Apart from being responsible for the proper administration and management of the company, Directors of a Maltese company are, amongst other obligations, generally bound to act honestly and in good faith in the best interests of the Company; to promote its well-being and to exercise the degree of care, diligence and skill that may reasonably be expected of a person in such a position.
These duties, along with the duties of directors in the case of companies experiencing over-indebtedness and/or illiquidity are chiefly regulated by the Companies Act (the Act).
In a judgment delivered by the First Hall (Commercial Section) on 13 July 2020 in the case Avinco Group Holdings N.V vs Eolia Limited, the Court was asked to determine inter alia whether a winding up application based on the alleged insolvency of the respondent could be entertained in circumstances where the underlying claim of the claimant was disputed.
The issuance of the Companies Act (Register of Beneficial Owners) (Amendment) Regulations, referred to as Legal Notice 247 of 2020 confirms that the Registrar of Companies shall have further powers to investigate the ultimate beneficial ownership of the companies that are to be or are registered in Malta. These new Regulations, which came into force in June 2020, shall require Maltese companies to abide by new annual filing obligation confirming ultimate beneficial ownership of the relative company’s issued shares.
Malta has, to date, chosen to address corporate distress as a result of the COVID-19 pandemic by extending credit capacity through the issuance of State guarantees, thus allowing them access to financing channels that would otherwise have been impossible to secure.
The country seems now ready to jump onto the insolvency-buffer bandwagon, several weeks after the rest of the world began to enact special COVID-19 inspired amendments to their insolvency laws. Bill 128 of 2020 proposes amendments to the Companies Act which include, inter alia:
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 Maltaadopted to help businesses cope with the economic crisis caused by the COVID-19pandemic?
Under Article 218 of the Companies Act, any creditor or creditors can, by means of an application, request the court for the winding up of a company. Such process takes place when the company is no longer able to pay its creditors and the directors are not in a position to make a declaration of solvency.
The Maltese economy has proved to be somewhat resilient in the wake of global crises thus far. Having withstood one of the worst financial crises in 2008, Maltese entrepreneurs and investors in the Maltese economy were led to believe that Isaac Newton’s third law of motion, which states that “what goes up, must come down”, does not apply to the Maltese economy. Yet the Maltese economy does not appear to be immune to COVID-19, as the global pandemic is now causing its vulnerabilities to come to light.
On 15 September 2020, the Minister for the Economy, Investment and Small Businesses issued the Companies Act (Suspension of Filing for Dissolution and Winding Up) Regulations, 2020 (the “Regulations”). These Regulations have been anticipated ever since the publication of Bill 128 of 2020 and introduce a number of changes to Malta’s insolvency laws in light of the COVID-19 pandemic. These changes are summarized and commented upon below.
Suspension of Rights to File for Dissolution
Legal Notice 373 of 2020 The Companies Act (Suspension of Filing for Dissolution and Winding Up) Regulations (the “Regulations”) was published on the 15th of September 2020. Back in March, the Conference of European Restructuring and Insolvency Law (CERIL) published an Executive Statement highlighting the importance of countries across Europe to adapt their insolvency legislation in light of the “current extraordinary economic situation” the world has found itself in as a result of COVID-19.
In terms of the Companies Act, a company may be dissolved in one of two manners: either on a voluntary basis, which may take place either by way of a members’ winding up or a creditors’ winding up, or, by Court order.