associates.