Malta's relationship with the EU Insolvency Regulation
Date: 25th June, 2009
The second part of the series by Krista Pisani Bencini was published in the Business Section of the Times of Malta and discusses Maltese insolvency proceedings in the light of the EU Insolvency Regulation. Dr Pisani Bencini specialises in commercial law and financial services.
Insolvency – the cross-border dimension
PART B: the EU Insolvency Regulation and the Maltese Insolvency scenario
In the first part to this Article a brief overview was given of the EU Insolvency Regulation (Council regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings) which is essentially a conflict of laws enactment intended to determine mainly which EU courts have jurisdiction to open insolvency proceedings. The Maltese insolvency proceedings which fall within the ambit of those Regulation are: (i) “Xoljiment” (dissolution), (ii) “Amminstrazzjoni” (Administration), (iii) “Stralc Volontarju mill-membri jew mill-kredituri” (Members’ or Creditors’ Voluntary Winding up), (iv) “Stralc mill-Qorti” (Court Winding Up) and (v) “Falliment f’kaz ta’ negozjant” (Trader Bankruptcy).
If the centre of the debtor’s main interests is situated in Malta, then Maltese courts will have jurisdiction to open any of the above mentioned “insolvency proceedings” as the main insolvency proceedings. Judgments given should then be effective across the EU. When the registered office of a company is in Malta, it shall be presumed that that companies’ centre of main interests is here and that therefore Maltese Courts have jurisdiction.
Additionally, even if the main proceedings are opened outside Malta, where the debtor has an “establishment” in Malta – i.e. a place of operations where the debtor carries out a non-transitory economic activity with human means and goods – then it may also be possible for secondary proceedings to be opened in Malta. The effects of these (secondary) winding-up proceedings shall however be restricted to the assets of the debtor situated in Malta. For Malta, in terms of Annex B of the EU Insolvency Regulation, the winding-up proceedings are restricted to winding up by the court and voluntary winding up, as well as bankruptcy including where a warrant of seizure is issued by a curator in the case of a bankrupt trader.
For those familiar with insolvency procedures under Maltese law, certain inclusions (or exclusions) in the ambit of the Regulation may however appear somewhat anomalous.
For instance, it is not immediately clear why “Xoljiment” and “Amministrazzjoni” have been listed as “insolvency proceedings” as such. If “Xoljiment” is taken to mean “dissolution”, it would not be entirely precise to refer to “dissolution” as an insolvency procedure. Under Maltese law “dissolution” marks the start of the “liquidation” process which then ends with the striking off of a company. Similarly since in the case of a members’ voluntary winding up, a declaration of solvency is made by the directors of the Company, it is also rather unclear why this mode of dissolution was included in the Regulation as an “insolvency proceeding” at all!
Likewise, “amministrazzjoni” is not referred to as a stand-alone process under the Companies Act. What is possible in Malta however is the office of provisional administrator, which person would be appointed by the Court during a winding-up by the court and who holds office only for a limited period of time. His powers of administration of the estate or business of a company are more or less limited.
A Company may also be dissolved directly by the Court, without a previous Company decision, for the various reasons of dissolution allowed by law. Again the extent to which all of these events may be considered “insolvency proceedings” is somewhat questionable. Of the various reasons for dissolution allowed by law to the Court, some, such as where the number if members of the company is reduced below 2 and remains so reduced for more than 6 months and where the number of directors is reduced below the statutory minimum, do not automatically imply that the company in question is ‘insolvent’. Strictly speaking this is only immediately clear where the law states that a company may be dissolved and wound up by the court if the company is unable to pay its debts.
Interestingly, no mention is made in the Regulation of schemes of compromise or arrangements nor of the recovery procedure, both of which are contemplated under Maltese law. On a strict interpretation of the Regulation, if a company is placed under the recovery procedure by a Maltese court, this decision will not be automatically recognised in all the other Member States under the EU Insolvency Regulation.
In spite of its deficiencies, the EU Insolvency Regulation has nevertheless aided in the clarification and tidying up of conflict of laws issues arising in connection with insolvencies. From the Maltese perspective, although experience in dealing with cross-border issues arising specifically in connection with this Regulation seems to be limited to date, the Regulation has certainly added a sense of dimension to the insolvency scenario. Maltese advisers and practitioners in the field are certainly left with the challenge of trying to interpret the Regulation as best they can, in light of the considerable amount of discretion left to the Member States. Understanding the Regulation, its interpretation to date as well as the manner in which local laws fit into this interpretation certainly provides a good starting point for this purpose.
