The law allows a liquidation of a company upon the application of a creditor if the debtor company is served with an executive title and fails to pay within 24 hours. This concept is taken from English law known as cash flow insolvency.
The Court has the discretion to liquidate the company which is unable to pay its debts.
This was held in a judgement delivered by Mr Justice Ian Spiteri Bailey presiding over the Civil Court (Commercial Section) on 29 January 2025.
The case is ICE Net SA vs EFT Global Limited.
In its sworn application the Plaintiff Company asked the court to declare that the Defendant Company is unable to pay its debts in terms of Articles 214(5)(a) and (2)(a) of the Companies Act and as a consequence to order the liquidation of that company. The Plaintiff Company also asked the Court to appoint an administrator for the Defendant Company.
The Plaintiff Company explained that the First Hall of Civil Court, in its judgement of 25 February 2021 ordered that the Defendant company pay it €107,840.
A garnishee order was issued and €49,065 was deposited in court by the banks.
However, it failed to pay the balance and therefore, Article 214(2)(a)(ii) of the Companies Act allowed the debtor company to be liquidated since it was not in a position to pay its debts.
The Defendant company although notified of the proceedings did not file a statement of defence.
The shareholder of the Plaintiff Company filed an affidavit and explained that it won a court case against the Defendant company and it had filed a garnishee order way back in September 2017.
It was explained that the Plaintiff Company had tried to enforce the judgement, however payment was never made. As a consequence, it felt that it had no option but to proceed with this action. The Plaintiff Company expressed its doubt that the company was active. In the Malta Business Registry, the last audited accounts were for 2018.
Mr Justice Spiteri Bailey noted that Article 218(1)(b) of the Companies Act provides that a creditor may ask for the liquidation of a company by means of an application to the court. In this case the Plaintiff Company is a creditor of the Defendant Company and in terms of Article 214(2)(a)(ii) a company may be liquidated if it is unable to pay its debts. This is based on Article 214(5)(a), which states:
“(5) For the purposes of sub-article (2)(a)(ii), a company shall be deemed to be unable to pay its debts – Cap. 12.(a) if a debt due by the company has remained unsatisfied in whole or in part after twenty-four weeks from the enforcement of an executive title against the company by any of the executive acts specified in article 273 of the Code of Organization and Civil Procedure;”
The law allows a liquidation of a company upon the application of a creditor if the debtor company is served with an executive title and fails to pay within 24 hours. This concept is taken from English law known as cash flow insolvency. According to the book, Boyle & Birds Company Law, “a company which has a policy of late payment of bills could find itself the subject of a petition for a winding-up order or administration order… The Court in examining whether a company is suffering cash flow insolvency, will consider whether the company is actually paying its debtors.”
The Court considered the facts of the case: The Defendant Company did not pay the amount it owed and did not file audited accounts.
On these grounds the court held that it was proved that the requisites of Article 214(2)(a)(ii) and Article 214(5)(a) of the Companies Act were met and therefore, ordered the liquidation of EFT Global Limited.
The Court then moved to uphold the claims and order that the Defendant Company be liquidated under the guidance of the Official Receiver.
Av. Malcolm Mifsud
Partner
Mifsud & Mifsud Advocates
This article may also be accessed on MaltaToday.
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