While the latest amendments to Malta's insolvency framework do not propose any permanent and finite solutions to insolvency and the oftentimes unavoidable repercussions that follow, they do aim to provide a more reliable framework, both for the debtors facing insolvency, their creditors, and the professionals involved in the process.
Directive (EU) 2019/1023
These amendments were first proposed in July of 2022 and assented to by the President of Malta on the 23rd of December 2022, however the catalyst for these amendments finds its origin several years prior, by virtue of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency) (hereinafter the ‘Directive’).
This Directive, building upon its predecessor, acknowledged the deficiency of a number of member states in addressing insolvency at early stages, the lack of cost-effective procedures and a number of other obstacles faced by insolvent debtors. With these factors, and the overarching significance of safeguarding the internal market and the European Union’s fundamental freedoms in mind, the Directive was promulgated.
Malta Legislative Framework
Looking back at our own legislative framework, the amendments have been published in the form of three cogs of the same machine. The first of which is Act No. 23 of 2022, which, inter alia, amends the provisions of the Commercial Code (Chapter 13 of the Laws of Malta) to conform to the standards set out in the Directive and the new corresponding legislation. Act 24 of 2022 is the ‘Pre-Insolvency Act’, which provides debtors with early warning tools to address risks of insolvency. With these tools, debtors may request the intervention and assistance of the competent authority, being the Insolvency and Receivership Service within the Malta Business Registry.
The competent authority will help debtors safeguard the livelihood of their trade and the interests of its creditors and all other stakeholders. Act 25 of 2002 then introduces the concept of insolvency practitioners. This establishes a number of standards and guidelines for insolvency practitioners. It also sets out requirements that will improve the overall efficiency in the functions of insolvency practitioners and clearly delineates the involvement of the competent authority in their practice.
The main objectives of the reform of the insolvency framework are to introduce an early warning framework, to provide easily accessible restructuring procedures, to ensure an efficient discharge of debt framework and most importantly to strike the right balance between the debtor and the creditor’s rights.
Although the impacts of this new framework on the Maltese industry have yet to be observed, the pro-active nature of the new legislative framework shall undoubtedly be of great support to debtors who may have previously succumbed to insolvency without the support of the competent authority and a reliable framework.
Article written by BDO's legal team members, Ms Denise Camilleri and Dr. Christabelle Buhagiar.
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