The prescriptive period of Companies Act penalties

In P.L. u ………… Limited (C …….) v. Ir-Reġistratur tal-Kumpaniji, decided by the Court of Appeal (His Hon. Chief Justice Mark Chetcuti, Mr. Justice Christian Falzon Scerri, Madam Justice Josette Demicoli) on 25 November 2025, the Court delved into the prescriptive period of penalties imposed on companies in terms of the Companies Act, 1995, Chapter 386 of The Laws of Malta (the “Act“). This was a judgement delivered on an appeal filed by the applicants from the judgement of the Civil Court (Commercial Section) of 11 June 2025 whereby the applicants’ pleas to declare as not due penalties imposed by the Registrar of Companies pursuant to a judicial letter, had been rejected.

Facts of the Case

By a sworn application of 2 August 2024, the applicants explained that by a judicial letter dated 27 June 2024, they were requested by the Registrar of Companies (the “Registrar“) to pay penalties amounting to Euro 10,595 for failure of certain provisions of the Act, as had been indicated in a notice dated 15 May 2024. The applicants held that they had no payments due to the Registrar because, inter alia,:

1. Part of the penalties were prescribed by 5 years on the basis of Article 427(3) of the Act;
2. The notice of 15 May 2024 was addressed only to Mr. P.L. and not to ………….. Limited (the “Company“), and therefore no executive title could have been created against the Company in terms of Article 401(4) of the Act;
3. The same notice was based on Article 183(10) of the Act, which provision does not exist;
4. The Registrar must clearly prove how the applicants had failed in their duties; and
5. The Registrar must also clearly prove how the global amount of the penalties was reached.

On 5 September 2024, the Registrar responded by, inter alia, claiming:

1. The Company had been registered on 28 February 1986, and for years had been in default under the Act, so much so that its last Annual Return filed was for 2021, whilst its last Audited Financial Statements submitted were for 2018;
2. The applicants had failed to specify what penalties were prescribed by the lapse of 5 years;
3. Mr. P.L. was a legal representative, and one of the two directors of the Company. Moreover, the notice was made in terms of Article 401(3), which also meant that the notice could be served both on the Company as a separate juridical person, and also on the officers of the Company as individuals. In this case, the notice had been served on both the Company and Mr. P.L. as its director. Additionally, Article 2 of the Act defines “officer” as including a director of the Company. Therefore, as a director, he was responsible for every failure of the Company as far as filings at the Malta Business Registry were concerned, and the Company is bound in solidum with its officers. Articles 183(6) and 184(3) provide that if default is made in complying with filing the Audited Financial Statements and the Annual Return respectively, every officer of the company who is in default shall be liable to a penalty, and, for every day during which the default continues, to a further penalty;
4. Although it is true that Article 183(10) of the Act does not exist, Schedule 11 (which deals with penalties) of the Act makes reference to such provision, however this contradiction is due to a human error when introducing the amendments through Act XXXI of 2015, which mistake was meanwhile rectified through Act XVIII of 2024;
5. The documents the Company did not submit were clearly indicated in the notice that was sent;
6. The way the total penalty was worked out was in terms of the Act – as a result of a breach of Articles 183 and 184, and worked out in terms of Schedule 11. Prior to the service of the judicial letter, several penalty notices were sent out to the applicants, as a form of a reminder, including the final warning; and
7. The Registrar was correct in inflicting the penalties in terms of Article 427 of the Act, with the process being in line with Article 401(3).

Finally, the Registrar requested the Court to confirm that the judicial letter was valid and that the Euro 10,595 are due to be paid by the applicants to the Registrar, without prejudice to any other amounts due until date of effective payment.

Judgement

The first court rejected the applicants’ claims, with costs against them. It had noted all the various penalties and agreed that Article 183(10) of the Act does not exist, but that it was clearly an error. The court noted that this matter had been pronounced on by the courts on various occasions, and went on to hold that it was not serious enough as to merit the revocation of the notice or of the penalties imposed, and in fact, such mistake had been recently corrected by Act XVIII of 2024. The court noted that the penalties which the applicants held were prescribed, were indicated to be in relation to seven infringements out of fourteen. The court held that the 5 years begin to run from when the breach would have ceased, and therefore the court must decipher, in each case, from when the breach stopped and whether 5 years had elapsed from then until 6 July 2024 (the date the judicial letter was notified to the applicants). The court noted how the infringements stopped in the particular instances indicated, and rejected the applicants’ objections to these penalties that they were prescribed.

As to the applicants’ claim that the working of the penalties was not clear enough, the court rejected this.

The court compared the cited case to the case at issue, and noted that in the cited case, the court had annulled the judicial letter because there was no clarity in how the penalties were calculated, whereas in the case at issue, there was enough clarity, in that each penalty was duly explained, including that all the penalties were imposed at the rate of Euro 0.50 per day of the breach. Moreover, in the quoted case, the applicants had made various attempts to have the penalties explained to them, but this wasn’t the case here, as no similar endeavours were made. On the contrary, the applicants kept ignoring the penalties until the receipt of the judicial letter.

The court noted that the applicants had not put forward any proof to counter the penalties, and the court had no doubt that this action was interposed by the applicants to escape the obligation of settling the due penalties. The court concluded that the Registrar had imposed the penalties correctly, within its rights.

Subsequently, on 19 June 2025, the applicants filed an appeal application on the following grievances only:

1. That part of the penalties were prescribed in terms of Article 427(3) of the Act;
2. That part of the penalties were imposed on the basis of a provision that does not exist;
3. That the Registrar bears the costs of the case.

The Registrar responded on 3 July 2025, giving its reasons for the rejection of the appeal.

The Court of Appeal, having seen all the acts, decided that there was no need to hear out the appeal, and proceeded to deliver judgement in terms of Article 152(5) of the Code of Organization and Civil Procedure, Chapter 12.

On their part, the applicants claimed that the 5 years prescriptive period start to incur from when the breach would have occurred, and not from when the breach would have ended as held by the first court. As a result, the Court of Appeal delved in detail into the applicability of Article 427(3) of the Act.

The Court of Appeal stated that the applicants were right in that this provision does not provide that the action for collecting penalties due must happen within 5 years from when the breach stopped – something the first court had held. However, the Court of Appeal noted that Article 427(2) stipulates:

“The penalty shall become due on the day on which the default occurs and the daily default penalty shall be due for every day during which the default continues and shall accrue from the day following that on which the default occurs.”

The Court of Appeal held that there are different categories of penalties.

The Court of Appeal noted that in its judicial letter, the Registrar was not only requesting the initial penalties, but also the daily penalty being incurred until the breach was sustained. The applicants were therefore not correct in stating that the prescriptive period lapsed within 5 years from when the original breach occurred. In fact, with regard to three particular instances of penalties, the Court of Appeal noted that they did not even contain the initial penalty, but had been specifically classified by the Registrar as ‘continuation of penalties’. Therefore, in this case, prescription did not start to run from the first infringement’s date.

The Court of Appeal referred again to Christopher Grech et v. Reġistratur tal-Kumpaniji, saying that as in this case, the applicants had not requested the Registrar a breakdown of the penalties, so that the Court could see which of the penalties were initial and which were the daily cumulative ones that had been more than 5 years from when the judicial letter was sent. Moreover, the applicants had not even asked the Registrar to explain exactly for which years the per diem penalties were imposed, and the Court could therefore not distinguish between the penalties that were prescribed or not. Neither could the Court examine the way the penalties were worked out because the applicants did not raise a grievance on this count.

The Court of Appeal concluded that since the applicants did not prove exactly when the prescriptive period for each breach started to run, then no penalty expected by the Registrar could be declared prescribed, and therefore rejected the applicants’ first grievance.

With regard to the second grievance, the Court of Appeal noted that seven penalties were based on the inexistent Article 183(10) of the Act, and referred to the already cited Christopher Grech et v. Reġistratur tal-Kumpaniji, wherein an almost identical grievance was rejected. In these two judgements, the Court of Appeal had observed that although in 2015 the said provision was renumbered to Article 183(6), the Eleventh Schedule was not amended to reflect such renumbering. Nevertheless, the Court held in these two judgements, that such a mistake does not in itself bring the nullity of penalties, because the legislator’s intention was never to remove the penalties due to a mistake in the numbering. Moreover, the Registrar quoted the Eleventh Schedule as it was in force at the time, and could not have quoted it otherwise. The Court of Appeal thus dismissed this grievance too, confirmed the first court’s judgement in its entirety, and apportioned all costs to the applicants.

Disclaimer: Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report. This article was first published in ‘the Independent’ on 08/04/2026.