The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, on March 20, 2012 in the case “Joseph Muscat vs Registrar of Companies” ordered a company to be restored to the Companies Register under Article 325 of the Companies Act after it had been struck off because of a long history of non-compliance with its statutory duties, which led the registrar to believe that it had ceased to trade.

The facts in this case were as follows:

From the date of its incorporation, October 2, 1992, the company sent no annual returns, no annual accounts nor had it paid the accumulated fines

The Registrar of Companies had taken steps under article 325, of the Companies Act to strike off the Company Zoey Co. Ltd, registration number C14293. Article 325 (1) provides:

“Where the Registrar has reasonable cause to believe that a company is not carrying on business or is not in operation, he may send to the company by post a letter inquiring whether the company is carrying on business or is in operation.’’

The company had not filed any annual returns or any financial statements from the date of its incorporation, giving the registrar reasonable cause to believe that the company was not carrying on business or was not in operation.

The registrar had sent out letters to the company and its director to inquire on the status of the company, but had received no reply. The Letters were in fact returned to sender. Adverts also appeared in the Government Gazette.

It resulted that the company was struck off the Companies Register with effect from October 26, 2011.

Joseph Muscat, who was a member and director of the company, felt aggrieved. He claimed that he had not received the letters from the registrar.

Mr Muscat stated that the company continued trading for over a year after it was struck off until he encountered serious problems.

With his company struck off the register, he could not cash cheques; nor could he carry out transactions.

Besides, the company had immovable property registered in its name.

Mr Muscat alleged that he was under the impression that the company was still in existence and that it was critical that he regularised the position, especially since the company had several commitments which still had to be honoured.

He said he had an interest that the company would be reinstated on the Company Register. On November 23, 2011, he requested the court to restore the company on the Companies Register in terms of Article 325(4), Companies Act.

Article 325(4) provides:

“If any member or creditor of the company, or any other person who appears to the court to have an interest feels aggrieved by the fact that the name of the company has been struck off the register by virtue of this article, the court on an application made by the member or creditor or such other person before the expiration of five years from the publication of the notice of the striking off provided for in subarticles (2) and (3) may, if satisfied that it is proper that the name of the company be restored to the register, order that such name be restored to the register, and upon an official copy of the order being delivered by the registrar of the courts to the registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off; and the court may by its order give such directions and make such provisions as seem fit for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off. The registrar shall forthwith proceed to publish a notice in the gazette or on a website maintained by the registrar and in a daily newspaper circulating wholly or mainly in Malta that the name of the company has been restored to the register.’’

The Registrar of Companies, in reply, justified his decision to strike off the company. From the date of its incorporation, October 2, 1992, the company sent no annual returns, no annual accounts nor had it paid the accumulated fines.

Non-compliance for several years with its statutory duties under the Companies Act was good enough reason for the registrar to have reasonable cause to believe that the company ceased to operate in terms of article 325, Companies Act.

After lapse of the one month period, for the company or the director to reply, the registrar reached a reasonable conclusion that the company was not trading and that its director had no interest that the company remained on the register.

The registrar therefore proceeded to publish the relative notice on July 26, 2011. As after three months neither the company, nor its sole director or any third party informed the registrar that they had an interest that the company would remain on the register, the company was cancelled from the register on October 26, 2011.

It appeared, maintained the registrar, that Mr Muscat had sufficient time both before as well as after the publication of the notice to inform the registry of his interest, but nothing was done.

For these reasons, the Registrar of Companies asked this court:

• To dismiss Mr Muscat’s requests, save for such measures, which the court felt to be appropriate;

• To order Mr Muscat to pay all fines due to the registry; as well as all judicial costs; and

• In case the court felt it appropriate to restore the company, to indicate the purpose, the conditions and the necessary terms for the company and its officers to regularise their position within a specific period, including the filing of the annual accounts, annual returns and the payment of all fines, according to law.

During these proceedings, however, as the company presented all pending annual returns and filed all financial statements, as obliged with the registry, the Registrar of Companies had no longer any objection for the court to accept Mr Muscat’s requests.

On March 20, 2012, the First Hall of the Civil Court ordered that the company be restored to the register. The Registrar of Courts was ordered to deliver an official copy of this order to the Registrar of Companies.

Mr Muscat was condemned to pay all judicial costs.

The following reasons were given for the court’s decision:

Power of the Registrar of Companies: Article 325 Companies Act vested the registrar with power to strike off defendant companies. In the circumstances, the registrar acted properly. The registrar had authority to penalise companies for non-compliance.

Legal action: there was no dispute that Mr Muscat had an interest to file this action. Although he had up to five years, legal action was initiated only a few months after the publication of notice by the Registry of Companies.

Prejudice: Mr Muscat was clearly prejudiced by the striking off of the company; though the registrar was not to blame.

The court felt that it was appropriate therefore to restore the company to the register. It was noted that Mr Muscat had regularised the company’s position and all outstanding fines had been settled.

The fact that it was to reinstate the company did not mean that this court would tolerate similar non-compliance in future. It would not give the company a second chance in case the registrar was to strike off the company under Article 325, a second time. The company had to comply with its statutory obligations – concluded the court.

Dr Grech Orr is a partner at Ganado & Associates.