On the 12th May 2020, Legal Notice 192 of 2020, Companies Act (Company Reconstruction Fund) Regulations 2020 (the “Regulations”) was published to create and regulate the administration of a fund known as the Company Recovery Fund intended to facilitate company recovery procedures instituted in accordance with article 329B of the Companies Act (Chapter 386 of the Laws of Malta)(the “Act”). The Fund shall receive a maximum of €500,000 per year from the Malta Business Registry to cover the related expenses, provided that the Funds disposal sums shall at no time exceed such amount.
Following the general detriment of the economic climate brought by the COVID-19 pandemic, which is exposing companies to insolvency procedures, the government proceeded to provide assistance to entities facing liquidity problems as a direct result of the current pandemic to ensure a smooth recovery.
1. Malta Company Recovery Procedure: Objective of the Regulations
Article 329B of the Act allows for the Company Recovery Procedure, which is a procedure that has been in place for some years helping companies unable or likely to become unable to pay their debts, to recover from temporary financial crisis safeguarding the stakeholders’ interests.
This process requires a Court application to be filed by the company following an extraordinary resolution of its directors under certain conditions, or, by the creditors, if representing more than half of the value of the company creditors, or, if the creditors form 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 the application only if it is satisfied that the company is or is likely to become unable to pay its debts and if it considers that putting the company into recovery will result in the survival of the company or the sanctioning under article 327 of a compromise or arrangement between the company and its creditors or members.
During the period of recovery, the company benefits of certain protections that allows it to continue operating with limited exposure to further debts and claims. Protections include the following, unless otherwise provided by the Court:
- Any pending or new winding up application shall be stayed;
- No resolution for the dissolution and consequential voluntary winding up of the company shall be passed or given effect;
- The execution of claims of a monetary nature against the company and any interest that may otherwise accrue thereon shall be stayed;
- Immovable property leases cannot be terminated following a failure by the company to comply with any conditions of tenancy;
- 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;
- No precautionary or executive act shall be made or continued against the company or any property of the company;
- No arbitration proceeding 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.
2. Appointment of the Special Controller
Furthermore, should the Court accede to the request, it shall appoint a Special Controller to take over, manage and administer the businesses of the company. According to article 329(B)(d) of the Act, the Special Controller shall be appointed for a period to be specified by the Court but not exceeding 4 months. However, if there is a good cause and according to the limitations contained in the same article, this period can be extended for a further period but not exceeding 8 months.
With reference to the possibility to be appointed as a Special Controller, any person who has the requisite under article 329B of the Act that has proven competence and experience in the management of business enterprises and who has no conflict of interest in relation to his appointment, shall apply to the Official Receiver to be admitted to the list of individuals who are considered to act as Special Controller.
The Regulations have also introduced disqualification criteria for the appointment of a Special Controller which are not provided for in the Act.
A person shall be disqualified from acting as a Special Controller if:
- he has been interdicted, incapacitated or is an undischarged bankrupt;
- he has been convicted of any crimes affecting public trust, crimes of theft or fraud, or having knowingly received property obtained by theft of fraud;
- he is subject to a disqualification order as a result of being found guilty of an offence under article 320 of the Act;
- he has breached of any provisions of the Companies Act on three consecutive occasions in the period of two years, provided that during such time, the said person was a director or a company secretary of any company;
- he has been convicted of any offence under the Prevention of Money Laundering Act (Chapter 373 of the laws of Malta);
- he does not possess a minimum of 5 years proven experience in the administration of companies; or
- if he does not possess a minimum of 2 years proven experience in the administration of companies and a bachelor’s degree or equivalent from a recognized university.
3. Remuneration and reimbursements of the Special Controller
The Regulations further establish the remuneration and expenses due to the Special Controller which are recoverable from the Fund, according to the following:
- Up to a maximum of €2,500 for any expenses incurred during the original period of appointment;
- Up to a maximum of €1,500 for the first extension of the period of appointment;
- Up to a maximum amount of €1,000 for the second extension
All amounts including VAT.
Reimbursement for expenses shall not exceed €5,000 while the maximum cumulative amount for claims from the Fund shall not exceed €10,000 in respect of each recovery procedure. Such claims include the remuneration and expenses of a special controller as set out above and expenses which are deemed necessary for the continuation of the Company Recovery Procedure.
Furthermore, in complex cases or cases involving cross-border elements, the aforementioned limits may be increased by the Official Receiver acting upon the recommendation of the court.
In order for the Special Controller to be remunerated and reimbursed as aforesaid, a claim needs to be submitted together with all supporting documentation as may be required by the Official Receiver, who is responsible for certifying such claims. Such claim shall be submitted any time during the company recovery procedure or within 12 months from the order of the court terminating the recovery procedure.
Any claims to be paid from the Fund shall be made in accordance with any directions given to him by the Malta Business Registry, regard being had to the circumstances of the case and nature of the claim.
4. Functions of the Official Receiver
The Official Receiver is a senior official of the Malta Financial Services Authority appointed by the Minister, who in terms of the Companies Act, has the role of establishing and maintaining, in consultation with the Malta Business Register, arrangements for certifying claims for compensation made by Special Controllers and making such compensation payments.
Apart from receiving the applications to be submitted to the list of Special Controllers, the Official Receiver, according to the provisions of the Regulations, shall further be responsible of establish and maintain, in consultation 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 list shall be made available to the Registrar of Courts.