Court allows liquidation of a company

This was decided in the case Ivan Calleja -v- MIMS Supplies Limited.

The plaintiff filed an application in court where he explained that he had set up MIMS Supplies Limited (MIMS) together with Prinz International Limited. They had equal shares, while he was a director together with Michael Baldacchino. MIMS was into the food distribution business, Calleja was in charge of the distribution of the products, while Baldacchino was responsible for administration. In his sworn application, Calleja stated that he had asked on various occasions copies of the accounts of the company and the financial statement. Neither Baldacchino nor the accountants forwarded these documents. He was later informed that the company had accumulated debts. The plaintiff asked the court to appoint a liquidator and order the company’s liquidation. 

MIMS defended its position by saying the plaintiff has no juridical interest in this action, and that Michael Baldacchino and Prinz International should have been called into the action. Furthermore MIMS held that Calleja was well aware of the financial situation of the company and in fact was one of the causes of its downfall. The company argued that the liquidation is being sought in order for the plaintiff to evade his responsibility in the damage he caused. 

Mr Justice Joseph Zammit McKeon examined in detail the evidence brought before him. The plaintiff had testified under oath that he was first employed with Prinz International and he was later approached by Baldacchino in order to set up a company together in October 1999. They were equal shareholders.

The first two years were successful and were growing. However, in 2003 the Health Authorities blocked the sale of one of their best products because of its labelling. Sales dropped by 75% and the problem went on for nine months. From then onwards the business went downhill. Calleja noticed that Baldacchino was transferring some brands to his girlfriend’s business. In March 2006, the plaintiff imported some products with a third party and when Baldacchino found out their relationship suffered. In fact when cross-examined Calleja confirmed that he was involved in three other companies. 

Michael Baldacchino testified that MIMS stopped its operations in 2006 and the reason was that it was losing money. The last set of accounts were finalised in 2004. He told the court that Calleja had a free hand in the day to day running of the business. When Calleja wanted to expand the business, it was Prinz that financed this by increasing its overdraft. However, new projects, such as the distribution of organic products, failed. 

The Court then examined the pleas raised by MIMS, the first being that the plaintiff did not have juridical interest in the action he presented. The Court agreed with the Court appointed expert, Dr Louis Cassar Pullicino, that Calleja was a shareholder and a director of MIMS and was correctly instituted according to Article 218(1) of the Companies Act. 

With regard to the next plea that Michael Baldacchino and Prinz should be parties to the action, the court expert held that the Companies Act allows that all the parties involved can make submissions in the act. This in fact took place and in fact Baldacchino followed the case and testified. 

The court held it was clear that there was no future for the company and the shareholders and directors fell out with each other

With regard to the merits of the case, the liquidation of the company, the court held it was clear that there was no future for the company and the shareholders and directors fell out with each other. Art. 214 of the Companies Act allows the court to liquidate a company if the court finds sufficient gravity to warrant its dissolution. This mirrors the UK’s Insolvency Act, 1986 where the “court is of the opinion that it is just and equitable that the company should be wound up”. This assists the court in Malta in interpreting what is sufficient gravity. In view of the history of MIMS and the fact that there is a point of no return, the Court accepted to liquidate the company.

Dr Malcolm Mifsud

Partner

Mifsud & Mifsud Advocates