Once a company is inactive for a period of time, its liquidation would be justified

If the reason for a company does not exist anymore, then the company should be liquidated

If the reason for a company does not exist anymore, then the company should be liquidated. This was held in an application presented by Petrozavodsk Gruppa Limited before the Civil Court in its Commercial Jurisdiction, presided by Mr Justice Ian Spiteri Bailey and decided on 6 March 2023.

In its application the company asked the Court to liquidate the company in terms of Article 214(1)(a) of the Companies Act and to appoint a liquidator to carry out the liquidation proceedings.

The company explained that the company had approved a resolution for the company to be liquidated.

It was set up in 2014 in order to hold shares in other company.

The only subsidiary company was Besedka Software & Services Limited, but it stopped its activities and is inactive for the last few years.

The directors and the shareholders of the company decided that the company should be liquidated.

The accounts were not drawn up since 2018 and therefore, the company’s financial position is unknown.

One of the directors of the company testified and informed the court that he and the other director felt that it is in the best interest of the company to have it liquidated.

The shareholders agreed with this.

The court analysed Article 214(1)(a) of the Companies Act, which reads: “214.(1) A company shall be dissolved and consequently wound up in the following cases (a) the company has by extraordinary resolution resolved that the company be dissolved and consequently wound up by the court.”

According to Article 218(1) of the same Act, an application should be filed for the liquidation by the company itself following a decision taken by general meeting or board of directors meeting.

The Court saw that the resolution approved by the general meeting in March 2022 showed that the company has a number of difficulties to continue to operate.

The resolution lists these difficulties.

The Court made reference to Prof. Andrew Muscat’s book “The Principles of Maltese Company Law”. The author wrote:

“A Company’s substratum is the purpose or group of purposes which it is formed to achieve – in other words, its main objects. If the company has abandoned all its main objects (and not merely some of them) or if in practice it cannot achieve any of them, then its substratum has disappeared...”

From the evidence produced the Court concluded that it was now in a point of no return and there was no scope for it to continue.

The reasons listed in the resolution was therefore valid at law.

The Court then moved that the company should be liquidated and appointed the Official Receiver to go through the liquidation procedure which included the declare the financial position of the company and to take control of the assets of the company.