The First Hall of the Civil Court, presided over by Justice Joseph Zammit McKeon, on November 30, 2015, in the case ‘Marcus Lauri and JL & Sons Ltd v Registrar of Companies’, held, among other things, that under the Companies Act, the directors as officers of the company were jointly liable together with the company for payment of unpaid penalties. It was no excuse that the company was inactive.

The Registrar of Companies chased the company JL & Sons Ltd and its director Marcus Lauri for unpaid penalties: €4,026 for failing to submit the annual returns and annual accounts for several years. The company was served with the Registrar of Companies’ judicial letter dated October 5, 2015.

Lauri claimed that the penalties were not justified and that the Registrar of Companies should not have exercised his powers under article 401(4) of the Companies Act.

Faced with this situation, he and the company proceeded to file an application in terms of article 401 of the Companies Act, requesting the court to declare the Registrar of Companies’ judicial letter of October 5, 2015, as well as the notice for payment of the penalties to be unfounded and null for all effects at law and not to be legally enforceable.

By decree of November 5, 2015, the registrar was given 15 days to reply.

The registrar pleaded that Lauri’s application was null; that the application should have been sworn and it should have contained numbered paragraphs. The grounds of objection had to be stated clearly on pain of nullity, said the registrar. He called for the dismissal of Lauri’s application.

The registrar further contended that Lauri’s application was not formulated in accordance with the law and lacked the requisites required.

It was stated that the sum of €4,206 was due and outstanding as unpaid penalties. Penalties were for non-compliance with the statutory obligations under the Companies Act: failing to file annual returns in terms of article 184 of the Companies Act; and for failing to file the financial statements according of article 183(1) of chapter 386 of the Laws of Malta.

The registrar said that the judicial letter was legitimate and valid and that he acted in accordance with the Companies Act in order to enforce its claim to recover unpaid penalties.

The directors of JL & Sons Ltd were notified of the penalties under the Companies Act and of all infringements. The judicial letter was addressed to both the company as well as each director since the company together with the officers were jointly responsible for payment of the penalties under the Companies Act.

A person who accepted to be an ‘officer’ of a company should be fully aware of his obligations under the Companies Act and the Registry of Companies was under no obligation to remind anyone of their obligations under the Companies Act.

A person who accepted to be an ‘officer’ of a company should be fully aware of his obligations under the Companies Act and the Registry of Companies was under no obligation to remind anyone of their obligations

The last accounts of the company were filed for the year ending December 31, 2009.

The registrar explained that the Companies Act, article 401(3) laid down a specific procedure in case a person wished to object to a penalty imposed by the Registry of Companies. A person had to show that the penalty was not imposed according to law or that a lesser amount was due in the circumstances. The court considered article 401(3) to (17) of the Companies Act.

Claudette Fenech testified that the outstanding penalties which the Registry demanded at present from the company amounted to €4,026. Additional penalties were incurred in respect of which no judicial letter had yet been sent, and which were not included in the Registry’s claim of €4,026. This explained why a greater amount appeared to be outstanding.

Lauri, on the other hand, put forward the argument that the company had no assets and was completely dormant and that the penalties were excessive.

Nullity of the application: the court did not consider Lauri’s application to be null and void. The Registry did not suffer any grave prejudice to prepare its defence, it pointed out. Besides, in view of recent amendments, the validity of judicial acts should be safeguarded, it said.

Nor did the legislator intend that legal action under article 401 of the Companies Act should be by sworn application. Maltese law mentioned simply by way of application.

It resulted that the Registry demanded payment of the penalties which it indicated in its judicial letter. It did not consider that Lauri’s objections were justifiable. It was no excuse that the company was dormant.

The Companies Act clearly stated what were the rights and obligations of a director, and what were the statutory duties of a company. Article 183 obliged the directors of a company to submit each year at the Registry of Companies copies of their annual accounts, and under article 184, an annual return.

Maltese law imposed a penalty upon every officer who was in default. The term ‘officer’ included a director.

Under the Companies Act, directors were expected to act collectively as a board and their responsibility was joint and several.

Article 150 of the Companies Act provides: “Anything required to be done by a company under any provision of this Act shall be deemed also to be required to be done by the officers of the company.”

The company was also jointly responsible for these penalties under article 427(4).

Under the Companies Act, the directors as officers of the company were jointly liable together with the company for payment of the penalties.

For these reasons, on November 30, 2015, the First Hall of the Civil Court held that Lauri’s application was not acceptable. It declared that the penalties imposed by the Registry of Companies were legitimate and according to law.

Save for the registrar’s plea of nullity of Lauri’s application, which it rejected, the court upheld all pleas of the registrar.

Applicants were ordered to pay in solidum all judicial expenses.

Karl Grech Orr is a partner at Ganado Adovates.