The COVID-19 pandemic will undoubtedly bring about liquidity difficulties and hardship for companies as the general economic climate continues to deteriorate.
In this aspect, it is the state’s prerogative to provide liquidity assistance to entities facing financial difficulty in order to ensure a smooth recovery once the pandemic subsidies. The Companies Act (Company Reconstructions Fund) Regulations, 2020 (the “Regulations”) have recently been published with the aim of creating the Company Recovery Fund (the “Fund”). Such fund intends to provide support for company recovery procedures that have been instituted in accordance with the Companies Act (the “Act”).
Payments from the fund will be made to court-appointed Special Controllers who will be selected from a list held by the Official Receiver. As a support mechanism, the Malta Business Registry (the “Registry”) will provide the Fund with five hundred thousand euro (€500,000) annually, to cover the related expenses.
Company Recovery Applications
A company recovery application may be made to the Court requesting it to place the company under the recovery procedure. The Court will be asked to appoint a Special Controller to take over, manage and administer the business of the company for a period to be specified by the Court. The maximum period is of 4 months and this period can be extended by the Court for a further period but not exceeding 8 months.
An application for a company to go into a recovery procedure can be filed by:
- the company following an extraordinary resolution;
- the directors under certain conditions;
- the creditors of the company representing more than half in value of the company’s creditors; or
- creditors forming part of a class of creditors provided that they represent more than half in value of the company’s creditors in that class
The Court shall accede to such an application and issue an order, only if:
(i) it is satisfied that the company is, or is imminently likely to become, unable to pay its debts within the meaning of Article 214(5) of the Act; and
(ii) it considers that the making of the order would be likely to achieve one of the following purposes: – the survival of the company as a viable going concern in part or in whole; or the sanctioning under Article 327 of a compromise or arrangement between the company and any of its creditors or members.
When such an application is submitted and unless it is dismissed, or during the period in which the company recovery procedure is in force, the company shall be protected in so far as:
- any pending or new winding up application shall be stayed;
- no resolution for the dissolution and consequential winding up of the company may be passed or given effect to;
- the execution of claims of a monetary nature against the company and any interest that may otherwise accrue thereon shall be stayed;
- during the tenure of the lease, no landlord or other person to whom rent is payable may exercise any right to terminate the lease in relation to premises leased to the company that fails to comply with any term or condition of its tenancy of such premises, except with leave of the Court and subject to such terms that the Court may deem fit to impose;
- no other steps may be taken to enforce any security over the property of the company or to repossess goods in the possession of the company under any hire-purchase agreement, except with the leave of the Court and subject to such terms as the Court may deem fit to impose;
- no precautionary or executive act or warrant mentioned in the Code of Organisation and Civil Procedure shall be made or continued against the company or any property of the company, including any warrant in terms of Article 312 of the Code of Organisation and Civil Procedure except with leave of the Court and subject to such terms as the Court may deem fit to impose;
- no arbitration proceedings shall be made or continued against the company or any property of the company; and
- no judicial proceedings shall be commenced or continued against the company or its property except with leave of the Court and subject to such terms as the Court may deem fit to impose.
The Regulations outline the functions of the Official Receiver who shall:
- establish and maintain, in consultations with the Registry arrangements to make payments to Special Controllers in accordance with these regulations;
- certify claims for compensation by Special Controllers admitted in accordance with the Regulations; and
- keep an updated list of persons admitted to act as Special Controllers, which shall be made available to the Registrar of Courts.
Application to be admitted to the list of Special Controllers shall also be made directly to the Official Receiver and applicants shall not be able to take up such a post if s/he:
- is interdicted or incapacitated or is an undischarged bankrupt;
- has been convicted of any of the crimes affecting public trust or of theft or of fraud or of knowingly receiving property obtained by theft or fraud, provided that the period for disqualification shall be in terms of the limits mentioned in the Act;
- is subject to a disqualification order under Article 320 of the Act;
- during the time s/he has been a director or a secretary of a company, s/he has breached the provisions of this Act for the third consecutive time in a period of two (2) years to be reckoned from the first breach;
- has been convicted of any of the offences under the Prevention of Money Laundering Act;
- does not possess a minimum of five (5) years of proven experience in the administration of companies; or
- does not possess a minimum of two (2) years of proven experience in the administration of companies and a bachelor’s degree or equivalent from a recognised university.
This article was written by Dr Cherise Abela Grech and Dr Luke Mizzi.
For more information on Company Recovery Procedures in Malta please contact Dr Ian Gauci on firstname.lastname@example.org, Dr Cherise Abela Grech on email@example.com, and Dr Luke Mizzi on firstname.lastname@example.org
Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.