"The striking off of the name of a company from the company register is akin to the death of a natural person as it is the moment a company ceases to exist for all intents and purposes."
Maria DeBono, Associate in the Corporate & Commercial Department, sheds light on the utility of Article 300A of the Companies Act, which deals with the rectification of the scheme of distribution, a remedy frequently forgotten in practice but which may be a useful tool for stakeholders concerned.
The striking off of the name of a company from the company register is akin to the death of a natural person as it is the moment a company ceases to exist for all intents and purposes. Although natural persons cannot be revived (at least without divine intervention) companies can be revived and reinstated to the company register, bringing them back to their status quo ante, by the order of the court.
In recent years, the so-called revival or reinstatement remedy has been much resorted to. Article 300B and 325(4) of the Companies Act have been used to revive companies which have (i) either been liquidated and struck off the register and it results that the winding up and striking off of the company has been vitiated by fraud or illegality of a material nature or (ii) in cases where a company has become defunct as it is no longer in operation and the name of the company was struck off the register by the Registrar of Companies (the “Registrar”), respectively. This revival remedy has more recently also been extended to the beneficial owner regulations providing the Registrar with the power to reinstate companies which have been struck off the register at the helm of the Registrar when it has not received the required information on beneficial owners from the particular company.
One related clause in the Companies Act which practitioners typically classify as one of the reinstatement provisions but which does not fit squarely within such definition as will be explained below, is Article 300A of the Companies Act (“Article 300A”).
Article 300A deals with the rectification of the scheme of distribution. For context, the scheme of distribution determines the amount due to each shareholder of a company which is being wound up or liquidated, according to the shareholder’s particular holding. It is only typically relevant in solvent liquidations as in insolvent liquidations, the shareholders are the last to get paid, if at all.
Article 300A(1) states that where in the course of the winding up of a company, the liquidator has not taken into account any asset of the company and the name of the company has been struck off the register, any interested person may by an application to the Court, request the Court to order the rectification of the scheme of distribution and if the Court thinks it appropriate, it may order such rectification under the terms and conditions that it deems fit.
In the recent judgment in the names Anthony Dalli & Alfred Dalli vs. the Registrar of Companies (Civil Court (Commercial Section), 10 July 2023) the plaintiffs brought an action on the basis of Article 300A et seq of the Companies Act whereby the company named Welcome Garage Dalli Bros Limited, was liquidated and struck off the register of companies in July 2022 and it appeared that at the time, the liquidator did not take account of around 220,000 Euros and this because the amount was not in the bank account at the moment that the company was liquidated.
In its judgment, the Court stated that Article 300A has been rarely resorted to in recent years and is a remedy which does not require that the name of the company be restored to the register of companies (unlike Article 300B and 325(4) of the Companies Act) but is one which is used to correct an erroneous scheme of distribution. Having said that, the Court in this case held that there is nothing prohibiting it from ordering the restoration of the company’s name to the register under this same article and some cases do in fact necessitate this. For example, in one particular case quoted by the Court, the name of the company had to be restored to the register because amending the scheme of distribution alone was not enough since the property which was left out of the scheme of distribution was an immovable property which had to be transferred from the previously liquidated company, to another person.
On this basis, in this judgment the Court decided to reinstate the name of the company to ensure the proper transfer of the funds to the three shareholders in equal portions. As is typical in these kinds of cases, the Court set a time limit of one year for the restoration of the company name for the purpose of finalising the liquidation. This is done to strike the balance between the need to provide stakeholders with a useful remedy of restoration when things are erroneously (but innocently) omitted during the liquidation to the detriment of the particular stakeholders and providing a “carte blanche” to persons to continue to act negligently with no consequence.
Interestingly, Article 300A(2) states that where a company has made a distribution to its shareholders pursuant to a scheme of distribution and the name of such company has been struck off the register, any creditor whose claim against the company has not been satisfied may by application claim what is due to him from the shareholders of the company pro rata to the amount received by the shareholders upon the distribution. In this case, the Court may order that payments be made by the shareholders to such creditor under those terms and conditions it may deem fit provided that no shareholder may be required to contribute an amount exceeding that received by him upon distribution.
Applications under this clause are even more rare than those filed under Article 300A(1). It should be borne in mind that this is an exceptional remedy which will be given by the Court and has its limitations. In fact, in the judgment in the names Mark a/k as Markus Micallef vs. John Borg and Christopher Pace (First Hall of the Civil Court 26 June 2018) the Court held that once the distribution of assets of the company in liquidation has been made, only in exceptional circumstances can a creditor whose claim was not satisfied during the liquidation process, expect that his claim is paid and settled, post liquidation, by the shareholders of the company. The intention of this particular provision is to ensure that the interests of all parties are respected. This case was not brought on the basis of Article 300A(2) and it was the Court which brought it to the attention of the plaintiff stating that he could have benefitted from this provision if his claim was framed correctly.
This judgment was confirmed on appeal most recently on the 31 of May 2023. On the point of the applicability of Article 300A(2), the appellant argued that the First Hall Civil Court was incorrect in stating that Article 300A(2) should have been relied upon since there was fraud and gross negligence in this case. However, the Court of Appeal (the “COA”) stated that Article 300A(2) is a special remedy given to creditors like the appellant and was not limited to particular circumstances of fraud but open to all cases where a creditor’s debt has not been satisfied during the liquidation of the company and the company’s name was struck off the register. In fact, the COA compared and contrasted Article 300A(2) with Article 300B(3), the latter of which explicitly limits the remedy for restoration of the company’s name to the register in cases where the liquidation or striking off has been vitiated by fraud or an illegality of a material nature and such restoration is the only remedy available to the applicant. Such restrictive wording is not included in Article 300A, whatsoever. The COA’s interpretation therefore was that if a creditor could proceed under Article 300A(2) rather than restoring the name of the company to the register under Article 300B, it should proceed in the former manner.
Finally, in terms of Article 300A(3), any court applications must be made within five years from the date of striking off of the company.
Compared to its sister provisions Article 300B and Article 325(4) of the Companies Act, Article 300A is often forgotten but this should not take away from the fact that it can be a useful and sometimes, the only relevant tool available to shareholders and creditors alike, in the appropriate circumstances.
For more information and specific advice, please reach out to Dr. Maria DeBono on firstname.lastname@example.org.