Bona fide disputes and defining a creditor for the purposes of liquidation proceedings

In a decision delivered on the 13^th March 2022, case no. 246/2018 ISB, the Civil Court (Commercial Section) placed the defendant company into liquidation on the ground that it was unable to pay its debts, after considering and concluding that the circumstances that had previously led the Court in the same case to determine the existence of a bona fide dispute and consequently suspend the hearing of the liquidation proceedings, no longer existed.

The circumstances referred to consisted of proceedings instituted by defendant company in The Netherlands against the company demanding its liquidation in Malta (‘the applicant company’) as well as other parties. Such proceedings consisted of an attempt to annul an agreement (a put option agreement) on which basis the applicant company was claiming to be a creditor for the purposes of demanding the dissolution and winding up of the company. Following a decision delivered in the Dutch Courts whereby the proceedings against the applicant company were concluded in its favour and therefore the agreement was not annulled, the Maltese Court ordered for the liquidation proceedings to be heard and decided. Nevertheless, the defendant company resisted the continuation of the liquidation proceedings claiming that there still existed a bona fide dispute on the grounds that it was still alleging that the agreement was invalid.

The Court held that in order to establish a bona fide dispute, a mere allegation is certainly not sufficient. The dispute must be real and factual, with the best and safest scenario being the existence of pending legal proceedings between the parties concerned. This notwithstanding, the Court deemed that even the existence of such proceedings does not mean that the Court should necessarily conclude that a bona fide dispute exists in the context of a defence against liquidation proceedings – each case is characterised by its own facts. The Court concluded that in the absence of evidence proving the existence of judicial proceedings between the parties that can be considered to constitute a bona fide dispute, it cannot certainly be said that there is a substantial dispute.

Having concluded that there existed no bona fide dispute in this case, the Court went on to consider whether the applicant company qualified as a creditor for the purposes of liquidation proceedings, in view of the fact that the credit in question was not canonised by means of a court judgement as being due in favour of the applicant company. The credit consisted of the payment of the purchase price for shares pursuant to the exercise of the put option right in terms of the put option agreement. The Court held that the applicant company had no obligation whatsoever to file judicial proceedings for payment of the amount it claimed in order to allow it to proceed with liquidation proceedings as a creditor. The Court concluded that the credit in question fell within the definition of contingent and prospective liabilities, which the Court must take into account in determining whether a company is unable to pay its debts.

MamoTCV Advocates represented applicant company in this case.