Insolvency Law at Malta
Malta's insolvency framework has undergone significant reforms to align with EU Directive 2019/1023, introducing preventive restructuring tools and enhancing directors' duties during financial distress. (An Overhaul to Malta’s Insolvency Framework - Forvis Mazars - Malta)
⚖️ Legal Framework
Malta's insolvency laws are primarily governed by:
Pre-Insolvency Act (Chapter 631): Introduced in December 2022, this Act establishes early warning mechanisms for companies at risk of insolvency and provides preventive restructuring procedures. (An Overhaul to Malta’s Insolvency Framework - Forvis Mazars - Malta)
Insolvency Practitioners Act (Chapter 632): Also enacted in December 2022, this Act regulates the role of accredited insolvency practitioners who assist in managing distressed companies and facilitating restructuring efforts. (An Overhaul to Malta’s Insolvency Framework - Forvis Mazars - Malta)
Commercial Code (Chapter 13): Amended in March 2023, it incorporates provisions for liquidation and restructuring procedures.
🏛️ Insolvency Procedures
Malta offers several procedures for addressing insolvency:
Company Recovery Procedure (CRP): A court-supervised process where a Special Controller is appointed to manage the company's affairs, aiming to rehabilitate the business. (Duties and Liabilities of Directors – Malta Business Registry)
Preventive Restructuring: Aimed at financially distressed companies, this procedure allows for the negotiation of a restructuring plan to avoid insolvency.
Liquidation: In cases where recovery is not feasible, the company may be liquidated to satisfy creditor claims.
📊 Directors' Duties and Liabilities
Under Maltese law, directors have specific duties during financial distress: (Duties and liabilities of directors of companies in financial difficulties)
Duty to Act in Good Faith: Directors must act in the best interests of the company, considering creditors' interests when insolvency is imminent.
Duty to File for Insolvency: If a company is unable to pay its debts or is likely to become insolvent, directors are required to convene a general meeting to discuss potential actions, such as initiating a CRP or opting for dissolution. (Duties of Directors during Insolvency or in the likeliness of Insolvency – Malta Business Registry)
Liability for Wrongful Trading: Directors may be held personally liable if they continue trading when they knew, or ought to have known, that there was no reasonable prospect of avoiding insolvency. (Duties of Directors during Insolvency or in the likeliness of Insolvency – Malta Business Registry)
Failure to Maintain Accounting Records: Neglecting to keep proper accounting records can lead to criminal liability if the company is dissolved and found to be insolvent. (Duties and Liabilities of Directors – Malta Business Registry)
Fraudulent Trading: Engaging in business with intent to defraud creditors can result in personal liability for directors. (Duties of Directors during Insolvency or in the likeliness of Insolvency – Malta Business Registry)
🔄 Early Warning and Self-Assessment Tools
To assist companies in identifying financial distress early, the Malta Business Registry launched a Self-Assessment Insolvency Tool in November 2024. This online tool allows companies to evaluate their financial position and determine the risk of insolvency, helping directors make informed decisions. (Malta’s Pre-Insolvency Regime: Launch of the Self-Assessment Insolvency Tool by the MBR - The Malta Chamber)
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