Agreement deemed not fraudulent in view of solvency of debtor

The case Mobilja Gauci Limited vs Greentech Solutions Limited and presided by Judge Anna Felice in the First Hall, Civil Court on the 13th March 2019, concerned an agreement entered into between the companies Mobilja Gauci Limited and Greentech Solutions Limited. The former company used to occupy the factory KW 10, Qasam Indsutrijali, Kordin, which it used to rent from Malta Industrial Parks Limited.

Following a brief partnership in the manufacture of plastic objects, on the 19th November 2011, the two companies eventually came to an agreement that Mobilja Gauci Limited vacates the premises in favour of Greentech Solutions Limited for the sum of €256,231.07. This sum was only partly paid on the day of the agreement, and Greentech Solutions Limited declared that it was going to pay Mobilja Gauci Limited the remaining balance of €118,000 in not later than four weeks from the day of the agreement.

In 2012, Mobilja Gauci Limited filed a case against Greentech Solutions Limited and claimed that not only did the latter company fail to pay the outstanding balance but that it had also entered into a fraudulent agreement with CMP Services Limited, in the sense that the debtors of Greentech Solutions Limited had to pay CMP Services Limited instead. This would lead Greentech Solutions Limited not to have any money in its own name, and therefore avoid paying the outstanding balance.

Greentech Solutions Limited claimed that Mobilja Gauci Limited was wrong in instituting the case in question since the outstanding balance was only due to the latter company upon the fulfilment of certain obligations. However, the Court ruled that in the agreement signed between the two companies, it was clearly stated that the remaining balance of €118,000 was to be paid by not later than four weeks from the day of the agreement. No other condition for the payment of this balance was mentioned in this agreement. Therefore, the Court claimed that pacta sunt servanda and contra testimonium scriptum, testimonium non scriptum non feritur, meaning that the written conditions in the agreement between them must prevail.

The Court then considered the actio Pauliana brought forward by the creditor when it claimed that the agreement entered into between Greentech Solutions Limited and CMP Services Limited was fraudulent. In fact, the actio Pauliana may be instituted by a creditor in terms of Article 1144 of the Civil Code, Chapter 16 of the Laws of Malta in order to nullify a fraudulent agreement entered into by its debtor, and which prejudices the rights enjoyed by the creditor.

The Court referred to the case of Rita Caruana vs Giovanna Attard of the Civil Court First Hall delivered on the 7th January 2009 which explained that the two necessary elements for an actio Pauliana are eventus damni and consilium fraudis. This means that to institute this action, one must first and foremost prove to the satisfaction of the court that as a result of the act being impeached, the debtor would have suffered a loss in his patrimony which in turn would prejudice the rights of the creditor. The loss brought about by the act must have been such as to render the debtor insolvent or even more insolvent than he was before.

Furthermore, the element of consilium fraudis is satisfied if it is proven that the act in question prejudiced the rights of the creditors. This element concurs irrespective of whether the intent of the parties who entered into the agreement was to cause prejudice to the rights of the creditor.

However, in this case, the Court ruled that the element of eventus damni was not present. This is because the money received by CMP Services Limited on behalf of Greentech Solutions Limited was used for payments due to creditors by the latter company. In fact, when a precautionary warrant of prohibitory injunction was filed against Greentech Solutions Limited, its debtors filed the amounts due to the company by them in Court. This proves that the agreement entered into by Greentech Solutions Limited and CMP Services Limited did not render the former company insolvent and thus the element of eventus damni did not concur.

The Court concluded that although the outstanding balance of €118,000 was still due by Greentech Solutions Limited in favour of Mobilja Gauci Limited, the consequent agreement entered into with CMP Services Limited was not a fraudulent one.