The first of the three bills presented to and now approved by Parliament forming part of the proposed reform of the insolvency framework is the Pre-Insolvency Act. Pre-Insolvency concept is not alien to the Maltese legal framework currently referred as the Corporate Recovery Procedure. A procedure which never really took off in the local Commercial field.
The Act being proposed has, as its objective, the aim of reducing the stigma surrounding the recognition of a potential insolvent situation. Iuris Advocates supports this initiative and the understanding that an early warning be introduced in the legal framework in order to bring companies back to trading on a sound financial basis.
The objective of companies is that of successful trading, however realistically one knows that difficulties arise, challenges could be larger than expected and potentially insurmountable, and whilst all companies are set up to trade and generate profits for their shareholders, a percentage of these companies encounter serious difficulties. Given the right environment a number of these companies may be turned around to successful trading once again.
The Act is based on a number of objectives, notably that of maximizing the value of the company, providing temporary debtor respite, the consideration of a viable restructuring plan and its enforcement in the aim of exiting the process economically sound.
The Act introduces the concept of an early warning framework, leading to easily available and accessible restructuring procedures with the scope of striking a balance between debtor and creditor’s rights.
The pre-insolvency cycle provides four stages from the initial stage of financial distress, to early warning tools, the preventive restructuring procedure process and the exit from such a procedure, whether it be that of a success story leading to commercial viability or that of dissolution of the company.
The Act requires the right environment for it become an effective tool. One augurs that the reform will not remain solely academic.
For more information on this subject or any matter related to Company Law, please contact Dr Peter Fenech at IURIS Malta.