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Court must limit itself to the ground for liquidation proposed by the plaintiff

By February 25, 2016November 24th, 2023No Comments

If a plaintiff is unsuccessful in proving a ground invoked in liquidation proceedings, the court cannot presume that there are other grounds. This was decided in a judgement delivered by Mr Justice Joseph Zammit McKeon on 16 February, 2016 in The Catering Centre Limited -v- Entertainment Limited.

The applicant company submitted that Entertainmernt Ltd was incorporated in 2000 with a share capital of €260,889.77, divided between the two shareholders. On 12 April, 2013, the applicants won another court case that Entertainment Limited owed them €54,266.46. Shortly after the judgment The Catering Centre instituted a warrant of seizure, however an agreement was reached that the defendants would pay €500 per month in order to pay the debt.

These payments were not effected and as a result the plaintiff filed a judicial letter calling upon Entertainment Limited to pay up. Irrespective of this, the company failed to make payment. The applicant company asked the Court to liquidate the company in terms of Article 214(2)(a)(ii) of the Companies Act.  The applicant company submitted that the court take into consideration Article 214(5)(a) in the context of Article 214(2)(a)(ii) of the Companies Act. The latter article refers to the general rules that the Court may apply to liquidate a company when one is unable to pay one’s debts. In other words if Article 214(2)(a)(ii) is not proved, it does not mean that the court cannot proceed with the liquidation, once it knows that the defendant company is unable to pay its debts. The grounds for liquation are independent from one other and therefore, merit a separate analysis from the court. In its submissions the applicant company admitted that the warrant of seizure was not enforced, but the non-payment satisfied the general principle that a company unable to pay its debts should be liquidated. 

Mr Justice Zammit McKeon disagreed with these submissions. The Court in its judgment held that if the applicant company did not manage to satisfy the requisites which it itself quoted as being Article 214(2)(a)(ii), it could not turn to another ground for liquidation. This is due to the fact that this article of the law has a precise meaning and is intrinsically connected to Article 214(5) of the Companies Act. The reasons for liquidation may be listed in subparagraphs a or b or both, but Article 214(5) does not create a presumption, it merely establishes two situations where, if the company is unable to pay its debts, liquidation may take place.  

In its application The Catering Centre asked to liquidate Entertainment Limited only on the ground established in Article 214(5)(a) referring to when a company fails to pay its debt after 24 weeks from the execution of an executive warrant. The Court commented that when it filed the case, the applicant company knew that the elements were not fully satisfied and therefore, the action could not succeed. Actions before the superior courts are limited to what is requested in the claim. This was already established in a previous judgement, Azzopardi -v- Azzopardi on 31 January, 2003.

The applicant company quoted a judgement, Mystique Company Limited -v- Torre Paolina Limited, which decided that once the defendant was unable to pay, then the court could move to liquidate the company, however, the court in this present case, pointed out that the applicants in that case had based the actions on both circumstances and not limited themselves on paragraph a. The Court held that this is very clear from the application, where there is no mention nor hint of paragraph b or giving the court an option. Therefore, the court’s hands are tied and if the applicant moved for Article 214(5)(a), it cannot presume that a reference is being made to paragraph b. 

The court dismissed the plaintiff’s request for liquidation.

Malcolm Mifsud


Mifsud & Mifsud Advocates

This article may be accessed on Malta Today.