Liquidation may be a step that needs to be considered by a director of a Maltese company when a company is no longer needed or has become insolvent. The process involves placing the company into dissolution, winding up the company's operations, distributing its assets, and ultimately dissolving it. The result would be that the company is completely closed down, struck off the Malta Business Registry and its legal existence ends.
Key Differences Between the Concepts of 'Dissolution' and 'Liquidation' in Malta
It is important to understand the distinction between dissolution and liquidation concepts in Malta, as these terms are often used interchangeably and understanding the difference is helpful in navigating the process effectively.
Dissolution refers to the legal process that begins the winding-up of process and it signifies the formal decision to cease the company's operations. The company is put into dissolution when the shareholders or the courts make a resolution or ruling to dissolve the company. Once put into dissolution, the company is still a legal entity but cannot continue its business except for purposes related to the winding-up process (e.g., selling assets, and settling liabilities). The officers of the company, namely the directors and company secretary, lose all their powers over the company and the duty to administer the winding up of the company is assigned to a liquidator. No share transfer can take place after the date of dissolution without the written consent of the liquidator.
Liquidation is the process that follows dissolution, where the company's assets are sold off, liabilities are paid, and any remaining assets are distributed to the shareholders. The liquidator, appointed either voluntarily by the company or by the court, oversees this process.
Causes of Dissolution
Article 214 of the Companies Act specifies the following circumstances when a company shall be dissolved and consequently wound up:
- The company itself decides to wind up the company by means of an extraordinary resolution;
- The business of the company is suspended or uninterrupted for a period of 24 months;
- If the company is unable to pay its debts;
- If the number of members of the company is reduced to below 2 and remains so reduced for more than 6 months (this does not apply to single-member companies);
- If the number of directors is reduced to below 2 in the case of a public company and to below 1 in the case of private companies and remains so reduced for more than 6 months;
- If the court is of the opinion that there are grounds of sufficient gravity to warrant the dissolution of the company.
Types of Liquidation
While liquidation can be complex, adhering to the proper procedures is essential to safeguarding the interests of all stakeholders. In Malta, there are generally three types of liquidations:
- Members' Voluntary Winding Up: This is a voluntary liquidation initiated by shareholders where the company is solvent and able to pay its debts.
- Creditors' Voluntary Winding Up: This is also a voluntary process but is initiated when the company is insolvent and unable to meet its financial obligations. In this case the company's creditors need to agree to the liquidation.
- Compulsory Liquidation: This type of liquidation is imposed by the court, usually upon the request of a creditor, when a company cannot pay its debts.
The Role of Liquidators
Liquidators are crucial in managing the liquidation process, ensuring that assets are distributed properly, and all legal requirements are met. They handle tasks such as settling debts and preparing final accounts, playing a key role in a seamless winding up. One of the main duties of the liquidator is to look into the affairs of the company and to see whether the debts of the company can be paid within the period set out in the declaration of solvency. A liquidator may be an advocate or a certified public accountant. We can help facilitate the appointment of a liquidator for your company.
Voluntary Winding-Up Procedures in Malta
Winding up voluntarily is the most common form of liquidation. There is no one-size-fits-all when it comes to the timeline for a voluntary winding up as this varies depending on the complexity of the company's affairs. The following are the main steps involved:
- Ensure the company is in good standing with the authorities: This means that the company is up to date with its filing of audited financial statements, income tax returns, VAT returns (if applicable), corporate annual returns and beneficial ownership confirmations.
- Transfer all assets and settle all debts: This can also be part of the liquidation proceeds transferred up to the shareholders at the end of the process.
- Closure of bank accounts: Any company bank accounts should be closed and the remaining funds should be deposited temporarily in a liquidator's client account. Upon striking off, the remaining funds are distributed to the shareholders.
- Pass a resolution to wind up the company: This resolution must be passed by a special majority of the shareholders at a general meeting. In this resolution, the members must appoint a person to act as liquidator and set the date of dissolution.
- Notification made to the Registrar of Companies: This is done by submitting the necessary liquidation forms, including a declaration of solvency and statement of affairs.
- Pre-liquidation Audit: The financial statements for the period up to the date of dissolution must be prepared and audited by the company's auditors.
- Final Liquidation Audit: The liquidation accounts & scheme of distribution are prepared by the liquidator and must be approved by the shareholders of the company. The final scheme of distribution will determine the manner in which the remaining assets, after settling all the company's remaining debts, will be distributed to the shareholders. These accounts must be signed by the liquidator and audited by an independent liquidation auditor.
- Deregistration with tax authorities: The company must also inform the relevant Maltese Tax Authorities of its liquidation and deregister from any VAT and tax obligations in Malta.
- Submission to the MBR: Once approved by the shareholders at the final general meeting, the liquidator shall submit to the Registrar a copy of the audited accounts & scheme of distribution, as well as a Liquidator's Return.
- Company is struck off: Once the documents are submitted and vetted by the MBR, they are uploaded onto the website and a notice in the government gazette is published. Any person who can show interest, eg a creditor who has not been paid in full, may interrupt the notice period by filing an application in court. On the lapse of 3 months from the effective date on the notice, the company will be officially struck off and the liquidation process will be complete.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
