Liquidation

Introduction

The terms ‘liquidation’, ‘dissolution’ and ‘winding-up’ are commonly used interchangeably. However, they have different meanings within corporate law. Dissolution is used to refer to a specific moment in time, marking the date when the winding-up procedure is commenced. Winding-up, on the other hand, constitutes all of that occurs following dissolution.

Dissolution

Maltese company law provides for two main types of dissolution, being (a) voluntary dissolution and (b) involuntary dissolution, i.e. court order dissolution.

Voluntary Dissolution

Voluntary dissolution occurs where the shareholders enter into an extraordinary resolution to dissolve the company, which can be of two types: (i) an extraordinary resolution for the company to be dissolved and wound up by the court or (ii) an extraordinary resolution for the company to be dissolved and wound up voluntarily.

Where the shareholders opt for the company to be wound up voluntarily and the company is solvent, then the procedure to be followed is the ‘Members Voluntary Winding Up’. If, on the other hand, the company is insolvent, the ‘Creditors Voluntary Winding Up’ procedure is followed.

Involuntary Dissolution – Court Dissolution

In the case of court dissolution, Maltese company law distinguishes between two distinct situations, being (i) situations where the court has the discretion (but is not under a duty) to dissolve a company, and (ii) situations where the court shall (and thus, is under a duty) to dissolve a company.

(i) Court’s Discretion to Dissolve a Company

The Court has a discretion to dissolve a company (a) if business is suspended for an uninterrupted period of 24 months or (b) if a company is unable to pay its debts based either on the Cash Flow Test or the Balance Sheet Test.

(ii) Court’s Duty to Dissolve a Company

The Court is under a duty to dissolve a company if (a) the number of members is reduced and remains below the minimum allowed by law for over 6 months; (b) the number of directors is reduced and remains below the minimum allowed by law for over 6 months; (c) there are grounds of sufficient gravity which warrant the company’s dissolution; or (d) the company’s period, if any, expires.

When the Court dissolves a company, it must also determine whether the company is to be wound-up by court or voluntarily.

Winding-Up

As aforementioned, there are two principal modes of winding-up, being (a) voluntary winding-up and (b) court/compulsory winding-up.

Voluntary Winding-Up

As discussed in the voluntary dissolution section, a voluntary winding-up can take the form of either (a) a Member’s Voluntary Winding Up procedure, or (b) a Creditor’s Voluntary Winding Up procedure.

(a) Member’s Voluntary Winding Up Procedure

In order for the shareholders to make use of the Member’s Voluntary Winding Up Procedure, the company must file a Declaration of Solvency. The Declaration of Solvency is a declaration by the directors of the company that, after having examined the company’s affairs, the company will be able to pay all its debt within a specified period not exceeding 12 months from the date of the Declaration.

In this case, the shareholders will choose the liquidator to be responsible for the winding-up of the company and fix the remuneration to be paid to him. The shareholders also retain the power to remove the liquidator from his office by extraordinary resolution.

The liquidator shall first ensure that the company’s debts can be paid within the period specified in the Declaration of Solvency. If he is of the opinion that the company will not be able to pay its debts within such period, then he shall summon a meeting of the creditors of the company and the winding-up procedure shall automatically transform into a Creditors Voluntary Winding Up Procedure.

Once the liquidator ensures that the company will be able to pay its debts as specified in the Declaration of Solvency, he shall proceed to wind-up the company. Once the company is fully wound up, the liquidator will make an account of winding up and draw up a scheme of distributions which he shall lay before the shareholders. Once approved, the account and scheme of distribution will be submitted to the Registrar for publication. The company will then be struck off following 3 months of publication.

(b) Creditor’s Voluntary Winding Up Procedure

If there is no Declaration of Solvency (or if the liquidator disagrees with the Declaration of Solvency as aforementioned), then the liquidation follows the Creditor’s Voluntary Winding Up Procedure.

In this case, the directors of the company shall convene a meeting of the creditors within 2 weeks from the date of dissolution. At this meeting, the creditors will nominate the liquidator to be in charge of the company’s winding up and decide upon his remuneration. It is also possible for the creditors to appoint a liquidation committee to decide upon the liquidator’s remuneration. Furthermore, the creditors maintain the right to remove and replace an appointed liquidator.

The liquidator shall make an account of winding up and draw up a scheme of distribution, which he shall present to the general meeting and the meeting of creditors for approval. The creditors have the right to appoint an auditor to review the account of winding up. Once approved, the account and scheme of distribution will be delivered to the Registrar for publication. The company will be struck off following 3 months of publication.

Court/Compulsory Winding-Up

During a court winding-up, it is the creditors who appoint the liquidator. The liquidator shall realise all the property of the company and distribute the final payment. The court will then cause a report to be prepared on the liquidator’s accounts. Once satisfied that the liquidator has complied will all his duties, the court will release the liquidator from his appointment. It will then proceed to make an order that the name of the company be struck off.

How can Zeta Assist?

At Zeta, our experienced team takes on the critical responsibility of ensuring that all aspects of the winding-up process are handled smoothly, beginning with the confirmation of the company’s solvency. Throughout the process, we manage the winding-up, prepare detailed accounts, and develop a fair distribution scheme for shareholders’ approval. Our commitment ensures compliance, efficiency, and a seamless conclusion to the company’s affairs, culminating in the company’s final removal from the register.