Understanding the Liquidation Process for Companies in Malta

When starting a business, one of the key decisions is whether to operate as a company or as a self-employed individual. This choice involves weighing several factors such as legal structure, tax obligations, and personal liability. However, one important aspect that is often overlooked is what happens when a company needs to cease operations. Unlike self-employment, a company cannot simply stop functioning; it must go through a formal liquidation process. Understanding this procedure is essential to ensure compliance with legal requirements and to wind up the company’s affairs in an orderly manner.

A Liquidation involves terminating a company’s legal existence by closing its operations. While the process varies from one country to another, in some jurisdictions it can be relatively simple, whereas in others, like Malta, it requires careful adherence to local legal procedures. Expert guidance is often recommended for those navigating Malta’s liquidation process.

In Malta, a liquidation can be conducted either voluntarily or by court order. Even in cases of voluntary liquidation, the procedure can be complex and generally benefits from the assistance of a professional service provider who understands the legislative and procedural requirements.

Types of Liquidation in Malta

Liquidations in Malta generally fall into three categories:

1. Members’ Voluntary Winding Up: A process initiated by the shareholders when the company is solvent and capable of paying its debts.
2. Creditors’ Voluntary Winding Up: Initiated by the shareholders when the company is insolvent (a company is considered to be insolvent when it is unable to settle its debts), requiring creditor approval to proceed.
3. Compulsory Liquidation: Imposed by the court, often initiated by a creditor when the company cannot meet its debt obligations.

The most common form of liquidation in Malta is the Members’ Voluntary liquidation. The steps involved can be summarised as follows:

1. Resolution to Wind Up: The shareholders must pass a resolution to dissolve the company during a general meeting. A liquidator is appointed, and specific forms must be filed with the Malta Business Registry (MBR) within 14 days of the dissolution decision. These forms include:

• A Shareholders’ Resolution signalling the intention to dissolve the company (signed by the shareholders).
• Form B (1): A notice of the dissolution resolution and voluntary winding up (signed by the directors).
• Form B (2): A declaration of solvency (signed by the directors).
• Form L: A notice confirming the appointment of the liquidator.

1. Ensure Good Standing: The company’s accounts, audits, and tax returns must be up to date before liquidation begins to ensure compliance with regulatory authorities.

Confirmation is required from several Maltese authorities, namely the MBR, Tax Department, VAT Department, and Jobsplus,to ensure the company has no outstanding tax obligations, interest, or penalties. If there are any unpaid balances, the liquidation cannot proceed until they are resolved.

1. Notify the Authorities: The company must deregister from VAT and tax obligations by informing the appropriate Maltese authorities.
2. Final Liquidation Accounts and Audit: The liquidator will prepare the liquidation accounts and scheme of distribution, showing how assets will be allocated to shareholders after settling all debts. These must be audited by an independent liquidator.
3. Submission to MBR: The audited accounts and scheme of distribution must be submitted to the MBR within seven days of their approval at the general meeting.
4. Company Strike Off: Once the documents are filed and verified by the MBR, they are published on the MBR website and in the government gazette. Three months later, the company will be officially struck off the registry, marking the completion of the liquidation.

Timeframe

The voluntary liquidation process in Malta typically takes around 12 months to complete, though the exact timeline can vary depending on the complexity of the company’s affairs.

Role of the Liquidator

The liquidator is responsible for overseeing the distribution of the company’s assets, ensuring compliance with relevant laws, settling debts, and preparing the final accounts. A smooth and compliant liquidation process heavily depends on the liquidator’s effectiveness.

Once a liquidator takes over, the roles and authority of the company’s directors and secretary cease. The liquidator must prepare and audit the liquidation accounts covering the period from dissolution to the finalisation of the liquidation. Additionally, the company’s tax return for this period must be prepared.

If the company is not liquidated within 12 months following the dissolution date, the liquidator is obligated to submit L4 forms every 6 months reporting the movements within the company’s balances.

Final Meeting and Distribution of Assets

After preparing the liquidation accounts and a scheme of distribution detailing the allocation of remaining assets to shareholders, the liquidator must hold a general meeting to present these documents. The shareholders then review and approve the final audited accounts and distribution plan.

These audited liquidation accounts, along with the scheme of distribution, must be submitted to the MBR within seven days of the meeting.

Contact Us

Do you require any assistance with your Company liquidation? Contact us on [email protected] for more information.

 

Francesca Buttigieg – Client Accounting Manager