An Overhaul to Malta’s Insolvency Framework

On the 23rd December 2022, the three (3) above-captioned independent yet intertwined insolvency-related legislative frameworks have transposed into Maltese law EU Directive 2019/1023 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.

What is being introduced in a nutshell?

1. The Pre-Insolvency Act (Chapter 631 of the Laws of Malta)[1] establishes an early warning mechanism for insolvency whereby entities who are on the brink of insolvency could be flagged on the basis of performance indicators, and be subsequently subject to effective and efficient restructuring tools;
2. The Insolvency Practitioners Act (Chapter 632 of the Laws of Malta)[2] (i) governs the role of the newly-introduced insolvency practitioner in aiding and monitoring the debtor company and/ or in partially managing the said company’s affairs in the event that insolvency is apparent, (ii) contemplates a preventive restructuring procedure which can be lodged or endorsed by the aforementioned insolvency practitioner, and (iii) establishes a competent authority in the form of the Insolvency and Receivership Service within the Malta Business Registry, and;
3. The Commercial Code (Amendment Act) revises the bankruptcy procedure already set out in the Commercial Code (Chapter 13 of the Laws of Malta) and the principal amendments affected therein mainly entail (i) the introduction of the bankruptcy trustee, (ii) the widening of the competence vested with the Civil Court sitting in its Commercial Section, and (iii) the overall boost to the local framework on bankruptcy and the discharge of debt.

What is the rationale behind this overhaul?

The Minister for the Economy, Hon. Schembri has opined that,

“All in all, the scope of the acts put forward is to encourage an entrepreneurial spirit by means of instilling a mindset that everyone deserves a second chance [..]”

In light of the aforementioned, in an attempt to strengthen Malta’s legal framework regulating insolvency and to simultaneously harmonise our legal system with EU standards, this legislative overhaul is intended to restore or maintain (as applicable) the viability of businesses, and to reinforce the efficiency of procedures addressing restructuring, insolvency and the discharge of debt.

Concluding Remarks

This recent overhaul to Malta’s insolvency framework shall set into motion a much called-for culture shift within the financial and legal sphere as businesses in (or in imminent) financial distress are now encouraged to adapt and internally instill the approach contemplated therein in order to ensure financial sustainability. Therefore, such culture shift is a welcome change in that it seeks to strike a fair balance between the rights of the diverse stakeholders involved in a corporate insolvency, notably the debtor company and the creditors thereof, whilst simultaneously bringing much more legal certainty in this area of law.

[1] The Pre-Insolvency Act partially transposes EU Directive 2019/1023 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. 

[2] Ibid. 1