The Liquidation Process in Malta: A Guide for Companies

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Liquidation is the procedure through which a company is dissolved, and its assets are utilized to settle its debts and obligations. The liquidation process within Malta is regulated by the Companies Act (Chapter 386 of the Laws of Malta) as well as the Insolvency Regulations (Subsidiary Legislation 480.36). This article will delve into the liquidation process in Malta and provide insights for companies to successfully navigate this intricate course of action.

Basis for Liquidation in Malta

There exist multiple factors that might necessitate a company in Malta to undergo liquidation, including:

Insolvency: Should a company become incapable of fulfilling its debt obligations on time, it could be categorized as insolvent and thereby necessitate liquidation.

Voluntary Liquidation: Companies may opt for voluntary liquidation, either to wrap up their business operations or restructure their financial situation.

Court-Mandated: In certain instances, a court might mandate the liquidation of a company.

Types of Liquidation in Malta

Liquidation in Malta is categorized into two types: compulsory liquidation and voluntary liquidation.

Compulsory Liquidation: This form of liquidation is ordered by a court and is a result of various reasons including, but not limited to:

  • The company’s business is suspended continuously for 24 months.
  • The company is unable to pay its debts.
  • A debt owed by the company remains partially or fully unpaid for 24 weeks after enforcement through executive actions.
  • The court is convinced, based on evidence, that the company cannot settle its debts, considering possible future liabilities.
  • The company has fewer than 2 shareholders for over 6 months (except in a single-member company scenario).
  • The number of directors falls below the legal requirement.
  • The court believes that there are serious reasons to dissolve and wind up the company.
  • The company’s fixed term or an event specified in its memorandum or articles leads to its dissolution. In this case, compulsory liquidation occurs if the shareholders haven’t passed an extraordinary resolution for voluntary winding up before the term expires or the event occurs.

Voluntary Liquidation: Voluntary liquidation is at the discretion of the shareholders, involving the cessation of operations and dissolution. It can serve various purposes such as financial reorganization, business cessation, or owner retirement. Voluntary liquidation can be further divided into voluntary liquidations and voluntary creditors’ liquidation. The key difference is that in the former, assets surpass liabilities, enabling the liquidator to settle debts before distributing remaining assets to shareholders and removing the company. In the latter, liabilities exceed assets, leading the liquidator to partially repay creditors based on available residual assets.

The Liquidation Process in Malta – Voluntary Liquidation:

In a voluntary liquidation, a company enters dissolution via an extraordinary meeting and a shareholder’s resolution outlining the intent to liquidate. A liquidator is appointed to oversee the process, determining their fees. Both the liquidator and liquidation auditor must maintain independence from the company, pre-liquidation auditor, and each other. Creditors must be settled, and remaining assets allocated to shareholders. Voluntary liquidation must conclude within 12 months; otherwise, the liquidator must report to the registry with an explanation. A liquidation audit and scheme of distribution are submitted to the Malta Business Registry, issuing a 3-month notice to alert potential creditors. If no appeals arise, the company is struck off from the register. Furthermore, a final tax return is submitted to strike off its tax number. Revival of the company is only possible within five years from its striking of date, only if legally justified; post this period, revival is not eligible.

Conclusion

Liquidation in Malta is intricate, necessitating meticulous planning and oversight. Appointing a capable liquidator is crucial to manage the process and ensure legal obligations are met. By grasping Malta’s liquidation procedure, companies can adeptly navigate it, ensuring equitable and efficient distribution of assets.

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