Merits of Article 325 Revisited: Carmel Cortis Constitutional Judgment

Introduction

On 12 October 2023, the First Hall of the Civil Court, in its Constitutional Jurisdiction in Carmel Cortis et v. Office of the Prime Minister et (Rik. Nru. 21/19TA), held that the provisions of the Companies Act (Cap. 386 of the Laws of Malta) (the “Act”) through which the property of a company struck off the register as defunct devolves upon the Government of Malta breached the fundamental right to property protected by Article 37 of the Constitution of Malta and Article 1 of Protocol No. 1 to the European Convention on Human Rights (“A1P1”), as well as the right to an effective remedy under Article 13 of the Convention (the “First Instance Judgment”).

The facts of the First Instance Judgment, the pleas raised and the considerations of the Court of first instance were outlined in a previous article on our website, available here. The State Advocate and the Registrar of Companies appealed, and on 12 October 2026, the Constitutional Court delivered its judgment (Rik. Kost. 21/2019/1), upholding both appeals and revoking the First Instance Judgment in its entirety. At the heart of the case lies Article 325 of the Act. In terms of this article, if the Registrar of Companies has reasonable cause to believe that a company is not carrying on business or is not in operation, the Registrar may, after writing to the company and publishing the requisite notices, strike the company’s name off the register, whereupon “the assets of the company shall devolve upon the Government of Malta”. A member, creditor or other interested person may apply to the court for the company to be restored to the register within five years of the notice of striking off (Article 325(4)).

Facts of the Case

Vassallo & Cortis Ltd (C 10128) (the “Company”) was incorporated on 1 December 1988 and in January 1989 acquired a stable at 14, Stables Lane, Marsa, valued at the time of the First Instance Judgment at approximately €450,000. Following the death of the shareholder Cristino Cortis in July 2000, his widow and children, as well as the applicant Carmel Cortis, left the Company’s affairs entirely in the hands of a fellow director, Anthony Vassallo, who repeatedly assured them that all was in order.

The Company never complied with the Act, despite a warning letter from the Registrar in March 1999. In December 2002, the Registrar wrote to the Company and to each director under Article 325(1), inquiring whether the Company was carrying on business. Mr Vassallo replied on 23 December 2002 that the Company “is not, and has actually never been, in operation”, enclosing a bank confirmation to that effect. The Registrar then issued notices under Article 325(2), including in the Government Gazette published on 14 February 2003 and in the Times of Malta on 18 February 2003, and the Company’s name was struck off the register on 14 May 2003. No application for restoration was made within the five-year period. The shareholders took action only in November 2017, by means of a judicial protest, and instituted constitutional proceedings in February 2019.

The Appeal

The State Advocate and the Registrar of Companies each filed an appeal (together, the “Appellants”). The Prime Minister, the Minister for Finance and the Malta Financial Services Authority had been released from the proceedings at first instance as they were not the proper defendants. As no appeal was lodged against that part of the First Instance Judgment, their release became res judicata and the Constitutional Court did not consider their replies.

State Advocate’s grounds of appeal

The State Advocate argued, inter alia, that:

1. the Court of first instance had minimised the shareholders’ “absolute negligence”;
2. the right to the peaceful enjoyment of possession is not absolute, since both Article 37 of the Constitution and A1P1 permit deprivation or control of use of property in accordance with law and in the public interest;
3. the shareholders failed to make use of the ordinary remedy contained in Article 325(4) of the Act;
4. the statutory time limit of five years to make use of the remedy in Article 325(4) of the Act is reasonable; and
5. the shareholders acted by means of a judicial protest filed in 2017, some 29 years after the Company’s registration and 14 years after its striking off.

Registrar of Companies grounds of appeal

The Registrar of Companies argued, inter alia, that:

1. the Company continuously failed to adhere to its annual filing obligations;
2. the publications required to be made in terms of Article 325 were published through the Government Gazette and the Times of Malta, such that everyone who had an interest was effectively notified;
3. the Respondents (as defined below) had numerous opportunities to regularise the Company’s position but remained in default, and could have achieved the distribution of the property to the shareholders through a voluntary winding up rather than allowing the Company to be struck off;
4. there was no element of expropriation, since there had been no forced taking and the loss was attributable solely to the Company’s officers; and
5. the Respondents also had an alternative remedy in buying back the property from the Government.

In reply, Carmel Cortis and the heirs of Cristino Cortis (together, the “Respondents”) argued, inter alia, that Article 325 of the Act (i) fails to strike a fair balance with the right to the enjoyment of property; (ii) imposes an extreme and draconian sanction where a less severe measure would achieve the same aim; (iii) does not require proof of effective notification of members, not even by registered post; and (iv) is silent on how the Government actually takes possession of the property – which, in this case, remained in the Respondents’ possession and was not recorded by the Lands Authority as Government property. They also contended that the Appellants had brought no evidence of the public interest served by the provision. The Respondents further requested the Court to expunge the documents the Registrar had attached to his appeal without leave.

The Court’s Considerations

Before turning to the constitutional questions, the Court disposed of two procedural matters and corrected certain findings of fact made at first instance. The salient considerations are set out below.

• Documents filed on appeal

The Registrar had attached eighteen documents to his appeal without seeking the Court’s leave. Applying Article 150 of the Code of Organisation and Civil Procedure (Cap. 12), which applies to constitutional proceedings by virtue of S.L. 12.09, the Court held that the rule allows evidence that could not have been produced at first instance, but does not cure a party’s failure to produce evidence in due time. Since many of the documents had already been exhibited or had been in the Registrar’s possession throughout the first-instance proceedings, the Court ordered all of them to be expunged.

• Re-assessment of the facts: publication and notice

Relying on Pellicano v. Grima (Court of Appeal, 21 November 2024), the Court confirmed that it enjoys full autonomy to re-assess the evidence. It then corrected two findings on which the First Instance Judgment had placed significant weight. First, the First Instance Judgment had held that no notice was published in a daily newspaper. The Constitutional Court found this “not factually correct”, since a copy of the notice in the Times of Malta forms part of the record, and held that the Registrar had observed the law ad unguem. Secondly, although the Article 325 letters were not sent by registered post, the Act does not require this; it requires letters to be sent to the company only, not to its directors or shareholders. The Court also considered it “highly implausible” that almost none of the many letters sent to the Company and to the directors had been received.

• Exhaustion of ordinary remedies

On this point, and this point alone, the Constitutional Court agreed with the First Instance Judgment. Applying John Grech et v. Prime Minister et (31 January 2014) and Yorgen Fenech v. State Advocate et (23 June 2025), it held that the State Advocate had given no good reason to disturb the decision of the Court of first instance to exercise its constitutional jurisdiction. Since the Respondents’ very complaint was that the five-year period under Article 325(4) was too short, it would have been contradictory to decline jurisdiction because they had failed to act within that same period. The Court of first instance had, however, reached the same conclusion on different grounds, namely that the provision was “intrinsically bad”.

• General interest

The First Instance Judgment had held that Article 325(2) amounts to a de facto expropriation without compensation “masked by a provision of the law”, serving no general interest and resulting from the “legal plagiarism” of English law.

The Constitutional Court disagreed. It observed that a company’s presence on the register signals that it is active, and that the Registrar must therefore be able to remove inactive companies – all the more so where, as in this case, the Company had for years ignored its statutory obligations, including the filing of annual returns under Article 184 of the Act. As soon as a company is struck off, it ceases to exist, subject to the possibility of restoration within five years, and once it no longer exists, neither can its shares. The Constitutional Court held that, in finding no general interest in the devolution of assets to the Government, the First Instance Judgment had “set aside entirely” the primary reason why Article 325 is necessary in the Maltese legal order. It therefore agreed with the Appellants that it is in the general interest for the assets of a defunct company to pass to the Government rather than, as the First Instance Judgment had held, to its shareholders – particularly where the company’s demise was brought about by the shareholders’ own prolonged breach of their statutory obligations.

The Constitutional Court also clarified the nature of the vesting. Under Article 325(2), the assets pass to the Government ipso jure upon striking off and, according to the parliamentary debates on Act IV of 2003, form part of the Consolidated Fund. That vesting is not, however, definitive and irrevocable at that stage.

During the five-year period under Article 325(4), any interested person may seek restoration, in which case the company is deemed to have continued in existence, and the assets are treated as never having passed to the Government. Only once that period lapses does the company cease once and for all. As the Constitutional Court observed, restoration within the five-year period results in the company being deemed to have continued in existence and the assets being treated as though they had never passed to the Government. This suggests that, during the intervening five-year period, the assets remain in a state analogous to bona vacantia, with the Government’s title being contingent upon the expiry of that period without restoration. The Constitutional Court stressed that shareholders are not the owners of the company’s immovable property, either before or after dissolution, since, it held, the principle of separate legal personality continues to apply after the company ceases to exist.

The Constitutional Court therefore concluded, contrary to the First Instance Judgment, that Article 325 satisfies the general interest requirement. Notably, the Court of first instance had also likened the effect of Article 325(2) to the concept of bona vacantia, relying on the Court of Appeal’s judgment in Dr Suzanne Wolfe Martin noe v. Ganado & Associates Advocates et (27 January 2021), but had drawn the opposite conclusion, namely that the property should benefit the shareholders.

• Balance between the shareholders’ interests and the general interest

Having found a legitimate general interest, the Constitutional Court turned to the core question: whether Article 325 strikes a fair balance between the interests of shareholders and the general interest. Referring to Sargsyan v. Azerbaijan [GC] (ECtHR, 16 June 2015), it asked whether the persons concerned had been made to bear an excessive and disproportionate burden as a result of action, or inaction, on the part of the State. The Constitutional Court distinguished between two effects of the lapse of the five-year period: the right to seek restoration is lost for good, and so is the possibility of treating the assets as never having passed to the Government.

Contrary to the Court of first instance, which had considered the period short and inadequate and had contrasted it with the twenty-year period under Cypriot law, the Constitutional Court held that the five-year period is “more than a reasonable and adequate term”. It drew an analogy with the five-year period for expropriation compensation claims under Cap. 573, upheld in Richard Buhagiar v. State Advocate et (20 October 2025). On the facts, a longer period would have made no difference: the first warning letter was sent in 1999, the restoration window closed in 2008, and the Respondents acted only in 2017, so that even a ten-year period would not have sufficed.

In particularly strong terms, the Constitutional Court described the Respondents’ explanations as, at best, “weak and not credible”, invoked the maxim ignorantia legis neminem excusat, and found a manifestly high level of negligence and lack of diligence on the part of the shareholders and directors. In those circumstances, it could not be said that the application of Article 325 to the Respondents was disproportionate.

The Constitutional Court added that the State’s interest is not confined to ensuring that property does not remain without an owner; it also extends to providing an appropriate deterrent against officers of limited liability companies who wholly abandon their statutory obligations despite repeated opportunities to comply. The Respondents’ complaint that they had been let down by their co-director was of no assistance to them: it was not a matter for which the State was answerable and had no bearing on the case.

Finally, the Court reversed the finding of a breach of Article 13 of the Convention. Since the five-year period struck a fair balance, the Respondents had had an adequate remedy available to them, and timely action would almost certainly have prevented the loss. If that remedy was lost through “gross negligence”, constitutional proceedings could not serve to cure or correct that failure.

Conclusions

The Constitutional Court therefore upheld both appeals, revoked the First Instance Judgment in its entirety, upheld the defendants’ pleas in so far as consistent with its reasoning, and dismissed the Respondents’ claims. The Article 325 procedure, including the five-year restoration period, now stands as a Convention-compliant and constitutional mechanism in line with Maltese jurisprudence. Notably, the Constitutional Court did not expressly engage with the Court of first instance’s characterisation of Article 325(2) as a de facto expropriation without compensation. Instead, it addressed that criticism indirectly, through its findings on the general interest and on proportionality. Although the Respondents framed their case as a challenge to the law itself, arguing that their own conduct was irrelevant to its constitutionality, the Constitutional Court placed considerable weight on the negligence of the directors and shareholders in assessing proportionality. The Judgment thus illustrates that, in A1P1 challenges, the applicant’s own conduct may be decisive in assessing whether an individual burden is excessive.

It is also notable that, whereas the First Instance Judgment examined the English and Cypriot regimes in some detail – section 1012 of the UK Companies Act 2006, which treats a dissolved company’s property as bona vacantia vesting in the Crown, and the Cypriot twenty-year restoration period – the Constitutional Court did not engage with foreign law. Although the State Advocate referred in his appeal to the contrast between the Cypriot and Maltese periods, the Constitutional Court instead benchmarked the five-year period against a domestic analogue, the Cap. 573 expropriation regime considered in Buhagiar.

From a practical perspective, it remains unclear what mechanism exists for the Government to take possession of, and manage, property vesting in it under Article 325. In this case, the Lands Authority confirmed that the property was not recorded as Government property, and it remained in the Respondents’ physical possession throughout. There may be a case for a dedicated procedure, or for designating a department, to streamline this process. Meanwhile, members of dormant companies holding assets should monitor the company’s status and statutory filings. Where a company is to be struck off, they should opt for a voluntary winding up rather than allow it to be struck off as defunct. Furthermore, the legislator has recently introduced a simplified dissolution procedure by means of Article 214A of the Act, which enables dormant companies to be dissolved in a simplified manner. If a company has been struck off, an application for restoration under Article 325(4) must be filed within five years, since the loss of its assets thereafter is irreversible. Directors and members should also bear in mind that their liability survives striking off under Article 325(6).