Malta’s new insolvency and pre-insolvency frameworks are set to broaden the options available to companies facing financial difficulties, and will be paired with a suite of tools to help financial controllers notice warning signs as early as possible.
“We understand that the earlier a debtor can detect its financial difficulties and take appropriate action, the higher the probability of avoiding an impending insolvency,” says Ingrid Hamilton, Head of the Malta Business Registry’s Insolvency and Receivership Service.
Speaking to WhosWho.mt, she says that the new pre-insolvency framework was a “long-awaited development aimed at giving businesses a second chance and ensuring that they have the right tools, guidance and assistance to overcome difficult times.”
Dr Hamilton is referring to three different acts enacted in December 2022 to transpose EU Directive 2019/1023, which saw the enactment of the Pre-Insolvency Act, the Insolvency Practitioners Act and substantial amendments to Malta's Commercial Code. These acts introduced novel concepts into Maltese legislation, among which is the introduction of insolvency practitioners in Malta.
The Insolvency and Receivership Service within the Malta Business Registry, as the competent authority at law, has accredited a number of insolvency practitioners and registered firms during the current transition period, set to end in December 2024.
After that date, insolvency practitioners will need to be formally accredited - after having completed rigorous training organised by the Insolvency and Receivership Service - in order to to be able to assist businesses away from the brink of insolvency and back to profitable trading.
On their part, businesses will also have a number of tools available to help them assess their own financial health. This includes an online platform to which businesses will be able to input their data and answer an array of questions.
“Businesses will be encouraged to engage in a confidential self-assessment exercise to determine the company’s financial position and to find concrete solutions for any problems,” says Dr Hamilton.
The online platform will list the mechanisms that need to be in place so that company officers can be alerted as early as possible to any likelihood that the company may be about to face financial distress.
“These indicators should enable directors to be extra vigilant and determine whether it is viable, or otherwise, for the company to continue trading, thus facilitating an ongoing critical analysis of the business.”
There will also be a series of early warning tools for businesses which “will hopefully be able to flag an adverse situation to the company itself by assisting enterprises to realise, very early on, that the business is likely to face distress, and therefore that immediate action should be taken to address the situation.”
Dr Hamilton continues: “The fundamental purpose of this exercise is to ensure that when finding itself in an unhealthy corporate position, the company should be aware that there are alternative measures that it can resort to in a bid to prevent insolvency.
“The new insolvency framework seeks to bring about a shift in the mind frame of investors and creditors. There is indeed the possibility of a second chance with preventive restructuring procedures, and there is now a fully-fledged framework in place to achieve this.”
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