Defendant gaming companies dissolved and consequently wound up

Plaintiff wanted court to dissolve and wind up gaming companies.

Joseph Mizzi

On 17 June 2013, in the case of George Mangion, in representation of PKF (Malta) and GMM & Associates (Malta) Limited v. Gaming Islands Holding Limited, Board Games Islands Limited, Casino Islands Limited and Pokerpest Services Limited, the First Hall Civil Court presided by Mr Justice Joseph Zammit Mc Keon considered the plaintiff's claim that the defendant companies should be dissolved and consequentially wound up. During the hearing of the case it resulted that all defendant companies are linked to each other since Gaming Islands Holding Limited was the beneficial owner of the other three companies. It also resulted that all four companies had the same director and therefore the plaintiff claimed that there existed a deadlock - a board of directors meeting could never be set up therefore no administrative decisions could be taken.

The plaintiff company was engaged by the defendants for licensing, audit, accounting and other services. As George Mangion explained in his testimony, the difficulties started in 2009 when the major shareholders and the director, all of Hungarian nationality, lost interest in their operations in Malta. That being said, the plaintiff company was still responsible for the defendant companies in the eyes of the authorities for the work they provided, especially the gaming and fiscal authorities.

Following an application in Court, Go Plc intervened in the case and objected to the plea made by the plaintiffs, that is, for Gaming Islands Holding Limited to be dissolved. The defendant company was its creditor and therefore the dissolution of the company would have prejudiced the intervener's position as it had already obtained an executive title. The Court denied Go Plc's objection as it was under the obligation to ensure that no special benefit would be given to any creditor upon the dissolution of a company. In fact, procedure demands that after a company is dissolved, all the creditors would meet up as directed by the liquidator and the creditors would then be ranked accordingly. The court noted in this particular case, the debt of the plaintiff and of Go plc was within the same ranking and therefore it should not be placed at any advantage.

The Court also considered that the plaintiffs asked for the dissolution and consequential winding up of all four defendants in terms of Article 214(2)(b)(iii) of Cap 386 of the Laws of Malta, which holds that a company shall be dissolved "when the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of the company". The Court held that this sub-article gave it a wide discretionary power to determine, upon examination of the facts and the circumstances of the case, whether the grounds were "of sufficient gravity".

When conducting such analysis the Court took into account the fact that the shareholders and director of the defendant companies set up four companies in Malta and after only some time lost all interest to operate as such. The Court understood the preoccupation of the plaintiffs as the authorities were expecting them to fulfil certain obligations even though they did not have any feedback from the director or the shareholders of the defendant companies. The Court stated that the most worrisome fact was that the sole director Balazs Vereb, a Hungarian lawyer, was surprised that he was appointed as the director of the defendant companies since according to Hungarian Law, a lawyer cannot act as a director of a company. Mr Vereb had no interest in the companies and as the shareholders' lawyer he could safely say that the shareholders were all insolvent.

The Court as a result of the above noted that more than a deadlock situation, the facts lean towards the disappearance of the substratum. If the shareholders are not capable of pursuing the scope of the defendant companies then that should be considered as sufficient gravity for the dissolution and consequential winding up. The Court stated that it is fundamental that a company operates in a transparent and accountable manner and that it was not going to permit that any third party is exposed to any risks due to the lack of good faith of the defendants.

The Court in the circumstances acceded to the pleas of the plaintiffs since there were grounds of sufficient gravity to warrant the dissolution and consequent winding up of the defendant companies.

Joseph Mizzi is a lawyer with Mifsud & Mifsud Advocates