12 November 2020

Emergency Measures In Insolvency Legislation In Response To The COVID-19 Crisis

Ganado Advocates


Ganado Advocates is a leading commercial law firm with a particular focus on the corporate, financial services and maritime/aviation sectors, predominantly servicing international clients doing business through Malta. The firm also promotes other areas such as tax, pensions, intellectual property, employment and litigation.
This is the Malta contribution published in a report by the AIJA (International Association of Young Lawyers) Insolvency Commission – November 2020
Malta Insolvency/Bankruptcy/Re-Structuring
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This is the Malta contribution published in a report by the AIJA (International Association of Young Lawyers) Insolvency Commission - November 2020

1. What emergency measures in insolvency or restructuring legislation has Malta adopted to help businesses cope with the economic crisis caused by the COVID-19 pandemic?

The main focus of the Government of Malta in the immediate months following the COVID-19 outbreak has been that of seeking to assist businesses by providing cash grants and by introducing certain tax deferrals in hope that businesses will keep their workers employed without facing insolvency.

Suspension and Interruption of Time Periods

As from the 2 April 2020 regulations issued under the Legal and Other Time Periods (Suspension and Interruption) Act, interrupted the running of time:

a. Under any substantive or procedural law, including any period of prescription and any peremptory period;

b. Decreed or otherwise ordered by any court, government department, government agency or public authority;

c. Established in any agreement (whether a private or a public deed), including any time period for the performance of any obligation set out in such agreement, and if and to the extent that the closure of the Courts of Justice has a direct effect on the ability of any party to exercise its rights or to perform its obligations in terms of the same agreement.

The suspensions and interruptions introduced by this Act were gradually eased and repealed throughout the months of May and June 2020.

Amendments to Insolvency Related Laws

Following on Bill 128 of 2020 published on the 13 May 2020, new regulations were issued on the 15 September 2020 entitled the Companies Act (Suspension of Filing for Dissolution and Winding Up) Regulations, 2020 (the "Regulations"). These Regulations introduce the following amendments to Maltese law:

a. The Regulations suspend the rights of creditors and debenture-holders to file for the dissolution of their debtor companies, with this suspension lasting until 40 days following an order to be issued by the Minister to lift the suspension established by the Regulations. Nevertheless, if a Court is satisfied (on a prima facie basis) that the alleged ground for dissolution arose prior to 16 March 2020, then the Court can allow the filing of a winding-up application.

b. The Regulations introduce the possibility of establishing a date of "deemed dissolution" during the suspension for the benefit of creditors and debenture-holders given that these are prohibited from filing a winding-up application (as mentioned in (a) above). Creditors or debenture holders may therefore still file a judicial letter in Court against their debtor company informing it of the grounds for dissolution (typically being an inability to pay debts). Should a winding-up order eventually be successful, the company will be deemed to have been dissolved as at the date of the first judicial letter filed by the creditor/ debenture holder.

c. The Regulations impose a stay on any pending dissolution proceedings filed by a creditor or debenture holder that were instituted by an application filed in Court on or after the 16 March 2020, which suspension is to last until 40 days following an order to be issued by the Minister to lift the suspension established by the Regulations. If a Court is however satisfied (on a prima facie basis) that the causes underlying the request for dissolution arose prior to 16 March 2020, then the Court has discretion to allow the hearing of the application.

d. The right of a liquidator of a dissolved company to bring an action against one of the company's directors for wrongful trading has also been suspended with retroactive effect (as from 16 March 2020) until 40 days following the lifting of the suspension established by the Regulations. The Regulations also establish that directors will not be expected to have taken certain steps to minimise potential losses to creditors during this suspensive period, including (i) filing an application to dissolve the company of which they are a director; or (ii) incurring debts in good faith on behalf of the company; unless it is shown that such actions or omissions were deliberately intended to prejudice the prior pari passu ranking of creditors of the company.

2. Do you expect these measures to have any lasting impact on Malta's insolvency legislation or court decisions after the COVID-19 crisis?

The aforementioned measures are specifically linked to the COVID-19 crisis.

Nevertheless these amendments come at a time when Malta needs to introduce certain amendments to its insolvency laws as a result 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.

3. Has Malta adopted any other measures in response to the COVID-19 crisis that are noteworthy from an insolvency perspective?

The Government of Malta has established a number of schemes providing cash grants (and wage supplements) and possibilities for tax deferral (especially for those companies which were directly hit by the COVID-19 crisis).

A COVID-19 Guarantee Scheme was also set up in order for the Government to guarantee loans granted by commercial banks to businesses in Malta facing a sudden acute liquidity shortage as a result of the COVID-19 outbreak.

The full report is available on the AIJA website.

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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