Defunct Companies And The Devolution Of Assets To Government

Posted on: 14 Sep 2020

Category: Articles, News

Article 325 of the Companies Act, Chapter 386 of the laws of Malta, vests the Registrar of Companies with the prerogative to strike a company off the register where he has reasonable cause to believe that a company has ceased to carrying on its business or is not in operation. Recent case law has shown that, among others, failure to file statutory documents and failure to pay penalties issued by the ROC could trigger such action1Pierre Galea vs Registratur tal- Kumpaniji, FHCC, 18/04/2013, David Aquilina vs Registratur tal- Kumpaniji, FHCC, 30/06/2016.

The ultimate effect of such strike-off action is the devolution of all assets of such companies onto the Government of Malta. Fortunately, the law provides for a specific procedure preceding strike-off in order to mitigate such possibly draconian action and effects, together with judicial remedies allowing for re-instatement of any such company at the request of interested parties.

The process for strike-off in terms of Article 325 is initiated by written notification sent by the Registrar inquiring whether the company is carrying on business or is otherwise in operation. In the event that  the letter is left unanswered for a period of one month, or the company answers to the effect that it is no longer carrying out business or is no longer in operation, a notice is published in the Government Gazette or on a website maintained by the Registrar and a daily local newspaper. By publicising the matter, the Registrar ensures that third party interests are safeguarded. After the expiration of three months, the Registrar can proceed with striking the company off the register. This will trigger the devolution of assets in favour of the Government of Malta.

Companies that are stricken off the register pursuant to Article 325 do not exonerate officers or members from their duties at law. Article 325(6) makes it clear that any liability of directors, other officers or members of any such company shall continue and may be enforced irrespective

Such strike-off and devolution of property can sometimes be seen as excessive, and Article 325(4) of the Companies Act grants a specific remedy to three classes of persons who may feel aggrieved by the action taken by the Registrar. These are members of the relevant company, creditors2Norbert Belia vs Registratur tal- Kumpaniji, FHCC, 28/ 06/2018 and any person who, in the opinion of the court, has an interest in the matter. In Midgal Insurance Co Ltd vs Mizzi3Migdal Insurance Co Ltd vs Paul Mizzi noe, (FHCC), 18/05/2001 , the First Hall Civil Court acceded to the applicants’ request to have the name restored for the sake of continuing arbitration proceedings against the defunct company. Once interest has been established, the remedy can be exercised within a period of five years from the date of publication of the notice.

In recent years, the Registrar of Companies seems to have developed an inclination to actively consider taking action under Article 325, and it is therefore important for officers of companies who have experienced reduced activity to look out for any possible notice issued under the said Article by the registrar of Companies.

The available case law shows that the courts can be amenable to order the re-instatement of such companies, but this is normally the case only where the Court is satisfied that a company’s affairs are regularised in accordance with applicable law.

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