The First Hall of the Civil Court, presided over by Mr Justice Zammit McKeon on February 18, 2013, in the case ‘Ballut Blocks Services Ltd vs FGS Construction Ltd’ held, among other things, that the time limit of 24 weeks under article 214 (5) (a) did not start to run, as it did not result that there was execution according to law of the garnishee order filed by Ballut Blocks. The court said that it was not proven that FGS Construction Ltd could not pay its debts in terms of article 214 (5) (a) of the Companies Act.

The facts in this case were as follows.

The court said that it was not proven that FG5 Construction Ltd could not pay its debts in terms of article 214 (5) (a)

The company, Ballut Blocks Services Ltd, was declared to be a creditor of FGS Construction Ltd, for the amount of €107,173 by a court decision in the case ‘Ballut Blocks Services Ltd vs FGS Construction Ltd’ (PA 966/2011) dated April 26, 2012.

Ballut Blocks claimed that FGS Construction was not in a position to pay its debts and was insolvent in terms of article 214 (2) (a) (ii) of the Companies Act by application of article 214 (5) (a) of the same act.

Article 214 (2) (a) (ii) and (b) (iii) provides:

“In addition to the modes of dissolution referred to in subarticle (1

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

(ii) the company is unable to pay its debts;

(b) (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.”

Article 214 (5) (a) states:

“(5) For the purposes of subarticle (2)(a)(ii), a company shall be deemed to be unable to pay its debts:

(a) if a debt due by the company has remained unsatisfied in whole or in part after 24 weeks from the enforcement of an executive title against the company by any of the executive acts specified in article 273 of the Code of Organisation and Civil Procedure.”

It was stated that FGS Construction had been in a state of insolvency for a long time, and its directors were aware of its financial situation. In addition, Ballut Blocks claimed shortcomings in its management, with the purpose of circumventing its legal obligations, under the law.

It said that there were grounds, in terms of article 214 (2) (b) (ii) of the Companies Act, justifying the dissolution of the company.

Faced with this situation, Ballut Blocks filed legal proceedings asking the court:

• To declare and decide that FGS Construction was not in a position to pay its debts under article 214 (2) (a) (ii) of the Companies Act;

• To declare and decide that there existed serious grounds, to warrant the dissolution of the company in terms of article 214 (2) (b) (iii) of chapter 386;

• To appoint during these proceedings a provisional administrator to manage the affairs of FGS Construction;

• To order the dissolution of FGS Construction in terms of article 214 (2) (a) (ii) or under 214 (2) (b) (iii) of chapter 386;

• To give any other provisions to appoint a liquidator and to order the dissolution of FGS Construction in terms of chapter 386.

The court ruled that in this case, Ballut Blocks requested the dissolution of the FGS Construction under article 214 of chapter 386. Ballut Blocks was a creditor of FGS Construction. During the proceedings, Ballut Blocks withdrew its claim under article 214 (2) (b) (iii).

The court had to consider whether it resulted as proven that FGS Construction was not in a position to pay its debts in terms of article 214 (5) (a). If this were proven, the court had to decide whether to exercise its discretion under the law to order the dissolution and liquidation of FGS Construction.

It resulted that by virtue of the court decision dated April 26, 2012, FGS Construction was condemned to pay Ballut Blocks €107,173, together with costs and interests. On October 5, 2011, simultaneously with filing this application, Ballut Blocks requested the issuance of a precautionary garnishee order against FGS Construction up to the amount of €107,173.

The court decree was granted on October 6, 2011. FGS Construction was however not notified of the garnishee order. After the court decision against FGS became res judicata, Ballut Blocks did not try to obtain the issuance of one of the executive acts listed in article 273 of chapter 12 following the procedure, contemplated by article 274 of chapter 12.

Had it done this, it would have filed an application for the issuance of an executive garnishee order and after this was accepted, the court would notify the garnishee. In the procedure for the issuance of an executive warrant under article 273 et seq chapter 12, it was not contemplated the notification of the debtor for the execution of the warrant.

According to case law the relevant factor to trigger the commencement of the 24 week time limit for the purpose of article 214 (5) (a) of chapter 386 was the execution of the warrant and in the case of the garnishee order, it was executed when the garnishees were notified without the need of giving notice to the debtor. In this case, Ballut Blocks elected to rely on the procedure under article 838 (b) (1) and (2) of chapter 12, which provides:

“(1) Unless rescinded by the court or withdrawn by the party suing out the warrant, all precautionary warrants shall remain in force for a period of 15 days after the cause becomes res judicata.

(2) Notwithstanding the provisions of subarticle (1), precautionary warrants issued under article 830(1) becomes an executive warrant after that the cause becomes res judicata, or when in accordance with article 166B such judicial letter constitutes an executive title, so however that:

(a) in the case of a warrant issued under article 830(1) (b), (c), (d) and (f), the creditor shall file a note within 15 days from the cause becoming res judicata in the acts of the same warrant and demand an extension or reduction of the effects of the warrant to an amount equivalent to the legal costs, interest and the difference in the principal amount due in terms of the judgment, and such note is to be served upon the debtor and such persons as may have any interest therein;

(b) in the case of a warrant issued under article 830(1) (a) and (e), the creditor shall file an application under the provisions of article 388E within 15 days from the cause becoming res judicata.”

The procedure to be followed by Ballut Blocks was as specified in article 838 (b) (2) (a) for its precautionary warrant to become executive. In addition, Ballut Blocks made a request to extend the effects of its warrant by an additional amount of €9,824 to cover the costs of its suit, the costs of the warrants and interests. The court accepted its request on June 12, 2012.

The procedure was not complete by the issuance of the court decree, to accept the application of Ballut Blocks but by the notification of the decree to all persons who were interested in this case, mainly the sekwestratarji (garnishees) and also important, the notification of the debtor.

For these reasons, on February 18, 2013, the First Hall of the Civil Court gave judgment by declaring that the 24 weeks time limit under article 214 (5) (a) did not start to run, as it did not result that there was execution according to law of the garnishee order filed by Ballut Blocks.

The notification of the garnishees was effected before the decree of the June 12, 2012, and, secondly, after the decree was given, the garnishees and debtor were not notified. The court said that it was not proven that FGS Construction Ltd could not pay its debts in terms of article 214 (5) (a).

The court therefore could not order its dissolution on basis of article 214 (2) (a) (ii) of chapter 386. The court dismissed therefore all Ballut Block’s requests.

Dr Karl Grech Orr is a partner at Ganado Advocates.