The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, on October 23, 2014, in the case ‘Panta Contracting Ltd v D.A. Holdings Ltd’ held, among other things, that the principal function of the provisional administrator under our Companies Act was to preserve the patrimony of a company and to prevent the dissipation of its assets and the diminution of its value. The court appointed a provisional administrator, giving him all powers and duties of the directors. It also suspended the powers and duties of the directors without removing them.

On June 5, 2014, Panta Contracting Ltd presented an application before the Maltese courts requesting the dissolution and liquidation of D. A. Holdings Ltd, and the appointment of a provisional administrator.

D.A. Holdings Ltd, in reply, contested the application and the appointment of a provisional administrator.

The company had substantial debts. It was in contact with Mediterranean Bank, now owners of Volksbank Malta, which had provided it finance, in order to find a way, among other things, to pay its debts with Panta Contracting Ltd.

The court insisted that it would monitor very carefully the company’s dealings with the bank, in the hope that there would be positive results. Otherwise, if it did not see any progress, it would have to proceed to appoint a provisional administrator.

No agreement as desired was reached with the bank as D.A. Holdings did not accept the bank’s conditions.

Subsequently, the company ceased to oppose the appointment of a provisional administrator.

In this case, the court had to decide whether to appoint a provisional administrator for D.A. Holdings. The issue here was not whether D.A. Holdings was de facto or de jure in a position to pay its debts. The court would consider this issue at a later stage, when deciding whether to dissolve and to liquidate a company.

The appointment of a provisional administrator was regulated by article 228 of chapter 386 of the Laws of Malta. Article 228 provides:

• The court may by order appoint a provisional administrator at any time after the presentation of a winding up application and before the making of a winding up order, and either the official receiver or any other competent person may be so appointed.

• The provisional administrator shall carry out such functions and powers in relation to the administration of the estate or business of the company as the court may specify in the order appointing him.

• The provisional administrator holds office until such time as the winding up order is made or the winding up application is dismissed unless before such time he resigns or he is removed by the court upon good cause being shown.

Our law did not explain the role of the provisional administrator. Our law entrusted the courts with discretion to appoint a provisional administrator and to decide what powers to give him in view of the facts and circumstances of the case.

The principal function of the provisional administrator was to preserve the assets of a company to prevent the dissipation of its assets and the diminution of the value of the company. The court did not consider whether D.A. Holdings was in a position to pay its debts for all purposes of law, a fact which was in dispute. It noted, however, that D.A. Holdings had substantial debts, with more than one creditor.

The court appreciated the concern of Panta Contracting that until the issue of dissolution and liquidation was determined, D.A. Holdings should be placed under the control of a provisional administrator in order to preserve the assets of the company. No one creditor should be allowed to take advantage at the expense of other creditors, and exploit in his favour, the precarious financial position of D.A. Holdings.

The purpose of appointing a provisional administrator was to preserve the assets of the company; in particular, if there were reasons to dissolve the company and if the court were to place the company in dissolution, its creditors would not be disadvantaged.

Each creditor would be paid according to the ranking precedence. It was evident that the role of the provisional administrator was different to that of the liquidator. The provisional administrator was prohibited from disposing assets, to pay debts from the proceeds so that any surplus would be returned to the shareholders.

The court said that D.A. Holdings changed its position radically as regards the appointment of the provisional administrator. It first opposed and later it agreed with the appointment, when no agreement was concluded with the bank. Both parties, the creditor as well as the debtor agreed that the court should appoint a provisional administrator.

The purpose of appointing a provisional administrator was to preserve the assets of the company; in particular, if there were reasons to dissolve the company and if the court were to place the company in dissolution, its creditors would not be disadvantaged

After considering the submissions of the parties and the poor financial condition of the company, the court was of the opinion that it should proceed to appoint a provisional administrator for D.A. Holdings. The appointment of a provisional administrator would not have a negative effect on the operations of the company.

The court did not wish that the provisional administrator’s task would be limited to day-to-day administration. It said that the provisional administration would assume all the duties and powers of the directors, even if the directors would not be removed.

The provisional administrator should not be a mere manager, subject to the orders of the directors. The court wished that the duties and powers of the directors be vested in the provisional administrator, in the interest of the shareholders and creditors.

For these reasons, on October 23, 2014, the First Hall of the Civil Court gave judgment in parte by appointing a provisional administrator for D.A. Holdings Ltd (Richard Galea Debono) under article 228 of chapter 386.

It ordered that with effect from its decision, all duties and powers of the directors, whether individually as well as collectively as a board, to be suspended. The directors of D.A. Holdings had to provide the provisional administrator with full and free access to all information and documents in their possession.

From the date of this decision, the provisional administrator was vested with all duties and powers of directors of D.A. Holdings, including the power of judicial representation and legal representation.

The provisional administrator had to take under his control all the assets and debts of D.A. Holdings and had to manage and administer the company with great caution and transparency, in order to prevent its financial position from worsening.

All costs for the appointment of a provisional administrator, including the costs of his administration, had to be paid provisionally by Panta Contracting.

Dr Karl Grech Orr is apartner at Ganado Advocates.