New Regulations are aimed at creating/regulating the administration of a Fund facilitating company recovery procedures in terms of the Companies Act.
Further to the earlier indication given by the Ministry of Finance and Financial Services of a change in the insolvency laws, new Regulations have been published on 12 May, entitled Companies Act (Company Reconstructions Fund) Regulations. Their aim is of creating and regulating the administration of a fund intended to facilitate company recovery procedures instituted in accordance with article 329B of the Companies Act. The Company Recovery Procedure (CRP) is a procedure that has been in place for some years, aimed at helping companies recover from temporary financial predicaments whilst at the same time safeguarding the interests of all their stakeholders. The CRP is regulated by the Court and applies, upon application by the company, the directors or the creditors of a company, when the Court is satisfied that the procedure is likely to result in the survival of the company as a viable going concern in part or in whole or the sanctioning of a compromise/arrangement between the company and its creditors or members. In the context of COVID-19, the CRP may help those companies who are on the brink of insolvency merely due to the lack of liquidity resulting from the current pandemic.
The benefit of CRP is that during the period of recovery, the company benefits from certain protections that allows it to continue operating with limited exposure to further debts and claims. Protections include the following (unless directed otherwise by the Court in certain cases):- (a) any pending or new winding up application shall be stayed, (b) no resolution for the dissolution and consequential winding up of the company may be passed or given effect to, (c) the execution of claims of a monetary nature against the company and any interest that may otherwise accrue thereon shall be stayed, (d) immovable property leases cannot be terminated following a failure by the company to comply with any condition of tenancy, (e) 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, (f) no precautionary or executive act shall be made or continued against the company or any property of the company, (g) no arbitration proceeding shall be made or continued against the company or any property of the company, and (h) no judicial proceedings shall be commenced or continued against the company or its property.
The new Regulations provide for the setup of a Fund to be known as the Company Recovery Fund out of which payments shall be made to ‘special controllers’ appointed in accordance with the CRP provisions. Special Controllers are Court-appointed individuals to take over, manage and administer the business of the company for a maximum period of 4 months, extendible by the Court upon good cause being shown for a further period not exceeding 8 months. The special controller acts upon the authority of the Court.
The Fund shall be financed by the Malta Business Registry (MBR) to the tune of an annual budget of €500,000 to cover the expenses related to its purpose under these regulations.
The ‘Official Receiver’, a senior official of the Malta Financial Services Authority appointed by the Minister in terms of the Companies Act, has the role of establishing and maintaining, in consultations with the MBR, arrangements for certifying claims for compensation made by special controllers and making such compensation payments. The official receiver also receives applications by any persons having the requisites to act as a special controller to be admitted to the list held thereby for the purposes, which list shall be made available to the Registrar of Courts. The new Regulations list down the requisites of a special controller including 5 years’ proven experience in the administration of companies or a minimum of 2 years’ experience plus a bachelor’s degree or equivalent from a recognised university.
Unless recommended otherwise by the Court, claims from the Fund cannot exceed €10,000 in respect of each recovery procedure. Such claims include the remuneration and expenses of a special controller as set out in the new Regulations and expenses which are deemed necessary for the continuation of the CRP. The new Regulations further lay down the procedure regarding claims for payment.
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