MBR Penalties

The recent case of Marco Aquilina and Euro Concrete Blocks Limited vs. Registratur tal-Kumpaniji, revolved around administrative penalties which were imposed by the Malta Business Registry (MBR) on the applicants in their capacity as Director and Company. Since the Court of First Instance did not confirm the penalties imposed by the MBR, the Registrar of Companies (hereinafter referred to as ‘the Registrar’) appealed to the Court of Appeal in its Superior Jurisdiction to overturn the First Court’s decision. However, the Court of Appeal, in its recent judgment, also rejected the Registrar’s appeal and instead it upheld the First Court’s decision.

Initially, the Registrar had issued several notices to Marco Aquilina (hereinafter referred to as ‘the applicant’), as the Director of Euro Concrete Blocks Limited (hereinafter referred to as ‘the Company’), concerning penalties amounting to €16,553.75 which were allegedly owed under the Companies Act by the Company. Since following such notices the applicant did not pay the sums due, the Registrar issued a letter entitled “Final Warning” with the subject “Re. Euro Concrete Blocks Limited - penalties due under the Companies Act, Chapter 386 of the Laws of Malta” addressed only to the applicant and not to the Company.

This letter demanded payment of the sum, warning that failure to comply would result in legal action being taken, and this also included the recovery of warrants, without further notice. A brief and vague breakdown of the penalties due was also attached to this letter. Subsequently, the Registrar filed a judicial letter against the applicants, attaching a payment demand and a seven-day deadline before initiating enforcement proceedings, and also a warning that following the passing of such deadline, the judicial letter would be rendered an executive title.

Following such judicial letter, the applicants filed proceedings in front of the Civil Court (Commercial Section), challenging the same judicial letter on the following grounds:

1. The Registrar's effort to recover the alleged penalties was time-barred due to the passage of five years;
2. The applicant did not have an interest in the Registrar’s claim for penalties related to the period before May 11, 2011, as he only assumed the role of director from that date onwards;
3. The notice attached to the Registrar’s judicial letter was directed solely at the applicant and not to the company itself. Consequently, the letter could not serve as an enforceable title against the Company;
4. The burden of proof regarding the alleged infringements lay with the Registrar;
5. The Registrar was responsible for demonstrating how the alleged penalties were calculated in accordance with the Companies Act; and
6. The claims made by the Registrar lacked both legal and factual basis.

Following various procedural considerations, the Civil Court upheld the applicants' objections and ruled that the penalties sought out by the Registrar were not legally enforceable. In addition to the latter, the Court also ordered the Registrar to bear all costs of the proceedings.

The Court decided to uphold the applicant’s objections as it found that the Registrar failed to provide a clear explanation and breakdown of the penalties, which in turn prejudiced the applicants’ ability to contest such penalties properly, especially in view of the exorbitant sum being envisaged, and the fact that the judicial letter was to be rendered an executive title.

Whilst the Registrar provided for a brief breakdown of the sums, with a vague description merely specifying the types of fines being imposed (i.e. for late filing and for failure to file annual returns), and for which periods such fines were being imposed (as some of the fines dated back to 2004), it failed to provide:

1. a clear indication of when each and every breach happened;
2. an explanation of each sum being imposed;
3. an indication of whether all penalties envisaged were due;
4. an indication of whether the maximum penalty had been imposed;
5. clarification on whether such penalties included those daily late payment/submission penalties that fell due for each day that the Company was in breach.

The Court also rejected the argument that had been presented by the Registrar that the applicant, as a company secretary, should be held liable for penalties incurred before his directorship. It noted that while the applicant’s position as secretary was established, there was no evidence specifying when he assumed the role or whether he held it during the relevant period.

The Court addressed the plea that the First Court was mistaken in declaring the penalties invalid. It reviewed the Registrar’s notice which failed to clearly specify the nature of the infringement, and the corresponding penalty amounts. Using a penalty of €11,726 as an example, the Court found the description of the violation ("Accounts 2004-2018 Not Yet Filed Till 06.04.2020") insufficiently detailed and lacking justification for the amounts imposed.

The Court cited Articles 401(6) and (7), noting that the applicants bore the burden of proving the penalties were unlawfully imposed or miscalculated. However, the Registrar failed to substantiate how it calculated the penalties, providing no breakdown of amounts for each year of default. This lack of clarity undermined the Registrar's claim, as it deprived the applicants of the ability to effectively challenge the penalties.

Ultimately, the Court upheld the first court's decision, finding the Registrar’s failure to justify the penalties prejudicial to the applicants. It dismissed the Registrar’s appeal and confirmed the annulment of the total penalty amount of €16,553.75, assigning all costs to the Registrar.

For any information or assistance, please contact us at info@gtg.com.mt.

Author: Dr Catriona Cuschieri

Photo: https://www.facebook.com/MaltaBusinessRegistry