After discussing penalties and repercussions in the previous article of our series “The Essential Guide to Keeping a Maltese Company in Good Standing”, we now focus on the point where a company loses its legal existence and the process required to restore it to good standing.
In Malta, a company may be struck off the register as defunct if it ceases operations or no longer conducts business. Under the Companies Act, this typically occurs when a company is effectively abandoned, often following the resignation of its directors or due to a failure to comply with statutory obligations outlined in preceding chapters.
Why Companies Are Struck Off as Defunct
The principal reasons for a company’s inactivity may vary, but it is most commonly linked to the resignation of directors without replacement, failure to file the Annual Returns, and the audited financial statements, or the complete cessation of operations altogether possibly due to financial or operational challenges. Although a defunct company may still appear on the public register, it no longer fulfils its legal obligations as an active business entity. This can often lead to complications and pose serious risks to the credibility and accuracy of the public registry. For instance, when a defunct company remains listed on the public register, this may provide outdated or inaccurate information, potentially impacting the reliability of data concerning other active companies.
To address this concern, the MBR plays a crucial role in overseeing, monitoring, and tracking the status of companies incorporated in Malta, ensuring that as many companies as possible maintain compliance with statutory filing requirements. Specifically, the law grants the MBR with the authority to investigate the status of companies and, where applicable, remove defunct entities from the register. This process, known as “striking off,” ensures that only active companies remain listed on the registry, and once a company is identified as defunct, the MBR formally notifies the abandoned entity of its intention to remove it from the public register. If the company fails to respond, comply or rectify the situation within the stipulated timeframe, it will be officially struck off.
It is important to emphasise that this process removes defunct companies from the register solely in terms of their legal registration status. Importantly, it does not formally liquidate a company, meaning that any outstanding liabilities, unresolved debt or assets continue to exist and must still be addressed.
Once a company is struck off the register, it loses its legal capacity to operate. Consequently, it can no longer enter into contracts, conduct financial transactions, or engage in any legal matters. For directors and business owners, the legal and financial consequences of allowing a company to become defunct can be extensive. Directors are legally obligated to ensure that the company meets its legal obligations, and failure to fulfil these responsibilities may potentially lead to personal liability, especially if the company is struck off while carrying unresolved debts and liabilities.
Defunct companies present a notable mutual concern for business owners and regulatory authorities. Notwithstanding the fact that the Companies Act in Malta establishes a clear framework for identifying and removing such entities from the register, abandoning a company and leaving it in a defunct state can trigger far-reaching consequences, possibly negatively impacting former business partners, creditors, shareholders, and the broader business community.
To prevent the imposition of these potential legal and financial repercussions, it is imperative that company directors take proactive and continuous measures. These include either properly winding down the company through a formal liquidation process or otherwise ensuring that it remains in good standing to avoid being struck off the registry as defunct.
Can a defunct company be revived?
At this stage, a key question that may arise is whether a company that has been struck off the register can in any way be revived. To do so, an application must be filed with the Courts of Malta within a specified number of years, typically five years, from the date of the striking-off notice. If the Court is satisfied and determine that there are valid grounds for revival, it may issue an order to restore the company’s name to the register. Additionally, the Court may impose conditions to facilitate the company’s revival.
Key takeaways
In such circumstances, it is advisable for company owners to speak with a trusted legal advisor or a corporate service provider to address this matter appropriately. If for instance you have no intention to continue operating your company, rather than abandoning it, it is more practical to first restore the company’s active status using the approach noted above. Subsequently, we also encourage you to seek the professional assistance of an experienced accountant to first help you bring your company in good standing and follow through the liquidation process which is explained in further detail in the next article of our series.