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A Members’ Voluntary Winding Up takes place after an extraordinary resolution is passed by the members to put the company in Dissolution. The Dissolution, that is the decision of the company to start the liquidation process (Winding Up), triggers the Winding Up of the company. In a Members’ Voluntary Winding Up, the liquidation takes place under the control of a Liquidator appointed by the shareholders, and only in cases where the company is solvent. For Insolvent liquidation, there are specific procedural rules which need to be followed, amongst which rules on the appointment of the liquidator at the hands of the Creditors.
Declaration of Solvency
In the case of a Members’ Voluntary Winding Up, a Declaration of Solvency (Form B2), which must be signed by the majority of the Directors, must be filed at the Malta Business Registry. This Declaration of Solvency is a very important statement in which the majority of the Directors declare that they have made a full inquiry into the affairs of the company, and that they have formed the opinion that the company will be able to pay off its liabilities in full within the period specified in the Declaration, but not exceeding 12 months (Art 268 (1) of the Companies Act). This declaration should be made not earlier than one month from the resolution taken to dissolve the company, and it must be filed at the Malta Business Registry together with the Notice of Dissolution (Form B1). The Declaration of Solvency should also contain a statement of the company’s assets and liabilities made up to a date not earlier than the date of the declaration by more than 3 months (Art 268 (2) of the Companies Act).
Declaration of Solvency – No Reasonable Grounds for Opinion
The law places safeguards aimed at ensuring that the Declaration of Solvency is made in good faith and given its due importance. In fact, if the Winding Up starts off as a solvent Winding Up through the appointment of a liquidator by the company, in view of the opinion by the Directors that the company is solvent, and it later emerges that the liabilities of the company will not be settled within the period stated in the Declaration of Solvency, then it may be presumed, unless the contrary is proved, that the Directors did not have reasonable grounds for opinion. In other words, it would be presumed that the declaration was wrongly made, and such an act would be a criminal offence punishable with up to 3 years imprisonment and a fine (multa) of up to €46,587.47 (Art 268 (4) of the Companies Act).
Procedure in the case of a Solvent Winding Up
The first effective step in a Voluntary Winding Up is the appointment of a liquidator. A company may be dissolved by an extraordinary resolution, and that same resolution may appoint the liquidator (Art 270 of the Companies Act). The appointment of a liquidator by the Company is only possible if the Directors file a Declaration of Solvency. Otherwise, the liquidator may be appointed either through a meeting of the Creditors in a Creditors’ Voluntary Winding Up (Art 279 (1) of the Companies Act), or by the Court (Civil Court (Commercial Section)). Once the liquidator is appointed, he must notify his acceptance to the Registrar of Companies, at the Malta Business Registry (Form L1).
Following a decision for the Dissolution and Winding Up of a company, the powers of the Directors are shifted upon the liquidator who takes control over the entire company and its representation with a view to Winding Up. During the Winding Up process the focus of the company shifts to settling the debts due. The liquidator would proceed to draw up an exhaustive list of the assets and liabilities. He has the authority to carry on the business of company for its beneficial Winding Up, and in doing so to institute or defend any action or other legal proceedings in the name of the company. The main task of a liquidator would be to liquidate the assets of the company, pay the Creditors, if necessary, having regard to the ranking in terms of the applicable law, and distribute any proceeds to the shareholders according to their shareholding.
Powers of a Liquidator
In the case of a Voluntary Winding Up, with the sanction of an extraordinary resolution the liquidator will have the power to (Art 288 of the Companies Act):
- Pay Creditors according to their ranking at law;
- Make compromises with Creditors; and
- Make calls on contributories
When the liquidator, at any time during the Winding Up process becomes aware that company will not be able to pay its debts within the period stated in the Declaration of Solvency by the Directors, he must summon a meeting of the Creditors (Art 272 (1) of the Companies Act) and in this case the procedure becomes that of a Creditors’ Voluntary Winding Up.
As soon as the affairs of the company are wound up, the liquidator will render an account of the Winding Up process and draw up a Scheme of Distribution. These accounts are audited and all documents (the accounts of the Winding Up the Scheme of Distribution and the auditor’s report) will be laid before the General Meeting of the company (Art 274 of the Companies Act).
These are then sent to the Registrar of Companies and there will be a 3-month period from the date of the publication in the Government Gazette or on a website maintained by the Registrar (Art 401 (e) of the Companies Act) that the formalities for the company to be struck off have been satisfied within which Creditors may bring an action before the Civil Court (Commercial Section) to defer the striking off of the company. If no such action is brought, then the company will be struck off (Art 275 (1) of the Companies Act).
If the Winding Up is not concluded within 12 months from the Dissolution date, the liquidator is to file a statement with the Registrar of Companies showing the proceedings and position of Winding Up (Art 273 of the Companies Act). Subsequently the said statement is to be signed at intervals of six months.
This document does not purport to give legal, financial or any other advice. Please be directed to seek appropriate advice from warranted professionals. Do not hesitate to contact the Office of the Official Receiver for further information if necessary or for any clarification.