COVID 19 Legal Notice suspending liquidation of companies should be repealed

The Commercial Court asked Ministers to repeal Legal Notice 373/2020, which had suspended the winding up of companies as part of the pandemic measures taken. This was held in Avv. Cedric Mifsud a nom u in rapprezentanza ta’ Commercial Aviation Services LLC -v- HI FLY Limited decided on 9 May 2022 by the Civil Court (Commercial Section). The Court was presided by Mr Justice Ian Spiteri Bailey

Dr Cedric Mifsud representing the US company had asked the Court in its sworn application that since the defendant company is not in a position to pay its debts in terms of Article 214(2)(a)(i) of the Companies Act and as such the company should be wound up. The Plaintiff asked that an administer be appointed to administer the Defendant company.

The Plaintiff won a case against the Defendant Company on 15 September 2020, where the latter is to pay a little less that half a million Euros, but it failed to pay this debt. The Defendant company also has failed to file all its audited accounts  with the Registrar of Companies. The company registered a profit once in 2013 of €61,238.

The Defendant company filed a statement of defence, where it is stated that it filed for a retrial of the judgement mentioned by the Plaintiffs, since it was not notified with the summary proceedings. It claimed that it has €28 million in equity and therefore, it is liquid and it can pay its debts. The Defendant company agreed that it did not file its audited accounts, but this does not mean that the company is insolvent.

Mr Justice Spiteri Bailey held that the Parties had to show prima facie whether there is a case in terms of the Legal Notice. The relevant Article of the Legal Notice is Article 3, which reads:

“3. (1) The right granted under article 218 of the Act to any debenture holder, creditor or creditors to file for the dissolution and consequential winding up of a company in terms of article 214 of the Act is being suspended, and shall remain so suspended for a period of forty (40) days following an order of the Minister to lift such suspension.

(2) Any action or proceeding in court for the dissolution and winding up of a company in terms of article 214 of the Act filed in the Registry of Courts and Local Tribunals by any debenture holder, creditor, or creditors on or after 16th March, 2020 shall be stayed for a period of forty (40) days following an order of the Minister to lift such a stay.

(3) Notwithstanding the provisions of sub-regulations (1) and (2), the suspension or stay in terms of this regulation shall not prejudice the power of the Court to order the filing or hearing of applications in terms of article 214 and article 218 of the Act, whenever it is satisfied prima facie that the circumstances claimed in the application for winding up of the company arose prior to the 16th March 2020.”

The Court held that it is clear that the circumstances from when this Legal Notice was published have now changed and the authorities should consider that this Legal Notice be revoked. The Legal Notice’s aim was necessary at the time it was published, however, the authorities should have a serious look at this Legal Notice to see whether it is necessary.  The COVID 19 measures have now been eased and the effects of the businesses, the legal procedures and the suspension of the court registry were in effect for a period of time. Now many restrictions have been removed.

The application for the liquidation of the company was filed on 16 March 2020. The Plaintiffs managed to show that there is a prima facie case which circumstances date before March 2020.

The Court held that the action is based on two Articles of the Companies Act, Article 214(2)(a)(ii) and 214(2)(b)(iii). The first deals with the situation the company is not in a position to pay its debts. In sub article 5 of Article 214 explains the company would not have paid a debt from an executive title for 24 weeks and the Court would be satisfied that the company cannot pay its debts when taking into account its assets and liabilities. The second article of law states that if the Court deems that there are serious circumstances to justify the liquidation of the company.

The Court held that it was not satisfied prima facie that the circumstances of this case took place before the publication of Legal Notice3 73/2020. The judgement ordering the Defendant company to pay was delivered on 15 September 2020 which was certainly after 16 March 2020 as required by the Legal Notice.

As to the ground there are serious circumstances to justify a liquidate, the Court held that there is a prima facie basis and merits further investigation. The Court held that in terms of Legal Notice 373/2020, the case should be heard and ordered the case to continue.

The Court ordered the Registrar of Courts to send this decree to the Minister of Health and the Minister of Commerce to examine whether Legal Notice 373/2020 is needed any more.