LIQUIDATION: A PRACTICAL PERSPECTIVE

The legal procedure by which the corporate life of a company is brought to an end is known as liquidation, which may be defined as ‘the termination of legal existence of company by closing its business’.

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A company registered in Malta may either be wound up by the court or dissolved on a voluntary basis. There are two types of voluntary winding up: a member’s voluntary winding up or the creditor’s voluntary liquidation.

Once the company decides to cease its operations on a voluntary basis, it shall pass an extraordinary resolution signed by its shareholders. The extraordinary resolution shall include the liquidation date, which is the date when the company will cease its operations together with the name and address of the liquidator and the name and address of the audit firm being appointed as auditors of the liquidation accounts. The company shall within fourteen days after the date of dissolution of the company deliver a notice of the resolution to the Registrar for registration.

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The directors are to make a declaration of solvency where the company is solvent and able to settle all its debts in full within one month immediately preceding the date of the passing of the resolution for dissolution. It shall also contain a statement of the company’s assets and liabilities made up to a date of not more than three months from the date of the declaration.

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If the company is no longer able to pay its debts and the directors are not able to make a declaration of solvency, the creditors may ask for the winding up of the company by way of a creditor’s voluntary liquidation. The directors of the company will call a meeting of the creditors and present a full statement of financial position of the company, a list of creditors of the company and estimated amount of claims. During the meeting a person is nominated by the creditors to act as a liquidator. The creditors shall also fix the basis of remuneration to be paid to the liquidator.

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The following forms would need to be submitted to the Registry of Companies:-

1. Form B (1) – Notice of a resolution for dissolution and consequential voluntary winding up.

2. Form B (2) – Declaration of solvency signed by the directors of the company.

3. Form L – Signed by the liquidator.

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The above documentation will trigger the dissolution of the company and on the appointment of a liquidator, all the powers of the directors and of the company secretary shall cease. The liquidator would also need to publish a notice in the daily newspaper.

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At this stage, the audit of the company for the period up to the date of dissolution will need to be performed and finalized. In the meantime, the liquidator shall confirm that no balances are due to the Inland Revenue Department, VAT Department and MFSA to ensure that the company is in good standing and no penalties or any outstanding fees are due. The liquidator can then deregister for VAT and deregister the company’s PE number by filing in the required documentation with the VAT department, Inland Revenue Department and Jobsplus.

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Consequently, the liquidator will issue all payments by sending a letter to the bank signed by him giving instructions of amounts to be transferred and to whom, to pay off any creditors and liabilities. Once all receivables and payables are settled, the liquidator can proceed in closing off all bank accounts by sending a signed letter to the bank.

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The liquidator is to wind up the company within twelve months from the date of dissolution. Should this period be exceeded, the liquidator shall summon a general meeting of the company at the end of the first twelve months from the commencement of the winding up, and a further meeting every succeeding year of liquidation or as the Registrar may allow, in order to give account of his acts and dealings and of the conduct of the winding up during the preceding 12 months, including a summary of receipts and expenditure.

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Once the affairs of the company are fully wound up and the accounts for the period from the date of dissolution up to the date of distribution are audited, the tax return of the company for the year in which the liquidation accounts are prepared is to be submitted. After submission and payment is made (if any), a tax clearance is then obtained by the liquidator.

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The liquidator shall then present the audited liquidation accounts showing how the winding up has been conducted and how the property of the company has been disposed of. The liquidation accounts shall include the scheme of distribution indicating the amount due to each shareholder according to their holding in the company.

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The liquidator shall then call a general meeting of the company for the purpose of presenting the accounts and scheme of distribution together with the auditors’ report and of giving an explanation thereof. Within seven days of the meeting, the liquidator shall send to the Registrar a copy of the audited accounts and scheme of distribution including the auditors’ report.

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Upon submission of the above documents to the Registry of Companies, the Registrar shall register the documents and proceed to publish a notice in the Government gazette or on a website maintained by the Registrar announcing the striking off of the company’s name for a period of three months in order to give time and space for any person who wishes to object to the strike-off.

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On the expiration of three months from the date of publication and in the absence of any objection, the Registrar shall strike the name of the company off the registrar.

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The liquidator shall keep the accounts, accounting records and documents of the company for a period of 10 years from the date of publication of the striking of the company’s name off the register. If the liquidator fails to keep such records for the period mentioned he shall be liable to a penalty.