‘Voluntary winding up’ is initiated by a general meeting of the members of the company passing a resolution that the company shall be wound up. Our Companies Act distinguishes between a members’ and a creditors’ winding up.
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A members’ voluntary winding up occurs when the directors of the company have within four weeks before the winding up resolution is passed made a statutory declaration as to the company’s solvency at a board meeting, and have in that declaration stated that, after having fully examined the company’s situation, they agreed that the company will be able to pay its debts in full within a period specified in the declaration, which period shall not exceed twelve months from the date of the dissolution. This declaration must be delivered to the Registrar of Companies within fourteen days after the winding up resolution is passed together with a copy of the resolution.
If the liquidator is convinced that during the members’ voluntary winding up, the company’s debts will not be paid within the period stated in the declaration of solvency or within the twelve month period, the liquidator must convert this liquidation into a creditors’ voluntary winding up.
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A creditors’ voluntary winding up takes place when the declaration of solvency is not made before the winding up resolution is passed.
Generally, voluntary liquidations are far less expensive and much quicker than winding up by the Court. The main distinctions between the two types of winding up;
- while compulsory winding up is carried out entirely within the Court system, voluntary winding up in principle takes place away from the Court.
- Whilst in a compulsory winding up, there is no action taken by any organ of the company itself, in voluntary winding up it is the general meeting which brings forward the resolution for winding up to the company’s members.
- In a compulsory winding up, the liquidator of the company cannot take any important decision without the sanction of the Court. In a voluntary winding up, the liquidator is not so constrained and performs various actions that are usually performed by the Court or by the liquidator under the authority of the Court.
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“The initiative in embarking upon the voluntary winding up rests entirely with the company. Moreover, the conduct of the proceedings in a voluntary winding up is placed in the hands of a liquidator appointed from the private sector and there is no direct involvement of either the Official receiver of the court unless deliberate steps are taken to invoke their intervention.”
Despite the differences between the two types of winding up, a voluntary winding up may be converted into a compulsory winding up when the Court makes an order to that effect.
The Provisional Administrator
Art.228, dealing with winding up by the Court, empowers the Court to appoint a provisional administrator at any time after the presentation of a winding up application and before the making of a winding up order, and either the official receiver or any other competent person may be so appointed. Art.228 (2) - The provisional administrator shall carry out such functions and powers in relation to the administration of the estate or business of the company as the court may specify in the order appointing him.
Art.228 (3) – The provisional administrator holds office until such time as the winding up order is made or the winding up application is dismissed unless before such time he resigns or he is removed by the court upon good cause being shown.
The provisional administrator or as is sometimes called the ‘provisional liquidator’ is a temporary liquidator. His appointment is purely temporary. He is appointed before the winding order has even been made, that is why he is a ‘provisional administrator’and not a liquidator at this stage. The provisional administrator is appointed to make sure the company’s assets are not being dissipated by the directors. As provisional administrator, the official receiver is to take possession of the assets and accounting records until the hearing of the petition. “The powers of the provisional administrator depend on the order appointing him. He is merely a receiver, his function being to protect the assets of the company, and therefore, he cannot sell the assets unless they are perishable.”
The Liquidator
The liquidator is in sole control of the company whose directors cease to function altogether. His principal functions include disposing of the company’s assets and with the proceeds, paying those having valid claims against the company. As soon as he is appointed, “he assumes control of the company’s assets and distributes the proceeds among the creditors, the surplus is then divided among the shareholders.” He is permitted very limited powers of continuing the business only in so far as this is necessary for the winding up process. However, once appointed, the liquidator “ha in via esclusiva la rappresentanza legale della societa’”.
Apart from those liquidations under the control of the Official Receiver, the liquidator is responsible for the entire process that ends with the striking-off of the company from the register.
The persons eligible to act as liquidators are advocates, certified public accountants and auditors, and any person registered with the Registrar as fit and proper to exercise the functions of the liquidator.
Liquidation provides the opportunity to examine and where appropriate, set aside transactions undertaken by the company shortly before liquidation. If for example, shortly before going into insolvent liquidation, the company paid only one creditor in full, that creditor will have benefited at the expense of the other unpaid creditors. In this case, the liquidator may have such transactions set aside to ensure equal treatment of all creditors, and where the company was conducted fraudulently or incompetently, he will be able to seek a contribution to the assets of the company from those responsible.
Liquidators in a Winding Up by the Court
Art.230 deals with the choice of a liquidator at the meetings of creditors and contributories summoned for that purpose. The creditors and the contributories hold separate meetings and each meeting may nominate a person to be a liquidator and the creditor’s nomination prevails if different persons are nominated. If the creditors fail to nominate a person, the person nominated by the contributories shall be the liquidator. If neither creditors nor contributories nominate a liquidator, the
official receiver will make an application to the Court for an appointment of a liquidator.
Art.231 (1) states that the liquidator has to fix the dates for the meetings of the creditors and the contributories and summon them.
According to Art.235, where a person other than the official receiver is appointed liquidator, it is necessary for such person to notify the Registrar of his appointment in order for him to be capable of acting as liquidator. The liquidator must also give the official receiver information about the company and grant him access to books and documents of the company and give him such other assistance as the official receiver may require for the purposes of carrying out his functions in relation to the winding up. Until the appointed liquidator gives notice of his appointment to the Registrar, it is the official receiver who continues to act as liquidator.
Under Art.237, where a company is being wound up by the court, the liquidator or the provisional administrator, shall take into his custody or under his control all the property and all rights to which he has reasonable cause to believe the company to be entitled. It is important to note that the law is peaking about custody and control not ownership. The liquidator is not entitled to be owner of any of the company’s assets.
Art.238 which was amended by Act IV of 2003, lists the power of the liquidator in a winding up by the Court, which power requires the sanction of the court or of the liquidation committee:
Art. 238(1) (a) to bring or to defend any action or other legal proceeding in the name and on behalf of the company
(b) to carry on the business of the company so far as may be necessary for the beneficial winding up thereof
(c) to pay creditors according to their ranking at law
(d) to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or which may be due in damages against or whereby the company may be rendered liable, and to refer any such matter to arbitration.
(e) to make calls on contributories or alleged contributories and to effect any compromise or arrangement in relation to debts, liabilities and claims of the company present or future, certain or contingent, ascertained or which may be due in damages, subsisting or supposed to subsist between the company and a contributory or alleged contributory or other debtor or alleged debtor, and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim and give a complete discharge in respect thereof.
(f) to represent the company in all matters and to do all such things as may be necessary for winding up the affairs of the company and distributing its assets.
Under Art.238 (2), the liquidator in a winding up by the court shall have the power to sell the movable and immovable property of the company by public auction or private agreement. He can do all acts and execute in the name and on behalf of the company all deeds, receipts and other documents. He shall raise on the security of the assets of the company any money requisite, and he shall also, appoint a mandatory to act for him in his capacity as liquidator for particular purposes.
The liquidator has also the duty to keep proper books in which he shall cause to be made entries or minutes of proceedings at meetings, and of other matters as may be prescribed.
The Liquidator in a Voluntary Winding Up
Under Art.270 (1), the liquidator in a voluntary winding up is appointed by extraordinary resolution for the purpose of winding up the affairs and distributing the assets of the company and may fix the remuneration to paid to him.
The duties of the liquidator in a voluntary winding up, include the summoning of the meeting of the creditors. He shall lay before such meeting the statement of the assets and liabilities of the company. If he does not comply, he is liable to a penalty.
Another duty is to hold a general meeting where winding up continues for more than twelve months.
The Official Receiver
The office of the official receiver is present in compulsory winding up. He is a public officer and is appointed by the Minister responsible for the registration of commercial partnerships, and the Minister may at any time terminate his appointment or designation. His function is to receive a statement as to the affairs of the company (contents of statement were described earlier in this essay).
Art.227 (1) – In a case where a winding up order is made, the official receiver shall, as soon as practicable after receipt of the statement to be submitted under article 226 or, in a case where he or the court orders that no statement shall be submitted, as soon as practicable after the date of the order, carry out such investigations as he may deem appropriate and submit to the court a preliminary report, if any as he thinks fit-
- as to the amount of share capital issued, and paid up, and the estimated amount of assets and liabilities;
- if the company has failed, as to the causes of the failure; and
- whether in his opinion further enquiry is desirable as to any matter relating to the promotion, formation or failure of the company or the conduct of the business thereof.
Art.227 (2) - The official receiver may also, if he thinks fit, make a further report, or further reports, stating the manner in which the company was formed and whether in his opinion any fraud has been committed by any person in its promotion or formation or by any officer of the company since the formation thereof, and any other matter which, in his opinion, is desirable to bring to the notice of the court.
Art.227 (3) - If the official receiver states in any such further report that in his opinion a fraud has been committed as specified in (2) the court shall have the further powers provided in art.260, without prejudice to the exercise of any other powers it may have.
As one can see from Art.227 (words are highlighted in italics), it is not mandatory for the official receiver to make a report. Moreover, the official receiver is under no duty to make an investigation. Art.227 distinguishes between preliminary and further reports. Where the official receiver does make a further report, stating that he has formed the opinion that fraud has been committed, the Court, through Art.260, is given the power to order the examination of promoters and officers, with the official receiver taking part in the examination. If the person to be examined asks the court to be discharged from any charges made against him, the official receiver has the duty to appear on the hearing of the application in order to draw the Court’s attention to those matters which are in his opinion of relevance.
Under Art.229 (1), the official receiver becomes the liquidator of the company and continues in his office until another person becomes liquidator. “This occurs in every compulsory liquidation and is in no way connected with the appointment of a provisional administrator under art.228 between the time of the presentation of the winding up application and the making of the winding up order.”
Art.229 (2) – The official receiver is, by virtue of his office, the liquidator during any vacancy. This article entitles the official receiver, at any time when he is the liquidator, to summon separate meetings of the creditors and contributories for the purpose of choosing a person to be a liquidator in his place. He must summon such meetings if he is at any time requested to do so by one-fourth in value of the company’s creditors.
Art.234 (1) states that the official receiver shall before the first meeting, send to each creditor and each contributory, a summary of the statement of affairs, including the causes of the failure, any observations which the official receiver may think it fit to make. However, failure to send such summary, or failure of its being received before the meeting will not invalidate the proceedings at the meeting.
In this assignment I only focused on the ‘provisional administrator’, the ‘official receiver’ and the ‘liquidator’ as the persons who in my opinion exercise the most authority in the winding up process. The creditors, contributories especially exercise some form of control in the liquidation process but due to limited space and time, I could not go into their powers.
Reference:
- Chapter 386 Laws of Malta; Companies Act, 1995.
Theses:
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Abela Christine, Dissolution and Winding Up of a Limited Liability Company, LL D 1995.
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Chetcuti-Ganado Andrew, The Winding up of the Companies by the Court, LL D 1997.
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Galea Monica, The Company Liquidator LL D 1999.
Galea Monica’s thesis, pg. 1
Mayson, French & Ryan on Company law, 15th edition 1998/99, pg. 664.
Art.226 (1), Companies Act
Art.226 (2), Companies Act
Art.226 (3), Companies Act
Art.218 (4), Companies Act, 1995
Galea Monica’s thesis, pg. 11
Abela Christine’s thesis, pg.88
Galea Monica’s thesis, introduction pg. C
Corte di Cassazione, 6.1.81, n.52.
Art.230 (4), Companies Act, 1995
Art.240, Companies Act 1995
Art.272 (1), Companies Act 1995
Art.272 (2), Companies Act 1995
Art.273, Companies Act 1995
Art.225 (1), Companies Act
Art.226 (1) & (2), Companies Act
Proviso to Art.260 (6), Companies act 1995.
Abela Christine’s thesis, pg.88
Art.229 (3), Companies Act, 1995
Art.229 (4), Companies Act, 1995