Bankruptcy - Malta
TABLE OF CONTENTS
What are the different types and aims of insolvency proceedings?
What are the conditions for opening each type of insolvency proceedings?
What is the role of the various participants in each type of proceedings?
What are the effects of the opening of proceedings?
What are the specific rules related to certain categories of claims?
What are the rules relating to detrimental acts?
What are the conditions for the lodgement and admission of claims?
What are the rules relating to reorganisation proceedings?
What are the rules relating to the winding-up proceeding?
What are the conditions for the closure of the proceeding?
1. What are the different types and aims of insolvency proceedings?
- Bankruptcy of a person or a commercial partnership other than a company, is regulated by the Commercial Code (sections 477 et seq of Chapter 13 of the Laws of Malta). Company insolvency is regulated in Title II of Part V of the Companies Act, Chapter 386.
- Insolvency proceedings may be started when the company is unable to pay its debts.
- A person is said to be bankrupt when he suspends payment of his debts. He can make a voluntary declaration of bankruptcy to the First Hall of the Civil Court. Bankruptcy proceedings may also be commenced by creditors.
- When a company is in financial difficulties, it can enter into an arrangement or a compromise with its creditors or members. This agreement must have the backing of the majority (3/4 in value of those present and voting in a meeting convened for that purpose) of creditors or members, as well as the sanction of the court. An arrangement includes also the reorganisation of the share capital of the company or an amalgamation.
- When the directors find out that the company is in financial difficulties, they must convene a general meeting within a month from their discovery. Moreover, they may file a company recovery application in court. In these proceedings, a special controller may be appointed to take over the administration of the company. The application may be filed by the company, by the directores or by creditors. However these proceedings cannot be commenced with regard to small companies (as defined in section 185 of the Companies Act) having less than Lm200,000 in value due to creditors. There are also provisions for wrongful and fraudulent trading if officers of the company act fraudulently during this period when the company is in difficulties.
- Insolvency proceedings can take different forms:
- When the company by extraordinary resolution resolves to go through a dissolution and voluntary winding up
- When the company by extraordinary resolution resolves to go through a dissolution and winding up by the court
- The court may on application, issue a winding up order if it finds that the company is unable to pay its debts.
2. What are the conditions for opening each type of insolvency proceedings?
Bankruptcy of a trader or individual:
- If he makes a voluntary declaration of bankruptcy, the declaration must contain his details, details of his creditors and the nature of the debts due by him. He must also file in court all his books and documents.
- In such case, the registrar of the courts calls on the creditors to appear in court and state their claim. He also publishes the trader’s declaration in the Government Gazette and in one newspaper.
- A creditor can also commence proceedings against a trader demanding that the latter be declared bankrupt. If the creditor does not proceed to commence proceedings for the ranking of creditors after the judgement of the court declaring bankruptcy, then any other creditor can commence these proceedings.
Voluntary winding up of a company requires:
- An extraordinary resolution of the company, duly notified to the Registrar of Companies. The extraordinary resolution taken by the members must be accompanied by the form B(1) which is signed by one director or company secretary. This form reflects the dissolution date.
- If the directors issue a solvency declaration showing that the company will be able to pay its debts within a stated time, then the process will be called a members’ voluntary winding up.
- If the directors do not issue such a declaration, the process will be a creditors’ voluntary winding up.
- The declaration of solvency is to made on the form B(2) and it must be accompanied by a statement of assets and liabilities showing the situation as it was during the three months prior to the dissolution date or as it was on dissolution date.
Winding up by the court requires:
- An application filed in court by the company, the board of directors, debenture holders, creditors contributories, shareholders, directors or the official receiver, and notified to the Registrar of Companies.
3. What is the role of the various participants in each type of proceedings?
The date of the filing of the trader’s voluntary declaration in Court, or the date of the judgement of bankruptcy are the dates when the bankrupt is dispossessed of his property. A curator is appointed in his stead. The curator takes over the assets of the bankrupt, and sells perishable assets. He can also continue the business instead of the trader, with the authorization of the court. His duty is to preserve the debtor’s rights, register any unregistered hypothecs and he can even sue on behalf of the bankrupt in order to collect any sums due to him.
Company’s voluntary winding up :
- In a members’ voluntary winding up, the company appoints a liquidator. The Registrar of Companies is notified with this appointment.
- The liquidator can be either a lawyer or an accountant. He is responsible for the management of the company and its assets during the period of winding up, and he has its legal and judicial representation. He reports to the members when he finishes the process of collecting all the information as to the assets of the company and debts and after drawing up a scheme of distribution. He convenes meetings as the need arises, the most important of them being this final meeting.
- In a creditors’ voluntary winding up, the creditors in a meeting convened for the purpose, appoint a liquidator with the same duties as above.
In a winding up by the court :
- If the court is satisfied that the company cannot pay its debts, after hearing the directors, company secretary, contributors and creditors as it deems fit, then it accedes to to the application and issues a winding up order, including any provisional orders that it deems fit.
- If the court issues a winding up order, then the company would be deemed to be dissolved as of the date of the filing of the application for winding up. Any transfer of property or shares, and the issue of any warrants, except warrants of prohibitory injunction after this date would be void.
- The court may also appoint a liquidator or a provisional adminstrator in the winding up order. Such officers have similar duties to those pertaining to the liquidator in a voluntary winding up. However all actions against the company or its property require leave of the court after the winding up order is issued.
- The Official Receiver in default of a liquidator in both a voluntary winding up and in a winding up by the court, can act in the capacity of a liquidator, and can also convene meetings. He receives statements of affairs of companies being wound up. These statements are to be verified by affidavits, and they must show the assets, debts and liabilities, details of creditors and their securities. These statements are verified by directors. Creditors can inspect these statements against a fee. After receiving these statements the Official Receiver reports to the court.
Creditors who feel aggrieved by any form of arrangement that the company enters into, can contest it within 14 days in court.
4. What are the effects of the opening of proceedings?
Preventive measures can be utilised at the opening of proceedings by creditors to protect their claims against the assets of the trader. These measures are the precautionary warrants provided for in section 829 et seq of the Code of Organisation and Civil Procedure Chapter 12 of the Laws of Malta.
- On appointment of a liquidator the powers of the officers of the company cease.
- Any claim can be brought forward to the official receiver, liquidator or the court, so long as the creditor can substantiate it.
- Provisional measures available to any interested person are the precautionary warrants available to any creditor. The relevant legislation is section 829 et seq of the Code of Organisation and Civil Procedure Chapter 12 of the Laws of Malta.
Any requests by a liquidator for registration or publicity in a Public Register are to be addressed to the Registry of Companies at the Malta Financial Services Authority
5. What are the specific rules related to certain categories of claims?
Ranking of claims is according to the normal civil law rules, to be found in Title XXIII of the Civil Code, Chapter 16. Among the claims that have priority over other claims, one can find social security contributions to be paid by the employer on behalf of employees, funeral expenses and servants’ wages.
6. What are the rules relating to detrimental acts?
Any fraudulent trading is null.
In company insolvency:
- The law provides that the transfer of any property or assets and any charge against the company done within six months prior to dissolution shall be void.
- Any interested person may file an application in court within five years from the date when the company is struck off the register, asking that the name of the company be restored on the Register of Companies and that the winding up process is reopened. The Court has to be satisfied that this is the only available remedy in order to grant the request.
- Also, any interested person may file an application in court after the striking off of the company name, asking that there will be a rectification of the scheme of distribution so that it will include an asset of the company which has been left out of the scheme.
Any creditor who has not been paid may by an application filed in court within five years from the striking off of the company name, demand that he is paid pro rata from the share the shareholders had received according to the scheme of distribution.
7. What are the conditions for the lodgement and admission of claims?
In all cases, any claim against the debtor, be it a person or a company, must be substantiated by documents and other proof to show its authenticity and to establish its order of ranking. Ranking of claims is as described in point 4
8. What are the rules relating to reorganisation proceedings?
See point 1
9. What are the rules relating to the winding-up proceeding?
- The curator draws a list of creditors and calls a meeting. Creditors can also file applications to be admitted in the ranking proceedings. The court decides which claims are admissible and in the same decree, provides for the holding of a meeting of creditors. Both the bankrupt and the creditors may attend the meeting and the bankrupt presents a scheme of arrangement known as composition. If it is approved by the creditors, then the bankrupt is rehabilitated to trade. If it is not approved, the curator proceeds to the selling of the bankrupt’s property and then the court in a separate decree decides on the ranking of creditors. Later the bankrupt is rehabilitated by decree of the judge. If the bankrupt has been found guilty of fraudulent bankruptcy, then he does not benefit from rehabilitation.
- Voluntary winding up: In both the members’ and the creditors’ voluntary winding up, if the scheme of distribution is approved in the final meeting, then after the due notifications to the Registrar of Companies, the name of the company is struck off the Register of Companies.
- Winding up by the court: The court analyses the report of the Official Receiver or the liquidator as to the payment of creditors, and if it is satisfied with the conclusions, it orders the striking off of the name of the company from the Register of Companies.
10. What are the conditions for the closure of the proceeding?
The effects of the closure of all winding up procedures is that the company name is struck off the register of companies.
Criminal proceedings may be taken against any officer of the company who in the twelve months prior to the deemed date of dissolution, had concealed assets or documents or disposed of assets or otherwise acted in a fraudulent manner. In civil proceedings these officers may be found responsible to pay back to the company any monies due to the company or even damages. The law also provides for proceedings in case of wrongful trading by directors and fraudulent trading by any officer of the company.
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