On May 7, 2019, the companies ‘Agrico Limited’ and Marsovin were ordered to pay jointly and severally the sum of €240,525.33 in damages to Vassallo Builders Group by a judgment of the Civil Court, First Hall.

The judgment was delivered four months after Agrico was dissolved and struck off the register at the request of its directors through the voluntary winding-up procedure.

The judgment was subsequently appealed by Marsovin before the Court of Appeal in its Superior Jurisdiction.

The fact that the judgment was appealed by Marsovin and not by Agrico, and that the two companies are joint and several debtors, meant that Vassallo Builders Group had the right to collect the awarded sum solely from Agrico Limited.

Winding up of commercial companies

A company may be dissolved and consequently wound-up either by the court or voluntarily, following an extraordinary resolution to that effect.

A voluntary winding up may be conducted in two ways; by its members, i.e. a “members’ voluntary winding up” or by its creditors, i.e. “a creditors’ voluntary winding up”.

Where the dissolution and winding up takes place voluntarily by its members (i.e. by a members’ voluntary winding up), the directors of the company shall make a declaration, known as a declaration of solvency, stating that they have made a full inquiry into the affairs of the company and that in their opinion, which opinion must be reasonably substantiated, the company will be able to pay its debts in full within the period specified by law.

A winding up in relation to which a declaration of solvency has not been made, on the other hand, shall be tantamount to a creditors’ voluntary winding up. The declaration of solvency carries a lot of weight, for where the opinion formed by the directors on whether the company will be able to pay its debts is unaccompanied by reasonable grounds, the directors shall be guilty of an offence, and liable to a fine (multa) not exceeding €46,587.47 or to imprisonment for a period not exceeding three years, or to both such fine and imprisonment.

Revival of company when strike-off is obtained by fraud or illegality of a material nature

The Companies’ Act provides for the revival of a company (Art. 300B), where the winding-up and striking off of the company had been obtained by fraud or resulted from an illegality of a material nature.

In such situations, following an application by any interested person, the court may order that the company be restored to the register and the winding up be reopened for a time and a purpose specified by the court in its decision.

The application may not be filed following the expiration of five years from the date of striking off.

In this case, two and a half years following the decision of  May 7, 2019, a judgment dated November 4, 2022 by Mr Justice Ian Spiteri Bailey ordered the restoration of the company ‘Agrico Limited’  to the register and the reopening of the winding-up procedure due to the directors’ failure to inform the liquidator (stralċarju) of contentious proceedings against the company, which proceedings had not yet been concluded at the time of its dissolution and striking off.

Vassallo Builders Group, which was also the plaintiff in the proceedings for the restoration of the company name, argued that it would have been seriously prejudiced had it been unable to enforce the credit of €240,525.33 against Agrico, the struck off company.

The court considered the directors’ failure, whether resulting from negligence or otherwise, to fall within the ambit of an ‘illegality of a material nature’ in terms of law, sufficient to justify the restoration of the company on the register and the reopening the winding up procedure in terms of Article 300B of the Act.

The dissolution and winding up of a company requires the appointment of a liquidator to conduct the administration of the company’s affairs in the course of winding up. In fact, on the liquidator’s appointment, unless otherwise provided by law, all the powers of the directors and of the company secretary cease.

However, the court went far from holding the liquidator responsible for the failure to take into account the contentious proceedings against the company, seeing said failure as primarily resulting from the non-disclosure by the company directors who were aware of the proceedings – “Il-Qorti tqis illi dan huwa aġir deplorabbli da parti tad-diretturi ta’ Agrico Limited. Il-Qorti trid tfakkar ukoll illi ... taħt piena ta’ penali, direttur/i għandhom l-obbligu illi jagħtu lill-istralċarju l-informazzjoni kollha permezz ta’ dikjarazzjoni sħiħa tal-qagħda finanzjarja tal-kumpanija, flimkien ma’ lista tal-kredituri tal-kumpanija u l-ammont stmat tat-talbiet tagħhom. Huwa evidenti mill-atti illi d-diretturi ta’ Agrico Limited dan ma għamluħx.”

Court's proposals

In the 2022 judgment, the judge put forward a number of proposals aimed at ensuring the smooth running of the voluntary winding up procedure. Amongst others, liquidators were advised to seek a written declaration signed by the directors confirming that all information in relation to the company was disclosed in terms of law and to conduct their own independent verifications,   such as ordering searches pertaining to the company from the Public Registry and liaising with the Court Registrar to determine whether the company was involved in legal proceedings prior to dissolution.

The court also proposed the issuance of guidelines aimed at assisting professionals acting as liquidators in the performance of their duties.

While also having considered that the present remedy was the only remedy available to the plaintiff company, the court proceeded to order the restoration of the company name ‘Agrico Limited’ (C-9758) to the register and the reopening of the winding-up procedure at the expense of the same company.

It also ordered the Court Registrar to deliver the judgment to the attention of the Chamber of Advocates, the Malta Institute of Accountants, the Malta Business Registry, the Malta Financial Services Authority and the CEO of the Court Services Agency, for the due implementation of the measures mentioned in its recommendations.

Dr Nicole Vassallo is Junior Associate at Azzopardi, Borg and Associates Advocates.