On the 15th of November 2024, the Insolvency and Receivership Service within the Malta Business Registry announced the launch of the very first “self-assessment insolvency tool” intended to give companies the preliminary tools to be able to assess their own position and their viability going forward.
This “self-assessment insolvency tool” is one of the so-called “early warning tools” which article 3 of the Pre-Insolvency Act (Chapter 631 of the Laws of Malta) (the “Pre-Insolvency Act”) contemplates to equip companies and their representatives with the ability to detect circumstances which may give rise to a “likelihood of insolvency”. In terms of the Pre-Insolvency Act (which has been in force for almost two years now) a “likelihood of insolvency” triggers a positive obligation on the directors of a company to not later than 30 days from becoming aware of such circumstances, convene a meeting of the directors for the purpose of reviewing the company's position and determining the appropriate steps to be taken to deal with such situation – always having regard to the interests of the company's creditors, employees, shareholders and other stakeholders. This “review” should include (but is not limited to) giving due consideration as to whether the company should consult with an insolvency practitioner and / or make a preventive restructuring application in terms of the same Pre-Insolvency Act.
This innovative self-assessment tool takes the form of an online questionnaire which curates results on the basis of data fed to it by the persons conducting the self-assessment. The results it provides remain entirely confidential and only accessible to the users of the tool. The self-assessment tool provided by the Insolvency and Receivership Service, poses particular questions to the user including whether the company has been experiencing unexplained declines in sales, whether it is facing cash flow problems or delays in payment of debts for example, which at the very least, should give the directors of the company using this self-assessment tool, the space and opportunity to stop and think about the business and any issues it is facing – which is already a step in the right direction. It should be noted that the results of the self-assessment, should be considered “indicative” and not conclusive evidence on the company's viability.
The launch of this “self-assessment insolvency tool” is intended to give directors a practical means to assist them in their obligation to continuously monitor developments which may expose the company of which they are directors, to a likelihood of insolvency and to take the appropriate countermeasures if such likelihood of insolvency is actually identified, with the hope of ultimately preventing insolvency and liquidation and ensuring business continuity where this is possible, reasonable and favourable. The overhaul of Maltese insolvency law back in 2022 and, now, the launch of this tool is expected to further promote a “rescue culture” and support the idea that prevention is better than cure, with a positive lasting impact on businesses and the economy at large.
Importantly, it must be said that these tools are not intended to protect those directors who continued to operate in a manner detrimental to creditors when they knew or ought to have known that there were no reasonable prospects of the company avoiding insolvency and therefore directors' obligations in the ambit of insolvency remain pertinent and here, exposure remains a real threat. Moreover, these tools are not the only means available to companies and their officials to gauge the viability or otherwise of the business and professional advice from insolvency practitioners, lawyers and financial advisors remains crucial where financial difficulties start to arise.
Finally, it should also be noted that the long-awaited list of Insolvency Practitioners has also been finalised and can be obtained from the Insolvency and Receivership Service, upon request. This will hopefully incentivise companies and their officials alike to reach out to competent insolvency practitioners to assist them in a timely manner when doubts of looming insolvency arise and may also lead to the filing of the first preventive restructuring application in Malta, in the near future.
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.
