The relevant provisions relating to the
local law of insolvency are found mainly in the Companies Act
and the Commercial Code. Moreover as from 1st June 2003, the
Set-off and Netting on Insolvency Act regulates the set-off and
netting on bankruptcy and insolvency.
The Maltese Insolvency law regime
distinguishes between bankruptcies of a person or a commercial
partnership other than a company which are regulated under the
Commercial Code and bankruptcy of a company which is regulated
by the Companies Act.
Insolvency proceedings may be started when
the company is unable to pay its debts. Court must examine
carefully if the financial situation of the company justifies
its winding up or if there exists a possibility that the company
can still operate and consequently pay its debts. The Companies
Act provides that in proving to the court that the company is
unable to pay its debts account must be taken of any contingent
and prospective liabilities of the company. This may be verified
by means of balance sheets and it must be verified that assets
of the company concerned are less than its liabilities.
The Companies Act provides for 3 modes of
- When the company by extraordinary
resolution resolves to go through a dissolution and voluntary
winding up: This procedure requires that the company enters into
an arrangement or a compromise with its creditors or members
which requires the majority of votes in an extraordinary
resolution convened within a month from the discovery of the
financial difficulties by the Directors for this purpose and the
sanctioning by Court. The date of dissolution of the company is
deemed to be the date of the resolution except if a later date
is specified in the resolution. The Directors may also apply to
Court for a Company recovery procedure whereby a special
controller is appointed to take over, manage and administer the
business of the company.
The Maltese Insolvency Regime further
classifies between a members’ voluntary winding up whereby the
directors issue a solvency declaration showing that the company
will be able to pay its debts within a stated time, and a
creditors’ voluntary winding up in cases where the Directors
fail to issue such a declaration
- When the company by extraordinary
resolution resolves to go through a dissolution and winding up
by the court: In various instances, by way of protection,
companies opt for a dissolution and winding up by Court for the
reason that although all provisions are applicable, however all
actions against the company or its property require leave of the
court after the winding up order is issued.
- The court may on application, issue a
winding up order if it finds that the company is unable to pay
its debts : A request to Court for the winding up of the company
may be made by the following: the company, the board of
directors, debenture holders, creditors, contributories,
shareholders, directors or the official receiver. In these cases
the company is deemed to have been dissolved at the time of the
filing of the winding up application.
A company shall be dissolved by Court if it
is unable to pay its debts, however they may be other reasons
for a Court winding up including when the business of the
company is suspended for a given time period and when there are
grounds of sufficient gravity to warrant the dissolution of the
Company in the opinion of Court.
Consequences of Insolvency
By virtue of insolvency proceedings, a
company is deemed to be dissolved. Any transfer of property or
shares, and the issue of any warrants, except warrants of
prohibitory injunction after this date would be void. The law
goes further than this by providing that any transfer of any
property or assets and any charge against the company done
within six months prior to dissolution shall be void. On
appointment of the liquidator, the powers of the officers of the
company cease and pass on to the liquidator.
In both the members’ and the creditors’
voluntary winding up, if the scheme of distribution is approved
in the final meeting, the name of the company is struck off the
Register of Companies. This also occurs in a Court winding up
where the Court orders the name to be struck off after having
examined the report of the Official Receiver or of the
Liquidator as to the payment of creditors.
The law seeks to protect creditors of the
company throughout the proceedings of insolvency, in fact at the
opening of proceedings creditors may ensure that their claims
are protected by means of the precautionary warrants. In further
stages of the proceedings, creditors who feel aggrieved by any
form of arrangement that the company enters into can contest it
The ranking of claims is according to the
Civil Law rules as provided by the Civil Code. Any hypothecs or
privileges registered during the insolvency of the trader or
company are without effect.
Criminal proceedings may be taken against
any officer of the company who in the twelve months prior to the
deemed date of dissolution, had concealed assets or documents or
disposed of assets or otherwise acted in a fraudulent manner. In
civil proceedings these officers may be found responsible to pay
back to the company any monies due to the company or even
damages. The law also provides for proceedings in case of
wrongful trading by directors and fraudulent trading by any
officer of the company.
Participants in Proceedings
- Liquidator: The liquidator plays a
central role in insolvency proceedings, he is responsible for
the management of the company and its assets during the period
of winding up, and he has its legal and judicial representation.
In a Court winding up, the Court may appoint a liquidator or a
provisional administrator having duties as the above; however
any actions against the company required leave of Court.
- Official Receiver: The Official
Receiver acts in default of the liquidator in both a voluntary
winding up and a winding by Court. He may act in capacity of the
liquidator and he may receive statement of affairs of the
company being wound.
Any interested person may file an
application in court within five years from the date when the
company is struck off the register, asking that the name of the
company be restored on the Register of Companies and that the
winding up process is reopened. The Court has to be satisfied
that this is the only available remedy in order to grant the
request. Also, any interested person may file an application in
court after the striking off of the company name, asking that
there will be a rectification of the scheme of distribution so
that it will include an asset of the company which has been left
out of the scheme. Any creditor who has not been paid may by an
application filed in court within five years from the striking
off of the company name, demanding to be paid.
The Commercial Code provides that a person
is declared bankrupt when he suspends payments of his debt. A
voluntary declaration of bankruptcy may be made to the Civil
Court, First Hall by the trader and his lawful representative
alternatively bankruptcy proceedings may also be initiated by
the creditors. The fact that a person fails to pay substantial
debts is enough proof of suspension of payments of his debts and
thus should be considered to be in a state of bankruptcy.
The law strives to protect the interests of
creditors in bankruptcy proceedings by granting the Registrar of
Courts the power to call on the creditors and state why their
debtor should not be declared to be in a state of bankruptcy,
and in order that curators may be appointed.
Consequences of Bankruptcy
As from the date of the filing of the
trader’s voluntary declaration in Court, or the date of the
judgment of bankruptcy, the trader is dispossessed of the
administration of all his property. Anything which devolves on
the trader subsequent to bankruptcy will fall under
dispossession except for charges on the property and allowance
for maintenance. Furthermore, any debts not yet due become
exigible upon declaration of bankruptcy. At this stage, a
curator is appointed who takes over the assets of the trader and
sells any perishable assets.
These consequences of bankruptcy arise from
the law in order to protect the interests of the shareholders.
The person cannot be absolved from the consequences of
bankruptcy proceedings by choosing to pay some of his creditors.
Participants in Proceedings
A curator is appointed who takes over the
assets of the trader and sells any perishable assets. The
curator’s duty is primarily to preserve the debtor’s rights,
register any unregistered hypothecs and sue on behalf of the
bankrupt in order to collect any sums due to him. With the
authorization of Court, he can also continue the business
instead of the trader.
Set-off and Netting
By virtue of Act IV of 2003, the set-off and
netting on bankruptcy or insolvency was regulated. The Set-off
and Netting on Insolvency Act provides that any provisions for
the set-off and netting due from each party to the other in
respect of mutual credits, mutual debts or other mutual dealings
shall be enforceable in accordance with its terms, whether
before or after bankruptcy or insolvency, in respect of mutual
debts, mutual credits or mutual dealings which have arisen or
occurred before the bankruptcy or insolvency of one of the
parties. This provision will not be applicable in case of fraud
or in case where the insolvent party is a trader or a commercial
partnership not being a company and the other party knew or
ought to have known of the application for winding up and
dissolution of the company due to insolvency.
Any authority or mandate in a contract to implement any
close-out netting provision shall not be revoked by the
declaration of bankruptcy or the insolvency of any other party
to the contract.