The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, on July 7, 2011 in the case “Lay Lay Co Ltd vs Peter Paul Darmanin as liquidator of Alsan Enterprises Ltd, the Registrar of Companies and by decree of November 1, 2010, Modern Design Properties Ltd and Polidano Holdings Ltd intervened in statu et terminis”, held among other things that, in case of voluntary liquidations, a liquidator had to show utmost care and attention. The lack of precautions taken by the liquidator to investigate any potential claims was itself an unlawful act, which justified the reinstatement of a company. A company should not be placed in voluntary liquidation if it had potential claims liabilities.

The facts in this case were as follows.

In this case the court had to consider whether it should reinstate the company Alsan Enterprises Company Ltd in terms of Article 300B of the Companies Act, after this company had already been struck off the Company Register.

It resulted that the Alsan Enterprises was placed into dissolution. It was struck off the Companies Register on July 3, 2008.

On August 1, 2006, the shareholders of Alsan Enterprises passed an extraordinary resolution placing the company into voluntary liquidation and winding up.

A liquidator was appointed. Both the declaration of solvency made by the director as well as the liquidator’s report made no provision to the rights of third parties and of any potential claims against the company. The notice of liquidation was delivered to the Registry for registration on August 11, 2006, and on August 16, 2006, the notice of the appointment of the liquidation was registered.

The liquidation accounts, the scheme of distribution and their approval by the general meeting of Alsan Enterprises were filed and registered.

The notice of dissolution was published according to law on July 16, 2010. The Alsan Enterprises was subsequently struck off and so it ceased to exist.

Thereafter, the company Lay Lay Co. Ltd filed an application before the First Hall of the Civil Court in terms of Article 300B of the Companies Act, requesting the court to order its reinstatement and to reactivate its liquidation

It was stated that it had an interest to request the reinstatement of Alsan Enterprises, and for the court to order that the process of its liquidation be re-opened, as Alsan Enterprises was a defendant in several lawsuits.

Lay Lay Co. Ltd pleaded that it was not aware that Alsan Enterprises had been dissolved and that its only remedy was the reinstatement of the company.

During the winding up process, Lay Lay Co. Ltd had not objected to its dissolution.

The Registrar of Companies, in reply, submitted in defence that in no way was he at fault.

As Registrar, he informed the court that he had an interest for article 300B of the Companies Act to be correctly applied.

The Registrar explained that Article 300B of the Companies Act required the following elements:

The application had to be made by an “interested” person:

The court was satisfied that the company was liquidated with deceit or by way of an unlawful act.

The court was satisfied that reinstatement was the only remedy.

If the court accepted the application, it had to indicate the period when the liquidation should be re-opened. It had to state the purpose of the reinstatement and impose conditions which it felt were appropriate. It had to decide whether the company was to be deemed to be reinstated for the benefit of certain limited persons.

In addition, this remedy was to be used in exceptional cases in order to provide an equitable solution, and provided there was no other remedy.

The Registrar maintained that there had to be certainty as to the status of the company. The court should indicate when he could proceed with its final cancellation. In addition, any reinstatement should not be protracted unnecessarily.

The liquidator of Alsan Enterprises submitted in defence that he ceased to represent the company, after it was struck off the Companies Register. He claimed that Lay Lay Co. Ltd had no interest to make this application.

He pleaded that Lay Lay Co. Ltd should have raised its opposition at the time of the publication of the notice of liquidation and, by failing to take necessary action in time, it had now forfeited its remedy to request the reinstatement of the company.

On July 7, 2011, the First Hall of the Civil Court accepted Lay Lay Co Ltd’s application.

The following reasons were given for the court’s decision. The court considered that the liquidator had failed to investigate the position of the company. The liquidator should have been aware of the claims that were made against the company and of any potential liabilities.

Reference was made to two cases under article 300B.

The Court said that not every error committed by the liquidator justified the reinstatement of the company. A company should not be placed into voluntary dissolution lightly, especially if third parties could be prejudiced and if there were pending claims against the company.

The declaration of solvency was not simply a formality, pointed out the court.

The director making this declaration was assuming responsibility.

Our law required transparency and good faith. Abuse could not be tolerated. If any irregularity was committed, a person could be held liable.

The court felt that, if the liquidator and auditor had carried out their responsibilities properly, this application would not have been necessary.

The director of Alsan Enterprises was aware of the claims against the company. The declaration of solvency was, therefore, incorrect. The liquidator should have investigated the status of the company and should not have relied merely on a statement of a director.

In case of voluntary liquidations, the liquidator had to show utmost care and attention.

The lack of precautions taken by the liquidator was itself an unlawful act, maintained the court.

Reference was made to case law, “Dr Leslie Grech vs Registrar of Society” dated October 9, 1979; “Mayflower Co. Ltd et vs Registrar of Society” dated January 22, 1999; “Migdal Insurance Co. Ltd et vs Paul Mizzi noe” dated May 18, 2011; and “Barbara vs El Ferghani” dated October 5, 2011, which were given under the Commercial Partnerships Ordinance (CPO).

The court noted that the CPO had made no provision for the reinstatement of a company and this situation led the courts to find an equitable solution.

Unlike the CPO, however, chapter 386, did provide for the reinstatement of a dissolved company under articles 300A and 300B.

These two sections were of strict application. They provided an extraordinary and exceptional remedy.

The principles, however, enunciated by the courts prior to the enactment of Chapter 386 applied mutates mutandis, the court said.

The court considered the type of errors and unlawful acts that led Maltese courts in the past to order a reinstatement of a company.

Orders for reinstatement were given to allow creditors to take action against a dissolved company. Reference was also made to the actio Pauliana and to the element of consilium fraudis.

A third party creditor could be prejudiced by the dissolution of a company and had an interest to stop its dissolution.

It was unlawful for the directors to declare that a company had no debts, when they were aware of potential claims against it.

The law should protect the rights of third parties and should give a remedy, if their rights were violated. A company should not be placed into voluntary dissolution if it had outstanding, potential debts and obligations towards third parties, especially if there was a pending case against it.

The court was of the opinion that in this case all elements under article 300B existed. The company Lay Lay Co. Ltd had an interest to file this application – which, in fact, it had done within the period allowed by law.

The Registrar of Companies was not to blame whatsoever, maintained the court. The court held that the liquidator had representation of Alsan Enterprises; that the liquidator had not performed his duties properly and, as a result, the liquidation process of Alsan Enterprises was concluded to the prejudice of Lay Lay Co Ltd.

The court concluded that a reinstatement of Alsan Enterprises was justified.

For these reasons the court delivered the following decision:

It declared that this legal action under art 300B Chapter 386 was Lay Lay Co Ltd’s only remedy.

It ordered the reinstatement of Alsan Enterprises, as well as the re-opening of its liquidation,

The liquidator was ordered to act on behalf of the company and to assume all acts against the company in the name of the company. The liquidator had to notify the Registrar of Companies of any pending cases against the company, within two months.

The liquidator thereafter, within six months from the time the decisions against the company had become definitive, had to notify the Registrar of Companies of the date when each decision had became definitive and, within this period of six months, the liquidator had to conclude the liquidation of the company.

The court ordered the Registrar of Companies to cancel the company Alsan Enterprises from the Registry by the lapse of the six months period.

It ordered finally that all judicial costs were to be borne by the liquidator.

Dr Grech Orr is a partner at Ganado & Associates.