The Civil Court (Commercial Section) presided over by Hon. Judge Joseph Zammit McKeon (the “Court”) on 15 December 2020, in the case “APS Bank p.l.c. vs. Registrar of Companies,” ordered that a defunct company which was previously struck off the companies’ register, be reinstated, for a creditor to be able to enforce an executive title which it held against the company and for a pending actio pauliana appeal case to be concluded.

An Article 325(4) Action

A creditor of a company that was struck off the companies’ register (the “Company”) instituted an action based on Article 325(4) of the Companies Act (Chapter 386 of the Laws of Malta, hereinafter referred to as the “Companies Act” or the “Act”). This article provides that:

“If any member or creditor of the company, or any other person who appears to the Court to have an interest feels aggrieved by the fact that the name of the company has been struck off the register by virtue of this article, the Court on an application made by the member or creditor or such other person before the expiration of five years from the publication of the notice of the striking off provided for in sub-articles (2) and (3) may, if satisfied that it is proper that the name of the company be restored to the register, order that such name be restored to the register, and upon an official copy of the order being delivered by the Registrar of the Courts to the Registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off…”

Facts of the case

The Registrar of Companies struck off the Company’s name from the companies’ register on 2 July 2020 as there was reasonable cause to believe that the Company was not carrying on any business or was not in operation. The Company was registered with the Malta Business Registry (the “MBR”) on 14 May 2002 and since its date of registration, the Company failed to make several statutory filings with the MBR. The Company never filed any audited financial statements with the MBR and the final annual return which it had submitted was for the year 2009.

The serious and prolonged non-compliance with the applicable provisions of the Companies Act left the Registrar no choice but to apply article 325 of the Companies Act. A letter was sent, addressed to the Company and to its officers, notifying them of the Registrar’s intention to strike off the Company’s name from the register of companies unless they bring forward enough reasons against this strike-off. The Registrar did not receive any replies from the Company and/or its officers within one month of the date of his letter. Hence, he proceeded to publish a notice on the MBR website and in a newspaper that, at the expiration of three months from the date of the mentioned notice, the Company’s name was going to be struck off the company register, unless cause is shown to the contrary within the stipulated three-month period or the Registrar is satisfied that there are sufficient grounds not to proceed with the striking off.

The statutory three-month period prescribed in Article 325(2) lapsed and neither the Company nor its directors or any other interested third parties approached the Registrar to inform him of their real and genuine interest in leaving the Company’s name on the register of companies.

The plaintiff, a creditor of the Company, felt aggrieved by this strike-off as: (a) it was holding an executive title, which it had obtained by virtue of a court case which was decided in its favour on 23 November 2009 (which case was never appealed and hence rendered res judicata (i.e. final and conclusive)) against the Company for an amount of EUR 605,360.94 plus interests accrued on same, which amount was owed to the plaintiff by the Company; and (b) an actio pauliana appeal court process, involving inter alia the plaintiff and the Company, had to be suspended because of the Company strike-off.

In terms of article 325(4) of the Companies Act, the plaintiff requested the Honorable Court to: (a) order the reinstatement of the Company’s name on the register of companies as though its name was never struck off; (b) order the publication of those acts which are required by the Companies Act; (c) give those directions and/or issue those orders which it considers necessary for the Company and all interested parties to be placed in a similar situation to the one which would have prevailed had no strike-off been implemented by the Registrar.

In his reply to the plaintiff’s court application, the Registrar clearly stated that he had no objection to the reinstatement of the Company’s name on the register of companies and that he was prepared to abide by any direction and provision that the Honorable Court deemed appropriate and timely so that the plaintiff be in a position to exercise any rights due to him as a creditor of the said company. Having said this, the Registrar wanted to stress the following points:

(i)              that the plaintiff had enough time after the publication of the notice, mentioned above, to inform the Registrar of its interests vis-à-vis the Company;

(ii)            according to article 325(6), the liability, if any, of every director or other officer of the company and of every member of the company shall continue and may be enforced irrespective of the fact that the company name would have been struck off the companies’ register;

(iii)          that it may well be the case that the company name was going to be restored purely for the benefit of one creditor;

(iv)          that in most cases similar to the ones in question, the reinstatement would be requested by a creditor even if it knows that the company does not have any assets to disburse; and

(v)            that the Registrar should not have companies on its register which are not in compliance with the Companies Act for an indefinite period.

The court’s considerations and decree

The Court started off its assessment by focusing on Article 325 of the Companies Act, which is an article composed of 7 sub-articles. The Registrar applied Article 325(1) and (2) to strike off the company’s name from the companies’ register and the plaintiff bank requested reinstatement based on Article 325(4).

The Court was satisfied that the Registrar had sufficient grounds to trigger the strike off procedure and that he followed the right process in accordance with Article 325(1). The removal of a company name from the register of companies according to Article 325(2) is not intended to prejudice the interests of persons indicated in Article 325(4), that is; members, creditors or other persons who appear to the court to have an interest. Hence, the expiry of the three-month objection period, mentioned above, cannot create a state against them. The Court held that sub-articles 325(2) and (4) are distinct from one another as they have an impact on persons with differing interests.

The Court noted that the reinstatement of the company name was going to allow the plaintiff bank to not only continue defending its interests in a pending case before the Court of Appeal but also to enforce its executive title against the Company. Therefore, the reinstatement was considered by the Court to be an act of substantive justice.

For the above-mentioned reasons, the Court accepted the plaintiff’s requests and applied Article 325(4) of the Companies Act to order the reinstatement of the Company’s name to the register of companies for a period not exceeding 2 years and 6 months from the reinstatement date. The Court decided to impose this time limit to ensure that the plaintiff bank acts swiftly to recover amounts due to it. By reinstating the Company on the companies’ register, the Court had no guarantee that the Company was going to satisfy its obligations under the Companies Act post-reinstatement, hence why it felt that it had to subject the reinstatement to a specific time period. The Court said that one of its primary obligations was that of ensuring that it seeks a fair balance when applying the law. It also ordered the Registrar to publish a notice on the MBR website and on a local newspaper, within 7 days from the reinstatement date, declaring that the Company’s name was restored on the companies’ register.

In recent years, Article 325 of the Companies Act started being utilized quite frequently by the Registrar to remove ‘dormant’ or ‘abandoned’ companies from the Maltese register of companies. The Moneyval report has been one of the most forceful motivations behind the Registrar’s inclination to ‘clean up’ its register of companies. Jurisprudence in this area shows that the Maltese courts can reinstate such companies should they be satisfied that the reinstatement is in the best interests of an aggrieved person, whether a member, a creditor or any other interested third party. The court makes it very clear in various cases that the existence of a defunct company should not be prolonged unnecessarily. Such a reinstated defunct company should only be allowed to remain on the register of companies for a limited time (as determined by the Court, in most cases) and this to allow any of the above-mentioned aggrieved persons to exercise its rights against the Company.