The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, in the case “AJSP Zammit Ltd vs X” on June 11, 2012, ordered the dissolution of the company at the request of its shareholders and directors, in view of the fact that the company was in a state of insolvency. It had no income, suffered losses and its shareholders did not wish to make additional cash advances to the company.

The facts in this case were as follows:

No provision had been made in the financial statements as the company’s management did not consider there was a probable loss

The directors and shareholders of AJSP Zammit Ltd filed an application on February 7, 2012 requesting the court to order the dissolution and winding up of the company and to appoint a liquidator in terms of article 218 (1) (a) of Chapter 386 of the Laws of Malta.

They submitted that it appeared from the annual accounts and financial statements that the company was in a state of insolvency and that they wished to liquidate the company.

Under article 218 (1) (a), a request to the court – for the winding up of a company by the court in accordance with article 214 (1) (a) – shall be made by means of an application.

This may be made either by the company following a decision of the general meeting or by its board of directors or by any debenture holder, creditor or creditors or by any contributor or contributories.

Article 214 (1) (a) provides that a company shall be dissolved and consequently wound up if “the company has by extraordinary resolution resolved that the company be dissolved and consequently wound up by the court”.

On February 6, 2012, an extraordinary general meeting was held where all members unanimously approved to wind up the company in terms of Subtitle I to Title II of the Companies Act 1995 entitled Winding Up By The Court.

The Registry of Companies was notified of a copy of this application in accordance with article 218 which stipulates that: “On the making of a winding up application, a copy thereof shall forthwith be forwarded by the Registrar of the Courts to the (Companies) Registrar for registration”.

Article 214 lists the causes of dissolution. In sub paragraph (2) (a) it states when a company may be dissolved and in subparagraph (2) (b) when a company shall be dissolved by the court and where dissolution was mandatory.

A company may be dissolved and wound up in the following cases:

• If the business of the company is suspended for an uninterrupted period of 24 months;

• The company is unable to pay its debts.

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

• The number of members is reduced to be below two and remains so reduced for more than six months (not applicable to single member companies);

• The number of directors is reduced below the minimum and remains so reduced for more than six months;

• The court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of a company;

• Where the period, if any, fixed for the duration of the company expires.

The court noted that in article 214 (2) the law mentioned only “dissolution” and not also liquidation, as the procedure under this sub-paragraph was subject to its discretion. The court also had the discretion to determine whether the company should be wound up by the court or dissolved voluntarily.

It resulted that the company AJSP Limited was registered on December 17, 1999, having registration number C25602.

Its principal objects included:

• To set up, develop and carry on horticultural and agricultural activities including the cultivation of land, growing or acquisition, even importation of any plant life for sale in Malta or abroad and;

• To vary on the business of importers, exporters, manufacturers, agents, merchants and dealers in goods of any type or description, including edible consumable goods and whether wholesale or retail.

The authorised share capital consisted of Lm5,000 divided into 5,000 ordinary shares of Lm1 each and the issued share capital was of Lm1,000 divided into 1,000 ordinary shares of Lm1 each, fully paid up.

Each shareholder had the right to appoint a director on the board. After October 14, 2010, the board was composed of four directors, despite the requirement in the memorandum for the board to consist of five directors.

Article 10 of the Articles of Association stipulated that the dissolution of the company shall require the consent of members holding not less than 75 per cent of the issued paid up share capital of the company.

The court noted that the resolution taken at extraordinary general meeting of the company to approve the dissolution was approved by all members and was therefore valid for purposes of law.

The financial statements of the company for year ending December 31, 2010 reported losses. In the years 2009 and 2010 the company had no revenue, only expenses. It resulted that the company’s total liabilities in 2009 were €4,076 and €4,839 in 2010.

In the notes to the financial statements, the auditors reported that “the company’s ability to continue as a going concern is dependent upon its ability to attain profitable operations and generate sufficient funds therefrom and to continue to obtain borrowings from shareholders sufficient to meet current and future obligations. The shareholders have intimated their willingness to continue to support the company and not to demand payment of the loans due to them”.

The loans from the shareholders amounted to €2,801 and €65 from related companies. There was also a contingent liability of a claim for damages in the amount of €7,025.

However, no provision had been made in the financial statements as the company’s management did not consider there was a probable loss.

The company AJSP Zammit Ltd ceased trading since 2009.

It had no economic activities and generated no revenue. It had debts which, although not exorbitant, could only be repaid provided its shareholders continued to advance funds to the company. In the circumstances, the shareholders decided to stop financing the company and instead to dissolve it.

On June , 2012 the First Hall of the Civil Court gave judgement by accepting their request. It ordered the dissolution of the company with effect from February 6, 2012 in terms of the second proviso to article 223 (1).

The court appointed lawyer Andrew Borg Cardona as liquidator vested with all powers and rights under Chapter 386.

The applicants were to pay all judicial costs.

Dr Grech Orr is a partner at Ganado & Associates.