The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, on November 29, 2012, in the case ‘Christian Mifsud vs F1 Autotest Ltd’ held, among other things, that as the company’s business ceased for a number of years, and as the number of directors was below the minimum required under its memorandum, there existed sufficient grave reasons to justify its dissolution.

The facts in this case were as follows.

It did not appear that the company carried out any other business activity. There was deadlock in the management of the company; no decisions could be taken after the resignation of Kevin Tonna as director, noted the court

On March 28, 2000, the company F1 Autotest Ltd C26125 was incorporated, with objectives to carry on vehicle roadworthiness testing and mechanical repairs on motor vehicles. Christian Mifsud and Kevin Tonna were the directors and the shareholders, each holding 50 per cent.

The affairs of the company were vested in both directors jointly. Tonna subsequently resigned on March 5, 2009, though he remained shareholder and company secretary.

Decisions at a general meeting required the vote of at least 75 per cent of the members.

It so happened that after Tonna injured himself in a traffic accident, he could no longer carry out his trade as mechanic and stopped working.

Mifsud could not continue the business on his own and the business of the company eventually ceased altogether in 2006.

Though Mifsud tried to persuade Tonna to dissolve the company voluntarily, Tonna refused to cooperate. In fact, Mifsud was left with no other alternative but to seek a judicial remedy.

It resulted that the business of the company was suspended for an uninterrupted period of more than two years, and the company had ceased trading for over five years.

Mifsud claimed there were grounds for the company to be dissolved and liquidated, in accordance with article 214 (2) (a) (i), 214 (2) (b) (ii), and 214 (2) (b) (iii) of chapter 386 of the laws of Malta. These articles provide:

“(2) In addition to the modes of dissolution referred to in sub-article (1

(a) a company may be dissolved and wound up by the court in the following cases:

(i) if the business of the company is suspended for an uninterrupted period of 24 months;

(b) A company shall be dissolved by the court in the following cases:

(ii) the number of directors is reduced to below the minimum prescribed by article 137 and remains so reduced for more than six months;

(iii) the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of the company”.

Faced with this situation, Mifsud proceeded by filing legal action requesting the court: (1) to order the dissolution and liquidation of the company F1 Autotest Ltd and this in terms of article 214 (2) (a) (i), 214 (2) (b) (ii) and (iii);

(2) to appoint a liquidator of the company, with sufficient powers.

The company did not file any reply.

Mifsud, as a member of the company, made a request for the court to order its dissolution on the basis of these provisions of the Companies Act.

Reference was made to Palmer’s Company Law, where it was stated that: “the court’s jurisdiction is discretionary and the fact that the petitioner can establish this ground does not give him an automatic right to an order (re: Metropolitan Railway Warehousing Co. Ltd 1887.36.LJCh 827). The court has refused to make an order where there are good reasons for the delay and where the great majority of members desire that the company shall continue. An order may however be made in appropriate circumstances against the majority’s wishes. Where the business has merely been suspended, the court must be satisfied of an abandonment or inability to carry on. In ascertaining such intention, the court will have regard to the opinion and wishes of the majority of shareholders whose names appear on the register. Merely abandoning one of several objects is insufficient (re.Norwegian Titanic Iron Co. (1866) 35 Beav.223)”.

Article 214 (2) (b) (iii) had to be read together with sub-paragraph 3 of article 214 which provides: “Provided that for the purposes of sub-paragraphs (ii) and (iv) of the said paragraph (b), the court at its discretion and upon good cause being shown may, and for the purposes of sub-paragraph (i) of the same paragraph, the court shall, before ordering the dissolution of the company, allow a period of time not exceeding 30 days, within which the company may remedy the default and upon proof being submitted to it that any such default has been remedied, the court shall not order the company’s dissolution.”

As a point of law, in any case where the number of directors was reduced below the minimum required under article 137 and remained so for over six months, the court in its discretion and if good reason was shown, could, before dissolving the company, give not more than 30 days for the discrepancy to be remedied.

If this discrepancy was remedied, the court would not order its dissolution. A company could be dissolved if the court was of the opinion that there existed sufficient grave reasons to justify its dissolution.

The law did not define ‘sufficient reasons’ and it left this in the discretion of the court.

The company auditor testified during the proceedings that dissolution of the company should not present any problems. He said that the company had no creditors or debtors.

Tonna refused to sign accounts, and no audited accounts could be filed at the Registry of Companies.

The last abridged financial statements of the company were presented to the Registry of Companies for the financial year ending December 31, 2003.

At this stage, the company was operating at a profit.

The court was satisfied that it had been proven that the business of the company was suspended without interruption for over two years.

Article 214 (2) (b) (ii according to article 137(2) of chapter 386, every company had to have at least one director. However, since the affairs of the company were vested in both directors jointly, after Tonna resigned, the company could not be managed. The court said that Mifsud established the ground to dissolve the company under article 214 (2) (b).

It did not feel that it was necessary to exercise its discretion to give additional time for the number of directors to be increased up to the minimum requirement under the company’s memorandum.

Further, in view of the fact that the company’s business ceased for a number of years, and as the number of its directors was below the minimum requirement, the court said that there existed sufficient grave reasons to justify its dissolution.

Reference was made to Principles of Maltese Company Law by Andrew Muscat: among the types of situation that qualify as grounds of sufficient gravity, Prof. Muscat mentions the disappearance of the sub-stratum.

“A company’s sub-stratum 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 of its main objects (and not merely some of them) or if in practice it cannot achieve any of them, then its substratum has disappeared.”

It did not appear that the company carried out any other business activity. There was deadlock in the management of the company; no decisions could be taken after the resignation of Tonna as director, noted the court.

For these reasons on November 29, 2012, the Court of First Instance gave judgment by accepting Mifsud’s requests to order the dissolution of the company.

The court declared that there existed all the requisites under article 214 (2) (b) (a) (i), article 214 (2) (b) (ii) and article 214 (2) (b) (iii) of chapter 386.

It ordered the dissolution of the company F1 Autotest Ltd with effect from the date of this decision. It appointed the official receiver as liquidator with full power conferred by law, who was also instructed to draw a report in terms of article 237 of chapter 386.

The liquidator had to verify the assets and liabilities of the company, as well as the ranking of each claim against the company. He had to take under his custody and control all the assets of the company in terms of article 237 of the Companies Act.

He had the authority to sue and to defend any legal action in the name and in the interest of the company.

The court, in addition, ordered the liquidator to prepare a report on the measures which were necessary for the protection of the assets of the company and to file his report within three months from the decision.

Dr Karl Grech Orr is a partner at Ganado & Associates.

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