A company can only act through its organs. Its board of directors manages it, and the shareholders (through the general meeting) appoint the board. Where a director's seat is vacated, a new director is typically appointed by the shareholders at a general meeting. However, where the sole director and shareholder of a company are one and the same person, their death brings about a unique governance vacuum that Maltese law does not cater adequately for. The deceased's shares remain locked in his estate until transmission causa mortis is complete, which means several months (at the very least) before anyone acquires the power to appoint a new director, during which the company is orphaned, and paralyzed.
Even after the causa mortis is completed, a circular problem arises - a successor shareholder will only be formally recognised as a shareholder once an officer of the company has updated the company's register of members. However, officers can only be appointed by the shareholder/s. In such situations there exists a practical and legal deadlock which Maltese law does not adequately resolve.
The Commercial Section of the Civil Court was faced with this problem in Budget Services Limited (C 12855) v X (Application Number 13/2026 ISB), decided on the 25th May 2026. Ibrahim Halim, sole director and shareholder of Budget Services Ltd, died on 2nd February 2026, found alone at the company's office. There was no other officer to replace him, and the transfer of his shares causa mortis would take time. The company was not in good standing and it was claimed that the company was therefore exposed to the risk of dissolution.
The company's legal consultant, holding only the deceased's relatives' approval but no company instructions or judicial representation of the company, filed an application on the company's behalf under the Pre-Insolvency Act (Cap. 631 of the Laws of Malta) requesting the appointment of an insolvency practitioner to restore the company to good standing. No proof on the financial situation of the company, on its likelihood of insolvency, or of its viability, were presented to the Court.
Applications for preventative restructuring under the Pre-Insolvency Act can only be filed by company officials, with the endorsement of an insolvency practitioner. Neither requirement was met in this case, and therefore the Court found that it could not apply the procedure laid out in the Pre-Insolvency Act. It is interesting to note that the company's legal consultant did not seek to hold himself out to the Court as someone acting qua director of the company, and therefore did not benefit from the very wide definition of "official of the debtor" in the Pre-Insolvency Act, which extends even to those not formally appointed as director.
Notwithstanding these pitfalls, the Court considered that it could not ignore that the death of the sole director and shareholder had left the company in limbo, unable to operate or even remunerate employees, and therefore exposed the company to a tangible risk of erosion of its business. The Court's approach was consequently driven less by the formal architecture of the application and more by the immediate commercial need to avoid leaving the company without any functioning organ.
The Court considered that the real need here was for a suitable person to be appointed for a defined period until the causa mortis was complete. Inspired by Article 4(2) of the Insolvency Practitioners Act (Cap. 632 of the Laws of Malta), which lists "special manager" among the functions which can be performed by insolvency practitioners, the Court appointed a special manager, with wide powers to manage the affairs of the company, on the basis of Article 254 of the Companies Act, notwithstanding that the application had been based on the provisions of the Pre-Insolvency Act.
This was done even though the power to seek the appointment of a special manager under Article 254 of the Companies Act statutorily lies only with a liquidator or provisional administrator. It also sits within provisions which apply to court winding-up. In this case, there was no winding-up, no liquidator and no provisional administrator. The applicant had no more legal standing under this law than it did under the Pre-Insolvency Act. Nevertheless, the Court granted effective substantive relief by fashioning a bespoke remedy for the orphaned company, while referring the issue to the legislator.
This case has highlighted a real need for legislative intervention where existing solutions do not adequately cater for commercial reality. The Civil Code confers wide standing on any interested party to request the appointment of a curator to temporarily manage the deceased's estate, which would allow a replacement director to be voted in. However, this process can be lengthy and does not confer immediate operational control over the company. Corporate law remedies do not fit comfortably, unless someone is prepared to assume the risks and responsibilities of a director without having been formally appointed. The unfair-prejudice remedy is expressly available to a deceased shareholder's representative and can offer flexible solutions, but the gateway to relief is oppressive or unfairly prejudicial conduct. Preventive restructuring, company recovery and provisional administration presuppose looming financial distress or dissolution, and locus standi is generally limited. The difficulty, therefore, is that an orphaned company may require urgent governance support even where there is no insolvency, no shareholder dispute, and no misconduct capable of triggering the ordinary corporate remedies.
The Court adopted a notably pragmatic approach, recognising the commercial realities faced by the company, its employees and its creditors. However, bespoke solutions inevitably raise even more questions as to how far existing statutory provisions can be stretched and what the resultant implications may be. It is now up to the legislator to also understand these commercial realities and to provide a clear solution to these (and similar) situations. The introduction of the Insolvency Practitioners Act in 2022 already lays down important groundwork, and a possible solution may also lie in extending the role of insolvency practitioners on the basis of Article 4(2)(d) of the Insolvency Practitioners Act.
George Bugeja is a Partner in Ganado Advocates' corporate finance department. Luisa Cassar Pullicino is a Senior Associate in Ganado Advocates' litigation department. Both George and Luisa are qualified Insolvency Practitioners.
Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.