The defunct procedure under the Companies Act : a critical analysis of Article 325 and the practical process thereof

Abstract

Article 325 bestows upon the Registrar of Companies, the authority to strike off companies’ names from the register upon reasonable belief that they are not conducting business or are non-operational. Prior to 2020, the Maltese company register was inundated with numerous inactive companies, and this reality was met with great criticism beyond Malta’s borders. The persistent presence of such entities on the register poses a risk to its accuracy, money laundering and the jurisdiction’s reputation, directly prejudicing the interests of the Registrar and third parties. By the striking-off of defunct companies in this manner, a company and its separate legal personality shall cease to exist without the necessitating its formal dissolution or the proper winding-up of its affairs. However, directors who neglect their duties and effectively abandon a company’s fate to this form of striking-off, risk losing its assets which subsequently devolve onto the Government of Malta. Whilst the law allows for an aggrieved party to apply to the Court for the company’s restoration to the register, the granting of such a remedy remains at the Court’s discretion. Despite its legal significance and far-reaching implications, Article 325 has been greatly overlooked in the existing body of literature on Maltese company law. Thus, the main aim of this dissertation shall be to address and overcome this lacuna through an analysis of Article 325 as written by the legislator, implemented by the Registrar, and interpreted by the Courts. Moreover, this provision has remained largely unchanged since its incorporation into the Companies Act despite shortcomings identified in its application. Therefore, this dissertation shall also seek to propose necessary amendments based on criticism levied by the local courts as well as the law and procedure utilised in other jurisdictions to deal with such entities.