Court has wide powers to appoint company administrator

The Companies Act allows the Court to have a wide discretion to appoint administers of companies in liquidation. This was held in a judgement delivered by the First Hall of the Civil Courts, presided by Mr Justice Joseph Zammit McKeon on 6 May 20202 in a case, HSBC Bank Malta plc -v- The Golden Shepherd Group Limited.

HSBC filed an application to the court asking the court to appoint an administer in terms of Article 228 of the Companies Act in the stead of the current director Dr Frank Portelli.

The bank explained that it was filing the application because the defendant company was the owner of St Philips Hospital, which was subject to a ground rent. This ground rent was not paid and therefore, in order for the company not to lose the property, the bank paid it. Dr Portelli, as a shareholder and the sole director of the company had publicly declared that it offered the hospital to the government so that it may be used to alleviate some of the impacts of the COVID-19 crisis.

The bank held that it was not objecting to this move, but was concerned that it was implemented during a time of great financial difficulty. This action concerns a claim for the liquidation to cease and therefore, the bank is of the opinion that these decisions should not have been taken, and criticised Dr Portelli for taking them.

The Company replied that in this particular action it has not presented its evidence and that the offer was made in the light that if the hospital was to be used the government would have paid for this service and the offer was made as long as it and the government came to a fair agreement. The company held that the bank was well covered with a number of guarantees.

Mr Justice Zammit Mc Keon pointed out that it would not enter into the merits of the case but limit himself to deciding on whether an administrator should be appointed. Article 228 of the Companies Act reads:

• “228. (1) The court may by order appoint a provisional administrator at any time after the presentation of a winding up application and before the making of a winding up order, and either the official receiver or any other competent person may be so appointed.
• (2) The provisional administrator shall carry out such functions and powers in relation to the administration of the estate or business of the company as the court may specify in the order appointing him.
• (3) The provisional administrator holds office until such time as the winding up order is made or the winding up application is dismissed unless before such time he resigns or he is removed by the court upon good cause being shown.”

This article gives the Court a wide discretion to decide on whether or not to appoint an administrator. There is no need for the Court to take into consideration the merits of the case, but the decision has to be dictated by the facts and the circumstances in which the request is made. It can be made between when the request for liquidation and the decision for liquidation is made and it has no bearing on the outcome of the case.

The scope of the appointment of the administration is done for the parties to have peace of mind that the company is administered in a good manner and transparently and also to preserve the assets of the company. This is done because if the Court orders the liquidation of the company, then the creditors of the company will be able to extract their rights from the company. The administrator’s responsibilities, at this stage, are not the same as that of the liquidator. The Court commented that good governance is essential when a company has one single asset, which also has to satisfy claims from creditors. In liquidation proceedings the director of the company must defend the interest of the company and must not prejudice the value of this assets.

In this particular case, the discussions with the government by the sole director of the company is not contested, however, the court was not informed on the details of the parameters of the discussions, however, the Court doubted whether if the government took over St Philips Hospital for COVID-19, this would have been free of charge. However, since these discussions are not concluded, the Court held that it agreed that there be some control over the Director’s actions at such a delicate time.

The Court then moved to appoint Dr John L Gauci and Noel Mizzi as provisional administrators of the company, but Dr Portelli was to remain as the director and to keep all his powers and any agreement with the government should be agreed by all three.