The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon in the case ‘Application of the company Executive Services Ltd in terms of article 329B Companies Act’, on March 14, 2016, ordered that the company be placed under company recovery and that a special controller be appointed for a period of 12 months.
An application was made in terms of article 329A of the Companies Act to place the company Executive Services Ltd in “company recovery”, after the company passed an extraordinary resolution of the shareholders.
The company was incorporated and registered in 1983 and operated in the area of marketing and publications. It published the magazines Tune-In, Cibus and Law & Practice. It owned intellectual rights relating to the brochures. It also acted in the field of advertising.
The shareholders of the company were Michael and his wife Dolores Dimbleby. The legal and judicial representation of the company was vested in Michael Dimbleby.
In the period between 2010 and 2012 Michael was seriously ill and his wife Dolores looked after the business. Subsequently, when Dolores also fell ill, Michael took over its management.
In 2012, Ryan Schembri offered to manage the company and revive its prospects. Schembri was the director of More Supermarkets who later escaped from Malta from his creditors.
Executive Services Ltd was adversely affected by Schembri. When More Supermarkets collapsed in 2014, the company was owed over €200,000 from More Supermarkets and related companies, and it was likely that this debt would not be repaid. The company lost 70 per cent of its clientele with the collapse of More Supermarkets.
The end result was that the company was brought to a situation where it could not pay its debts.
According to article 329(B)(1), when a company could not pay its debts, it could file an application in court, for it to be placed under ‘company rescue’
It was stated that spouses Dimbleby were deceived by Schembri whom they had entrusted to manage the company.
The debts of the company were in excess of €465,874. It was owed €408,791 but realistically it could only recover €43,000. It had a €10,000 bank deposit which was deposited in court.
It proposed to enter into an arrangement with one of its principal creditors, Allied Newspapers, so that the company would be in a position to pay its debts.
It said that it was in the interest of the company, its creditors, its shareholders and directors that the company was placed in ‘company recovery’, in terms of article 329B of the Companies Act and under the supervision of the special controller. Before filing the application, the company had a meeting with its principal creditors.
The proposal consisted of the following:
• To reduce VAT to €20,000 by deducting the VAT that was already paid in respect of unpaid debts. The proposal was to pay the unpaid tax by instalments.
• For Allied Newspapers Ltd to assume the obligation to publish Tune-In, Cibus and Law & Practice. The company would receive payment for each issue, obtaining a revenue of approximately €40,000 per year. Half this sum would be used to set off the debt due to Allied Newspapers Ltd and the other half would be paid to the other creditors of the company, in particular those holding privileges.
The proposal was to keep the company as a going concern with the assistance of Allied Newspapers Ltd and in order to pay its other creditors.
Faced with this situation, the company presented an application:
• To place the company under ‘company recovery’ in terms of article 329B of the Companies Act;
• To appoint a special controller to take control to manage and administer the company for the time specified by the court in terms of article 329B Chapter 386; and
• To give such order as it felt were appropriate including to authorise the special controller to enter such agreement with the creditors of the company.
The court noted that the proposal of the company was workable and would benefit its main creditors, as well as the other creditors of the company. Alternatively, if the company had to be liquidated, its debts would be left outstanding. The company’s magazines had value. Allied Newspapers Ltd was prepared to sign the agreement with the company.
In Bailey, Groves & Smith on Company Insolvency, 2nd edition, 2001, p.120, one finds:
“Inevitably the procedure obliges the court, lawyers and accountants to approach the problem raised with commercial awareness and sensibility. The court, in particular, is being asked on the hearing of the petition to make a commercial judgement which is often difficult to make even for a business person. The procedure is court-based and professional advisers must be involved from the earliest point possible; much of the success of the procedure will depend on the preliminary work leading up to presentation of the petition.”
According to article 329(B)(1), when a company could not pay its debts, it could file an application in court, for it to be placed under ‘company rescue’.
A special controller would be appointed to take control, manage and administer the business of the company for a time specified by the courts.
In this case, the company admitted that it was not in a position to pay its debts and was virtually in a state of insolvency.
The application would be filed by the company, after a resolution of the shareholders.
The court noted the provisions of article 329(B)(2) and (3) of the Companies Act.
The court said that it was giving its order within the time frame mentioned in the law. Reference was made to Principles of Maltese Company Law (2009
“The primary aim of this far-reaching procedure is to allow, if practicable, companies in financial difficulty to recover rather than to be put them into liquidation. The procedure is intended to be an alternative to the liquidation of a troubled business. It is not, however, intended to make effective insolvency or to merely postpone the inevitable crash.”
The company was in a bad financial condition and suffered upon the collapse of More Supermarkets. The dire situation of the company clearly resulted from a statement of affairs of the company.
The court was satisfied with the versions produced by the company. It found that the requisites of article 329(B) of the Companies Act had been met. It said that the company’s proposal was in its interests and in the interest of all creditors of the company, re. article 329(B)(2) of chapter 386.
It felt that the proposal was very positive and viable. It made sense to everyone and it was possible that the company would be restored. The court agreed with the business proposal as creditors could be repaid. The court was convinced that the creditors had an interest to be paid within a reasonable time, rather than liquidate their debtor. In this case, a balance of interests was of principal relevance, pointed out the court. It was in the interest of creditors for the company to sign the agreement and adopt their proposal.
For these reasons, on March 14, 2016, the court gave judgment by placing the company in ‘company recovery’ in terms of article 329B of the Companies Act.
It appointed a special controller who had the necessary experience to carry out his appointment, conferring upon him all powers of administration of the company, for purposes of law, the authority:
• to manage the company;
• to take possession of its assets;
• to report on the status of the company within two months;
• to appoint persons after informing the court as may be necessary to carry out his appointment; and
• to hold meetings of creditors and shareholders within the time limit, as may be necessary.
The court established a period of 12 months for the ‘company recovery’ and ordered that, until the ‘company recovery’ remained in vigore, the provisions of article 329(4) of the Companies Act continued to apply.
The court ordered the company to notify the Registry of Companies, the Registry of Courts as well as the special controller.
Within 10 days, the company had to place an advert on two local newspapers, one in English and the other in Maltese, with a short summary of this court order.
Dr Grech Orr is a partner at Ganado Advocates.