The Maltese Companies Act provides for different modes of dissolution and winding up of limited liability companies. The provisions in relation to liquidation were overhauled in 1995, particularly in relation to insolvent companies and are largely based on the UK Companies Act and the UK Insolvency Act of 1986.
There are three main steps in the liquidation process:
- Dissolution – the point in time when the company resolves to liquidate due to a variety of reasons to be discussed further on
- The winding up process
- The ultimate striking off of the company from the Maltese Register of Companies
Chapter 386 of the Laws of Malta provides for processes of dissolution and winding up in relation to both solvent and insolvent companies. There are broadly two distinct forms of winding up:
- Court Liquidation also referred to as Compulsory Liquidation
- Voluntary Liquidation which can be either;
- Members’ Voluntary Liquidation; or
- Creditor’s Liquidation
- Members’ Voluntary Liquidation; or
The individuals or entities who can file a winding up application are the following:
- The company itself following a decision of the General Meeting or of the Board of Directors
- Any debenture holder
- Any creditor
- The Registrar of Companies
- The Official Receiver
- The first matter that the court addresses is the imposition of provisional orders. Since the company is still in existence, it is in the interest of the creditors to safeguard their position.
- A fundamental provisional order is the appointment of a provisional administrator who takes over the administration of the company affairs.
- It is also open for the court to appoint a special manager, this is due to the fact that throughout the course of the court hearing the company is still trading and must run ordinarily.
- The Court will then proceed to ascertain whether there is justification for a winding up order to be made. The following are consequences of a Court Winding Up Order:
- Directors cease to have power
- Appointment of a liquidator
- Disposition of property including any rights of action, any transfer of shares and any alteration of the status of the members, shall be deemed to be void unless the court otherwise orders
- Shielding from judicial proceedings, disabling creditors from pursing individual remedies in order to achieve a collectivity of proceedings
Voluntary Liquidation: Members’ Voluntary Winding Up
Members’ voluntary winding up is necessarily initiation by a shareholder’s resolution. The extraordinary resolution places the company into dissolution and consequential voluntary winding up. The company must be in a state of solvency.
As a general rule, the liquidator is appointed in the same extraordinary resolution which places the company into dissolution and voluntary winding up. In case of disagreement between directors as to the appointment of the liquidator, they are obliged to call a general meeting of the company to be held within 30 days of dissolution, for the purposes of appointing a liquidator. If the liquidator is not appointed at that stage, the directors are mandatorily obliged to apply to the court for court appointment.
A declaration of solvency must be filed after a fully enquiry into the affairs of the company has been conducted and the directors have formed the opinion that the company will be able to pay its debts in full within a period which does not exceed twelve months from the date of dissolution. If the process of liquidation exceeds 12 months, the liquidator is obliged to call a General Meeting of the Shareholders.
If no declaration of solvency is filed, the winding up will automatically take the form of a creditors’ winding up.
The liquidator is obliged to draw up an account of the winding up, draw up a scheme of distribution and call a general meeting to lay before the shareholders the said accounts and scheme. The winding up accounts must be audited by one or more auditors appointed by ordinary resolution of the company. Once the accounts of winding up, the scheme of distribution and audited accounts are approved, the liquidator remits them to the Registrar of Companies and the Registrar subsequently proceeds to publish a statement to this effect in the Government Gazette.
Voluntary liquidation: Creditor’s Voluntary Winding Up
Creditors’ voluntary winding is initiated by the members of the company themselves when no declaration of solvency is filed as abovementioned. Additionally, the liquidator may transform the liquidation from a members’ voluntary winding up into a creditors’ winding up, if at any time he is of the opinion that the company will not be able to pay its debts in full. It is also the Court’s discretion to initiate such procedure.
Although creditors have a large degree of oversight in the procedure, they are not entitled to initiate the procedure. Creditor control is manifested in the manners listed hereunder:
- In the appointment and removal of the liquidator
- In the general supervisory role of the Liquidation Committee
- Specific creditor sanction is required for the exercise of a number of powers of the liquidator
- Reporting requirements imposed on the liquidator towards creditors
The directors are required to call a general meeting of the company. Additionally, when no declaration of solvency has been filed, the directors are required to hold a meeting of creditors. At the creditors' meeting, the directors are obliged to present a statement of position of the company's affairs, a list of creditors and an estimated amount of their claims. The creditors at their meeting may nominate by virtue of a resolution, a liquidator and if the nomination of the creditors differs from the nomination of the shareholders, the nomination of the creditors prevails. The creditors have a dominant say on the appointment of the liquidator, however this does not prejudice the liquidator’s impartiality.