Judicial liquidation of a company kicks off a series of measures aimed at protecting creditors

A judicial liquidation is aimed at protecting creditors and is done by a collective procedure. This was held in a judgment given by Mr Justice Ian Spiteri Bailey in Dr Michael Psaila noe vs X before the Civil Court in its commercial jurisdiction.

Dr Psaila was representing a BVI company, Mediterranean Overseas Holding Limited and Corinthia (Malta) Staff Services Limited. The judgment was delivered on 3 January 2025.

The request was being made by Kevin Camilleri, who asked the court to continue with an action he had instituted against the liquidator of Azure Services Limited in terms of Article 224(2) of the Companies Act.

The Official Receiver objected to this since, he held that this discretion of the court should be used in exceptional circumstances.

The facts of the case concern the liquidation of Azure Services Limited, following an extraordinary resolution in which a liquidator was appointed in April 2020. The liquidator resigned in May 2023. The Applicants had instituted an action against the liquidator. The Court case is still ongoing. The action was to see whether Azure Services Limited had breached a contract and therefore, was responsible for damages.

Article 224(2) of the Companies Act reads:

“(2) Where a winding up order has been made or a provisional administrator has been appointed in accordance with the provisions article 228, no action or proceeding shall be proceeded with or commenced against the company or its property except by the leave of the court and subject to such terms as the court may impose.”

This article of law is based on the UK, Insolvency Act, 1986. Article 130(2) states:

“When a winding up order has been made or a provisional liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company or its property except by leave of the court and subject to such terms as the court may impose.”

In The Law of Insolvency, Ian Fletcher says that the “fundamental principle upon which winding up is based is the collective nature of proceedings”.

The court quoted from the UK courts in Aro Limited dated 1980. The court held that “In determining whether, in a compulsory liquidation, leave should be given to proceed with a claim, the court has an extensive discretion, it is free to do what is right and fair in the circumstances.”

In another UK judgment David Lloyds  & Co delivered in 1877, the court explained:

“There are several circumstances where, generally, the court will allow the action to proceed. One is when the plaintiff is seeking to enforce his security, because a secured creditor is in a position where he can fairly claim that he is independent of the liquidation, since he is enforcing a right, not against the company, but to his own property.”

The Court held that the judicial liquidation is a special procedure regulated by a special law. In Antonio Caruana et vs Joseph Debono decided by the Commercial Court on 7 July 1960, the Court held that a liquidation is in fact a series of operations intended to liquidate a company.

The liquidator is chosen by the company or by court, who is to bring to close the company’s activities. A judicial liquidation is not to be compared to a court case, where a judgment is delivered at the end. The liquidation is a collective procedure used for the benefit of the creditors.

For these reasons the court turned down Kevin Camilleri’s request, although held that his rights against Azure Services Limited remained untouched and the court case could continue against the other defendants.