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What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
A company will be dissolved and consequently wound up if it has resolved by extraordinary resolution to be dissolved and consequently wound up by the court or voluntarily.
A company may be dissolved and wound up by the court if:
- the business of the company is suspended for an uninterrupted period of 24 months; and
- the company is unable to pay its debts.
A company will be dissolved by the court if:
- the number of members of the company is reduced to below two and remains so reduced for more than six months (not applicable to single-member companies);
- the number of directors falls below the minimum prescribed by law and remains so for more than six months;
- the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and winding up of the company; or
- the period fixed for the duration of the company by its memorandum or articles (if any) expires or an event occurs which the memorandum or articles provide will trigger the company’s winding up (if any) and the company’s general meeting has not accordingly passed a resolution to be wound up voluntarily before such expiry or event.
Requests to the court must be made by means of an application, which may be submitted by the company following a decision of the general meeting, its board of directors or any debenture holder, creditor or contributory (the latter only if certain requirements subsist). In a number of cases, the application may also be made by any shareholder or director of the company. The directors, the company secretary and all contributories and creditors of the company are entitled to make submissions on the hearing of a winding-up application.
The registrar of companies may file a winding-up application where he or she finds that it is expedient to do so and in the public interest.
Further, an application for a winding up by the court may be filed notwithstanding that a company is being wound up voluntarily.
What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
Pursuant to the Companies Act, a winding up may take place in one of three ways:
- winding up by the court;
- a members’ voluntary winding up (this would not apply in an insolvency scenario) – in such a winding up, the company must pass a resolution for dissolution and consequential voluntary winding up and the company directors may make a declaration that the company will be able to pay its debts in full within 12 months of the date of dissolution. If the directors do not make such a declaration, the winding up will be treated as a creditors’ voluntary winding up; or
- a creditors’ voluntary winding up, which will apply in the abovementioned scenario.
How are liquidation procedures formally approved?
In the context of a court winding up, the court will, on the liquidator’s application, order a report to be prepared on the liquidator’s accounts (at the company’s expense) once the liquidator has:
- realised all of the company’s property (or as much as can be realised without needlessly protracting the liquidation);
- distributed a final payment to the creditors (if any);
- adjusted the rights of the contributories; and
- made a final return to the contributories (if any).
Once satisfied that the liquidator has complied with the requirements of the Companies Act and other applicable requirements, the court will release the liquidator from his or her appointment. Once the affairs of the company have been completely wound up, the court will order the company’s name to be struck off the register from the date of the order.
In a creditors’ voluntary winding up, as soon as the affairs of the company are fully wound up, the liquidator must make an account of the winding up showing how it has been conducted and how the property of the company has been disposed of. The liquidator must also draw up a scheme of distribution indicating the amount due in respect of each share from the assets of the company, where applicable. The account must be audited. Subsequently, the liquidator must call a general meeting of the company and of the creditors for the purpose of laying before them the account and scheme of distribution (if any), together with the auditors’ report, and must explain these documents. The liquidator must then send these documents to the registrar of companies, who must then publish a notice and, three months after publication of the notice (unless an objection is raised by a creditor or other interested person), strike the company’s name off the register.
What effects do liquidation procedures have on existing contracts?
Existing contracts cannot be enforced during liquidation procedures for an insolvent company.
What is the typical timeframe for completion of liquidation procedures?
A voluntary winding up typically takes between 12 and 16 months from the date of the decision to wind up the company. This will vary depending on the nature and complexity of the case at hand. A court winding up may take considerably longer – possibly up to three years, depending on the complexity of the proceedings.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
The liquidator is appointed by the general meeting or the creditors in the context of a voluntary winding up, or by the court in a winding up by the court.
In a winding up by the court, the liquidator has a number of powers set out in the Companies Act (Cap 386 of the Laws of Malta), which include:
- bringing or defending any action or other legal proceeding on behalf of the company;
- carrying on the business of the company as necessary for its beneficial winding up; and
- paying creditors according to their ranking under the law.
The liquidator in a winding up by the court may also exercise the following powers (among others), subject to the control of the court:
- sell the company’s movable and immovable property; and
- undertake all acts and execute all deeds and other documents on behalf of the company.
The primary function of the liquidator, however he or she is appointed, is to realise the assets of the insolvent company and pay creditors according to their ranking under the law.
What is the extent of the court’s involvement in liquidation procedures?
In a court winding up, the court will monitor and oversee most aspects of the winding up and appoint regular hearings in order to be updated by the liquidator with respect to the process.
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
In a court winding up, creditors can make submissions to the court on the hearing of a winding-up application. In a creditors’ voluntary winding up, following the resolution for winding up, the directors must call a meeting of the creditors and submit to them a full statement detailing the position of the company’s affairs, together with a list of the company’s creditors and the estimated amount of their claims. The creditors may also nominate the liquidator. If the creditors and the company nominate different persons, the person nominated by the creditors will be liquidator. The creditors may also form a liquidation committee.
If the winding up continues for more than 12 months, the liquidator must summon a general meeting of the company and a meeting of the creditors at the end of the first 12-month period and each succeeding 12-month period, during which he or she must submit an account of his or her acts and dealings and the conduct of the winding up during the preceding 12 months, including a summary of receipts and expenditure.
In the context of an insolvent winding up, creditors are generally prohibited from instituting or continuing proceedings against the company.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
In any winding up, on the appointment of a liquidator, all powers of the directors and the company secretary cease, except as provided in the Companies Act.
Shareholders have little involvement in an insolvent winding up, beyond participation in the meetings called by the liquidator.
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