Reputation issues may be reason to allow a liquidation of a company

The Reputation of fellow shareholders may be considered as a grave circumstance which would allow the Court to order the liquidation of the company. This was held in Oliver Mallia -v- Cinebiss Limited et decided by Mr Justice Ian Spiteri Bailey, presiding over the Civil Court in its commercial jurisdiction, on 13 May 2022.

The Plaintiff asked the court to liquidate Cinebiss Limited in terms of Article 214(2)(b)(iii) of the Companies Act and as a consequence appoint a liquidator to carry out the procedure. The Plaintiff explained in his sworn application that he has 250 ordinary shares in Cinebiss and the other shareholders are Spira Trading Limited and Keither Schembri. The company stopped trading around 10 years ago and the shareholders agreed to liquidate the company, but never got down to doing this.

The Court was informed by Keith Schembri that he is subject to a freezing order and therefore, does not have any objection to the liquidation of the company.

Mallia in his affidavit explained that in 2010 he resigned as director of the company, but after there was no communication between the shareholders. He approached Brian Tonna to liquidate the company, but nothing took place. In January 2019 a liquidator was nominated, but was not registered with the Malta Business Registry. He explained further that when Keith Schembri was charged with money launderying , he was facing problems with his relationship with the banks.

The Company has not filed the accounts with the MBR and there are penalties accumulating.  According to Article 214(2)(a)(i) a company is liquidated when it stops trading for more than 24 months. Article 214(2)(b)(iii) reads:

“(iii) the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of the company.”

Although the request to liquidate is based on two articles of the law, the Court may order the liquidation if one of these are applicable to the case.

The evidence showed that the company has not traded since 2009 and there were discussions to liquidate since 2012. This is sufficient for the Court to order the liquidation.

As to whether there are grave and serious ground for the Court to order the liquidation of the company, the Court pointed out that the Plaintiff is claiming this because one of the shareholders is now facing money laundering  charges. Although there is no evidence that the Plaintiff is facing problems with the banks, in all probability this is the case. Banks take money laundering very seriously and therefore, the Court is not surprised that the Plaintiff is being threated differently because of his association with a person subject to a freezing order. The Court held that it was applying two principles of law. The first is that the accused is innocent until proved guilty and that no innocent person should face prejudice because of the doing of third party.

The Court quoted from Dr Peter Fenech noe -v- STK Europe Limited decided on 14 October 2020. In this judgement the Court held that the law gives wide discretion to the court to decided what is sufficient gravity, although there is no definition of the term “sufficient gravity”. This is different from the UK Insolvency Act, 1986, where the law allows the court to decide whether to liquidate a company on the basis of justice and equity.

The Court held that in this case there was an agreement between the shareholders to liquidate the company, but it never took place. Then the Plaintiff felt he had to take action because of the problems he was facing problems with the banks.

The Court then moved to uphold the Plaintiffs requests and order that liquidation of the company, Cinebiss Limited.