Reinstatement of the name of a partnership en nom collectif on the Malta Business Registry

2019, delivered in the names of Edward Micallef et vs X, the Civil Court (Commercial Section) (the ‘Commercial Court’), presided over by Judge Joseph Zammit McKeon held, inter alia, that the procedure established under Article 300B of the Companies Act, Chapter 386 of the Laws of Malta (the ‘Companies Act’) for the reinstatement of a company name on the Malta Business Registry, may apply mutatis mutandis to partnerships en nom collectif.

In brief, the facts of the case were as follows. On 23 September 1986 the applicants had incorporated and registered with the company registry a limited liability company with the name Universal Spares Limited (the ‘Company’). After a few years the Company proceeded to purchase a garage (the ‘Asset’). On 17 June 2005, the applicants converted the said limited liability company into a partnership en nom collectif with the name Universal Spares (the ‘Partnership’), which Partnership continued to operate for a number of years. Eventually the applicants decided to liquidate the Partnership; however, in the Scheme of Distribution the liquidator had inadvertently failed to ensure the proper distribution of the said Asset. For this reason the applicants had to institute proceedings requesting the Court to reinstate the name of the Partnership on the Malta Business Registry and this so that the Asset in question could be properly assigned and the liquidation of the partnership be duly formalised and concluded.

The Court observed that the applicable article of the law on the basis of which the applications had to base their claims was article 300B of the Companies Act. However article 300B provides for the reinstatement of the name of a company to the register and the reopening of the winding up. The question was whether article 300B could also be made applicable to a partnership en nom collectif.

In its observations the Court referred to the case Francis Mifsud et vs X decided by the Court of Appeal on 27 February 2015, which case concerned article 325 of the Companies Act rather than article 300B. Article 325 provides a remedy similar to that under article 300B but, rather than in the context of voluntary winding up, article 325 caters for situations where a company is struck off from the registry by the Registrar itself on the basis that it is no longer carrying on business or it is not in operation. In such cases article 325(4) allows any member or creditor of the company, or any other interested person, aggrieved by the fact that the name of the company has been struck off the register, to request the Court to restore the name of the company in the register. The First Court in Francis Mifsud et vs X concluded that the remedy under article 325 solely referred to companies and for this reason concluded that such remedy could not be made applicable mutatis mutandis to partnerships en nom collectif. On appeal the Court overturned the judgment stating that although no such remedy exists for partnerships en nom collectif at law, the Court has on several occasions allowed the reinstatement of such partnerships on the register. Referring to a number of landmark cases, the Court explained that whilst the legislator chose to regulate and formally include a remedy in the context of companies, the Courts remain empowered to provide similar remedies in the context of partnerships en nom collectif when an irregularity exists in the process of winding up.

The Commercial Court in the present case extended this reasoning to article 300B and concluded that article 300B could be made applicable mutatis mutandis to partnerships en nom collectif. The Commercial Court then moved on to observe whether the elements required under article 300B were satisfied for the applicants to succeed in their claims. The Court quoted the following landmark cases, all of which tackled the elements necessary for a claim based on article 300B to succeed: ‘Lay Lay Co Limited vs Peter Paul Darmanin’ (decided on 7July 2011); the cases of ‘Joseph Aquilina et vs Edward Woods et’ (decided on 29 November 2012 and 24 April 2013); ‘Av. Dr Nikolai Vella Falzon noe vs Ir-Registratur tal-Kumpanniji’ (decided on 14 November 2013); and ‘AX Holdings Limited et vs Registratur tal-Kumpanniji’ (decided on 24 March 2015).

The elements necessary for an application under article 300B to succeed and for the Court to order that the name of a company, or in this case a partnership, be restored to the register and the winding up be reopened are as follows:

(1) the court application must be instituted by an interested party;

(2) the Court must be satisfied that the winding up and striking off of the company was vitiated by fraud or illegality of a material nature,

(3) an action on the basis of article 300B must be the only remaining remedy available for the applicant; and

(4) the proceedings must be filed within five years from the date when the name of the company has been struck off the register.

In the present case, the applicants were deemed to be interested parties given their direct involvement in the Partnership. As regards the second element, it is interesting to point out the manner in which the Maltese Courts have interpreted the phrase an ‘illegality of a material nature’. Whilst the liquidator’s negligence in ensuring the proper distribution of the assets of the Partnership would not amount to fraud, it has been decided on several occasions that such an ‘oversight’ would tantamount to an ‘illegality of a material nature’. Naturally, such would depend on the particular facts of each case however the Courts have been willing to provide such a remedy even in cases where the liquidators’ actions were purely inadvertent. The Courts have interpreted the term ‘illegality’ widely such that as explained by Andrew Muscat in Principles of Maltese Company Law (2019, p.4647);

“[a] liquidator who, whether negligently or fraudulently, fails to take into account a pending claim, will, it is submitted, have acted unlawfully. After all, in terms of general principles of law a person who does not use the prudence, diligence and attention of a bonus paterfamilias and causes damage as a result is deemed to have acted unlawfully. Moreover a liquidator is clearly bound by law to take into account all pending claims against the company and if he fails to do so through negligence, imprudence or want to attention he should be deemed to have acted unlawfully.”

This has been made to apply not only to instances where a company has a pending claim, but also to instances where the company’s assets have not been properly distributed prior to the winding up. Once it is established that an illegality existed, the Court would then move on to determine whether on the facts of the particular case, the said illegality was of a material nature. In the present case, given that the Asset could not be transferred prior to the reinstatement of the name of the Partnership on the register, rendered the illegality of a material nature.

After concluding that all the elements required under article 300B were satisfied the Commercial Court proceeded to acceded to the applicants’ claims allowing the reinstatement of the name of the Partnership on the registry and the reopening of the winding up for the purposes of allowing the applicants to transfer the Asset.