On the 27th October, 2014 the First Hall Civil Court rejected an
application filed by a financially distressed company seeking a
court-orchestrated company recovery. The company recovery
application (the "CRP application") was
presented by the applicant More Supermarkets (Hamrun) Limited
("More"), an operating company forming part of the wider
"MORE Supermarkets" Group.
In Malta, the notion of a financially-battered company being
granted sufficient "breathing space," allowing for its
economic resuscitation under the watchful gaze of the court is
still in its infancy, both in terms of cultural acceptance as well
as practical application. To date, it has only been resorted to in
a handful of cases and has only garnered modest success.
In the More case, the CRP application appeared to be doomed to
fail from the start. The Company had failed to submit in the court
proceedings, the extraordinary resolution adopted by the Company
resolving to apply for a company recovery. The failure to exhibit
this resolution was not well received by the Court which opined
that insofar as such a resolution would undeniably constitute the
"best evidence possible" to indicate that the Company had
decided to pursue this course, the failure to tender such evidence
was of sufficient gravity as to persuade the Court that a dismissal
of the CRP application was appropriate.
The Court did not end its determination here however. Procedural
considerations aside, the substantive thrust of a company recovery
procedure lies in the applicant's ability to convince the Court
that its business remains commercially viable and that a strategy
or plan has already been identified which, if implemented with
court approval, would result in the amelioration of the
company's financial situation. Furthermore, the applicant must
demonstrate that the mode of recovery proposed is in the best
interests of the Company's creditors, employees and of the
Admittedly, the law does not appear to require nor specify any
particular mode as to the type of business plan which an applicant
seeking a company recovery must produce. Article 329B of the
Maltese Companies Act, 1995 merely speaks of a
"statement" showing how the "financial and economic
situation of the company may be improved." In practice, a
presiding judge will not entertain a request under Article 329B
lightly but rather will rightly demand that a detailed, concrete
and time-effective business recovery plan is presented for
scrutiny. The plan presented cannot be one riddled with
hypotheticals, plagued by uncertainties or at the mercy of several
contingencies. The plan must be financially sound and capable of
attaining concrete results within a reasonable span of time.
In the More case, the CRP application was not accompanied by any
such "statement" but rather reference was made by
More's directors to a restructuring plan that was allegedly
being drawn up the sole shareholder of More. In a dramatic twist of
events, the sole shareholder, present in court, openly contradicted
the version offered by More's directors and disputed any claims
as to the company's financial viability. In the
shareholder's view, the applicant company was beyond economic
viability and any eleventh-hour intervention would simply be
Courtroom drama aside, the Court expressly declared that the
evident conflict between the views of the directors and the sole
shareholder eliminated any prospects, regardless how miniscule such
prospects may be, that the CPR proceedings would yield the type of
results envisaged under Article 329B.
The court's ruling, whilst retaining the high threshold
required in previous CRP rulings, serves as a stark reminder that a
CRP is not to be resorted to as a drastic attempt to delay the
company's inevitable demise and that the court shall not
outstretch its sympathetic arm to yank the company away from the
brink of financial oblivion unless it is absolutely convinced that
the business remains commercially viable, and that the company
would, under well-controlled circumstances, be able to satisfy its
The Judge's sceptical response to the CRP application should
not be seen as suggesting, in any way, reluctance on the part of
the Maltese courts, to embrace a so-called "rescue
culture." In the More case, procedural shortcomings meant that
the application never stood any chance of acceptance. The
Judge's emphasis on detail and substance should not, in our
view, be regarded as hostility towards the notion of "company
recovery" but rather a hope that Maltese rules on company
recovery will be applied with the level of awareness, care and
sophistication which such special proceedings rightly warrant.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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As a jurisdiction that currently has no formal restructuring regime, the appointment of a provisional liquidator has long since been utilised for the purpose of facilitating a corporate restructuring...
The powers of provisional liquidators are limited to the extent necessary to maintain the value of the company's assets.
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