Corporate restructuring is a process through which companies modify and reorganize themselves whether through modifications in their operations, financial structure, ownership or any such aspect.
Oftentimes, the impetus is to increase profitability of a company, however there are many more justifications for undergoing such a process.
A company may wish to improve its performance and do so by strategizing to remove any unnecessary subsidiaries which no longer contribute to its principle aims. Moreover, this may be due to insufficient profits being made which may be the result of any factor of production, the quality of goods or producing goods which are no longer sought after inter alia.
On the contrary, restructuring may also encompass the intention to diversify the goods or services offered rather than to downsize or take the company in a different direction. This derives from the notion of synergy, as companies may have more value when combined and therefore, this would encourage a company to merge or acquire other companies.
In tandem with this is the notion of reverse synergy, where a company may split up its divisions into other companies as their worth may be greater separated rather than merged.
Maltese law provides for two possibilities when it comes to company restructuring: the compromise and the Company Recovery Procedure (hereinafter ‘CRP’).
Article 329 of the Malta Companies Act concerns reconstruction or amalgamation of a company, and sub-article (2) provides instances in which the court may make an order to sanction the compromise contemplated in Article 327 of the same Act.
These are if the compromise or arrangement was proposed in connection with a plan for restructuring of the company or an amalgamation of companies and within that plan, either the whole or a part of a company shall be transferred to another.
The court order may take place for matters considered in sub-article (3) such as the transfer of a whole undertaking and any liabilities related thereto, the dissolution of the transferring company without winding up or any other consequential or incidental matters to ensure the process is properly carried out.
The CRP constituted in Article 329B et seque of the Companies Act, is triggered when a company applies to the court to appoint a special controller who shall be responsible for administering the business of the company for a duration which is determined by the Court.
COVID-19 has had a significant impact on companies’ autonomy for restructuring around the entire globe, with many companies struggling simply to profit from their business whilst facing this new reality. To counteract this, Legal Notice 192 of 2020 was published. The Legal Notice provided for several changes, however most notable for these purposes was the establishment of a fund within the scope of the CRP to be known as the Company Recovery Fund.
Later in the year, Legal Notice 373 of 2020 was introduced. This introduced the Suspension of Filing for Dissolution and Winding Up Regulations which aimed to provide companies with some relief from insolvency proceedings commenced by creditors.
As there are obligations set by the Registry of Companies, it is in the interest of any companies undergoing a restructuring to ensure that all obligations enforced by the Registry are complied with.
Any form of corporate restructuring requires professional advice. BDO’s legal team along with other professionals offers advice and assistance with respect to the effects, advantages and potential disadvantages of the restructuring.
We also provide comprehensive guidance on the company recovery procedure as well as assistance and advice on other restructuring possibilities such as mergers, management buyouts, the reorganisation of share capital and its distribution thereof, debt refinancing options and even liquidations and winding up procedures.
BDO can also help with the preparation and submission of any documentation required by law.
Want to knowmore? Get in touch with BDO's Legal team today