A Beacon of Hope for Entities Facing Financial Trauma

The scope 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, which in turn amends Directive (EU) 2017/1132 (Directive on restructuring and insolvency) (the ‘EU Directive’) is that of regulating i) preventive restructuring frameworks available for debtors in financial difficulties when there is a likelihood of insolvency, with a view to preventing the insolvency and ensuring the viability of the debtor; ii) procedures leading to a discharge of debt incurred by insolvent entrepreneurs; and iii) measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, as stipulated under Article 1 of the directive.

In light of the promulgation of this EU Directive, three bills proposing new insolvency-related legislation and amendments are presently being read in Parliament in order to strengthen the insolvency regime in Malta and to bring Maltese legislation in line with the objectives of this EU Directive, namely:-

1. The Pre-Insolvency Bill;
2. The Insolvency Practitioners Bill; and
3. The Commercial Code (Amendment) Bill.

The Pre-Insolvency Bill

This Bill Number 12 reached its First Reading in Parliament on the 5^th of July 2022, with its Second Reading being last held on the 26^th of October 2022.

The reasoning behind this Bill is twofold, the first objective being that of partially transposing the EU Directive into Maltese law, and the second objective being that of strengthening the legal framework relating to insolvency while also providing for a pre-restructuring and restructuring framework.

This proposed legislation aims to introduce the concept of ‘early warning tools and crisis prevention’ with the purpose of enabling debtors to identify situations that could give rise to a situation of insolvency so that they may act without delay in order to avoid their ruin. The Bill also seeks to provide the possibility of restructuring procedures by giving the debtor the opportunity to file a ‘preventive restructuring application’ to the Court, to be made by an insolvency practitioner, provided certain criteria are met.

Therefore, emphasis will be placed on avoiding insolvency, rather than regulating the consequences of insolvency, potentially giving companies and other entities which find themselves in financial turmoil a new window of opportunity.        

The Insolvency Practitioners Bill

This Bill Number 13 reached its First Reading in Parliament on the 5^th of July 2022, with its Second Reading being last held on the 26^th of October 2022.

The reasoning behind this Bill is similarly twofold, with the first objective being that of providing a new and improved legal framework that builds up on the current existing legal framework all while increasing its efficiency and effectiveness by regulating the activities of insolvency practitioners, and the second objective being that that of partially transposing the EU Directive.

This Bill essentially introduces two new concepts to the insolvency regime. The first concept is the creation of the ‘insolvency practitioner’, which, if successfully introduced, shall be defined as a person who is authorised, by the competent authority, to carry out the functions of an insolvency practitioner in accordance with article 4(2) of the proposed Act. The Bill, particularly under Article 3, also lays down an exhaustive list stipulating the eligibility requirements in order to obtain approval to act as such.

The second concept introduced by this Bill is the introduction of the Insolvency and Receivership Service within the Malta Business Registry (the ‘MBR’) as being the competent authority that regulates anything related to the insolvency practitioners and their conduct, including the issuance of an authorisation to act as an insolvency practitioner.

The Commercial Code (Amendment) Bill

This Bill Number 11 reached its First Reading in Parliament on the 5^th of July 2022, with its Second Reading being last held on the 26^th of October 2022.

The main object of this Bill is that of updating the existing provisions of Part III of the Commercial Code (Chapter 13 of the Laws of Malta) dealing with bankruptcy, mainly by substituting the nomenclature of “curator” with that of “bankruptcy trustee”, and substituting various other provisions with the aim of extending the juridical competence of the Civil Court (Commercial Section). Other ancillary objectives of this bill include that of strengthening the currently existing legal framework on the bankruptcy regime and the discharge of debt, and also that of partially transposing the EU Directive.

Should you be interested in enquiring further in relation to the proposed bills and should you have any queries relating to the EU Directive discussed, get in touch with us at [email protected] so that one of our Corporate Advisors may be able to guide and advise you further.

About the Authors

This article has been authored by Dr Edward Meli, Lead Corporate Services Advisor and Dr Luana Agius, Junior Lawyer. For additional information kindly contact us on [email protected].