Malta Company Reconstruction, Restructuring and Insolvency

Covid 19 Applicable Rules & Regulations under Malta Law

Dr. Maria Chetcuti Cauchi | 04 Oct 2022

Malta Company Reconstruction Restructuring and Insolvency

During the last year or so, many have questioned and raised concern on Malta’s adequacy or otherwise of its Malta reconstruction, restructuring and insolvency laws during such extraordinary, pandemic times. Truth be told, many have questioned Malta’s adequacy of company rules and regulations in relation to reconstruction, restructuring and insolvency even during normal times, let alone now, during this period of urgency and chaos. 

Admittedly, during these unprecedented times, we are all aware that most companies need some level of assistance. Some companies have taken this time as an opportunity to carry out an introspective exercise and consider innovation and change in the way they do things. This exercise would still require funding. Some companies will manage to ride the wave but others will not and therefore the laws that govern this area of company rules and regulations need to cater for such times. 

Throughout Europe, such concern has been felt too and CERIL (Conference on European Restructuring and Insolvency Law), an independent, non-profit organisation focusing on restructuring and insolvency has expressed its concern by highlighting that there might be serious inadequacy in “the ability of existing insolvency legislation in Europe to provide adequate responses to the extremely difficult situation in which many companies may find themselves in the COVID-19 (corona) crisis”. 

The main law in Malta applicable to re-construction, insolvency & restructuring is Chapter 386 of the laws of Malta (“the Companies Act or the Act”). 

Malta Reconstruction of Companies Laws

On 12 May 2020, Malta published regulations entitled Legal Notice 192 of 2020, Companies Act (Company Reconstructions Fund) Regulations with the aim of creating and regulating the administration of a fund intended to facilitate Company Recovery Procedures (“CRP”) instituted in accordance with article 329B of the Companies Act. Such fund was to be known as the Company Recovery Fund, out of which payments would be made to ‘special controllers’ appointed in accordance with the CRP provisions. The Fund was to be financed by the Malta Business Registry (MBR) to the tune of an annual budget of €500,000. Unless recommended otherwise by the Court, claims from the Fund cannot exceed €10,000 in respect of each recovery procedure.

Malta Restructuring, Dissolution & Winding Up Laws

After more than 6 months well-within the epidemic wave, and as a response to the current situation, in September 2020 Malta enacted rules in relation to company insolvency, which rules were aimed at alleviating corporations of insolvency consequences and problems in relation to Covid 19 aftermaths. Legal Notice 373 of 2020 ‘The Companies Act (Suspension of Filing for Dissolution and Winding Up) Regulations’ was published on September 15, 2020 with the main aim of granting temporary respite from the risk of insolvency proceedings that are creditor-activated and from the risks related to operating in times of unique financial distress. 

Such rules relate to, inter-alia: a suspension of creditors’ rights to file for debtors’ dissolution on grounds of insolvency; counteracting the previous right with a procedure for the filing of a letter by such creditor, showing the intention to file for dissolution, would freeze a date upon which dissolution was intended to take place; halting any winding procedures filed on or after March 2020; and suspending the wrongful trading rule which establishes that directors can be held wrongfully liable for acts of business carried out by such director when there was no reasonable prospect for a company to recover. 

It is a sure thing that under the current Malta legal regime, the Company Recovery Procedure (“CRP”) is the best means that any battling company can resort to since this procedure aims at assisting enterprises recuperate from their current economic quandaries whilst simultaneously maintaining other stakeholders’ interests in mind. Having said that, one still questions the logistic and practical effects of such process. Easing the cost of resorting to this process is a welcome introduction. 

In the case of insolvency, changes to company officer responsibilities during these exceptional periods has never been more pertinent. Even in fine weather periods, the wrongful trading provisions of the Companies Act are, many a time, the biggest concern of directors of companies since they may result in the imputation of personal liability on the directors themselves in the case of eventual insolvency scenarios. Without the suspension clause introduced by virtue of the September regulations, directors of companies in distress due to the COVID-19 pandemic would likely be reluctant to endure in their management of the enterprise and would surely be unwilling to man the company in such period of extraordinary hardship. Therefore, such changes were a welcome change in that they seek to strike a balance between the rights of the diverse stakeholders forging the story of such enterprise during these unprecedented times.

Read more on Company Restructuring and Insolvency in Malta 


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