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A defunct company, as defined by Article 325(1) of the Companies Act, is one that is no longer actively conducting business or in operation. The Malta Business Registry (MBR) frequently encounters abandoned companies, where directors resign, leading to the company becoming inactive. The concept of “defunct companies” was introduced in the early 2000s, allowing the Registrar to strike off such entities from the Register of Companies.
The Act of Striking Off
Since 2020, the MBR has undertaken a comprehensive cleanup, removing approximately 16,000 companies with no apparent business activity or those failing to file required annual filings.
This exercise highlights the legal authority vested in the Registrar to investigate a company’s status if there is reason to believe it is not in operation. If a company confirms its inactivity or fails to respond to the Registrar’s inquiry within one month, a notice is published, stating the intention to strike off the company after three months.
It is worth noting that directors, officers, and members remain liable even after striking off, and the company’s assets transfer to the Government of Malta, as outlined in Article 325(2) of the Companies Act.
What happens after a company is struck off?
Individuals, including members, creditors, or concerned parties, have the option to file a court application within five years from the publication of the striking-off notice if they feel aggrieved by the removal of a company from the Register. If the Court is satisfied that the restoration of the company’s name is justified, an order for restoration is issued. The Court may provide directions and provisions to place the company and all relevant parties in the same position as if the company’s name had not been struck off.
Failing to institute court proceedings within the five-year window allowed by law would lead to the forfeiture of the remedy to reinstitute the company on the Register. In such cases, the assets that may have belonged to the company are forfeited in favour of the government and become government property.
However, the current environment surrounding company revivals may undergo scrutiny in the near future. In a landmark decision in the Civil Court First Hall (Constitutional Jurisdiction) delivered in October 2023, Mr Justice Toni Abela declared provisions of the law governing asset forfeiture to the government unconstitutional due to their disproportionate and punitive nature. The Court emphasised the injustice of individuals losing valuable assets merely due to administrative issues with the Registrar of Companies.
In particular, the Court found a breach of:
Despite this, the concept remains under examination as of the article’s publication date, with the State Advocate having appealed the First Hall’s decision, which is currently being reviewed by the Constitutional Court.
This dynamic legal landscape, combined with the existing procedures for company restoration, continue to emphasise the significance of recent developments in shaping the future of company revivals in Malta.
If you have been impacted by a company which has been made defunct, and whose members, creditors, or any other interested persons feel aggrieved by the striking-off, please reach out to us at corporate@vallettalegal.com to discuss the process of restoring such a company to the Register.
