The Official Receiver
The Insolvency and Receivership Service is headed by the Official Receiver, who is appointed by virtue of Article 9 of the Malta Business Registry (Establishment as an Agency) Regulations (Subsidiary Legislation 595.27 of the Laws of Malta) and Article 225 of the Companies Act (Chapter 386 of the Laws of Malta). Persons authorised in writing in terms of Article 225(2) of the Companies Act may assist the Official Receiver in the discharge of any functions assigned to her.
As the head of the Insolvency and Receivership Service, the Official Receiver also oversees the competent authority vested with the responsibility and authority to regulate the activities of insolvency practitioners and registered firms in Malta in terms of the Insolvency Practitioners Act (Chapter 632 of the Laws of Malta). Additionally, in terms of the Pre-Insolvency Act (Chapter 631 of the Laws of Malta), the Official Receiver is also in charge of developing and maintaining the essential early warning tools which are necessary to help failing businesses restructure their organisation back to commercial viability.
Additionally, the Official Receiver, as Head of the competent authority at law, is in charge of developing and maintaining a comprehensive checklist for restructuring plans as well as practical guidelines on how the restructuring plan has to be drafted, in an attempt to make the restructuring alternative more widely available and cost-effective. She is also tasked with authorising insolvency practitioners to exercise this role by providing adequate training and maintaining a public register of Insolvency Practitioners and Registered Firms.
The Insolvency and Receivership Service is currently based within the Malta Business Registry in Żejtun.
Role & Functions of the Official Receiver
The Official Receiver's role encompasses various tasks during the winding-up process of a company. As required, the Official Receiver may undertake any of the following tasks for multiple entities simultaneously:
Serve as a provisional administrator;
Supervise or monitor provisional administrators;
Act as liquidator for a company;
Manage the company’s affairs or administer its estate;
Examine the company’s accounts and financial status;
Liquidate the company’s assets;
Investigate the actions of the directors;
Represent the interests of the company’s creditors or contributories.
Before being appointed as liquidator, the Official Receiver can also be designated to act as a provisional administrator by the Civil Court (Commercial Section) at any point after a winding-up application is presented but before a winding-up order is issued. In this capacity, the Official Receiver executes the functions related to the administration of the as specified by the court order. Once a winding-up order is issued, the Official Receiver's role shifts from provisional administrator to liquidator.
As liquidator, the Official Receiver must:
Notify the Registrar of Companies within 14 days of the appointment;
Convene separate meetings of the company’s creditors and contributories to elect a new liquidator in her stead, if requested by at least one-fourth (in value) of the company’s creditors.
Inform the court, creditors, and contributories within twelve weeks of the winding-up order about her intention to summon these meetings.
In terms of Article 233(1) of the Companies Act, the Official Receiver invites company officers deemed necessary to attend the initial meetings of creditors and contributories, providing at least seven days' notice of the time and location of each meeting. If any officer fails to attend, the Official Receiver must report this to the court. Additionally, prior to the first meeting, the Official Receiver sends each creditor listed in the company’s statement of affairs, as well as anyone identified as a contributory, a summary of the company’s statement of affairs, including the reasons for its failure and any relevant comments. However, if this summary is not provided before the meeting, the proceedings will still remain valid.
According to Article 226 of the Companies Act, when a court issues a winding-up order or appoints a provisional administrator, a statement of affairs is also submitted to the Official Receiver. This statement, formatted as required by the Official Receiver, should detail the company's assets, debts, liabilities, the names, addresses, and occupations of its creditors, the securities they hold, the dates these securities were issued, and any additional information requested by the Official Receiver. This statement must be verified by one or more current directors of the company or by other individuals specified in the same article, such as company officers, as deemed necessary by the Official Receiver. The Official Receiver has the discretion to release someone from any obligations imposed on them and can also modify the standard 21-day deadline for submitting the statement.
In cases of a winding-up order, Article 227 of the Companies Act mandates that the Official Receiver, as soon as possible after receiving the statement of affairs or after the court order, conduct appropriate investigations and submit a preliminary report to the court. This report should include:
The total issued and paid-up share capital and an estimated amount of assets and liabilities;
The reasons for the company's failure; and
An assessment of whether further inquiry is warranted regarding any aspects related to the company’s promotion, formation, or operational conduct.
If the Official Receiver suspects fraud related to the company’s promotion, formation, or actions of its officers since inception, she may submit additional reports to inform the court of these matters.
Article 260 of the Companies Act also empowers the Official Receiver to order examinations of the company’s promoters and officers. If a winding-up order has been issued and the Official Receiver suspects fraud by any individual in the company’s promotion or by an officer in connection with the company, she must request the court to summon that person or officer for examination regarding the company's promotion, formation or operational conduct. The Official Receiver will participate in these proceedings and may be supported by legal counsel. If an individual seeks to be discharged from any charges, it is up to the Official Receiver’s to bring relevant matters to the court's attention during the proceedings.
Furthermore, under Article 218(5) and Article 294 of the Companies Act, the Official Receiver may even file an application for the winding up of a company that is already undergoing voluntary liquidation. The existence of a voluntary winding up does not prevent any creditor or contributory from seeking a court-ordered winding up.
The Insolvency Register
The Office of the Official Receiver has established and maintains an Insolvency Register which provides, free of charge, data to the general public. Users are granted access to useful information on insolvent companies in Malta. This register is also linked to the e-justice portal here in order to feed in information to users carrying in global searches in relation to insolvent companies.
The Insolvency Register can be accessed here.
Insolvency Practitioners
One of the main functions assigned to the Insolvency and Receivership Service, as the competent authority, is that of authorising insolvency practitioners to exercise this role in terms of the Insolvency Practitioners Act (Chapter 632 of the Laws of Malta). The work of the insolvency practitioner is an essential part of the preventive restructuring framework, giving failing businesses a vital second chance at survival and providing them with tools which increase the efficiency of restructuring procedures, insolvency procedures and discharge of debt procedures.
In order for practitioners to carry out the work of an insolvency practitioner, they need to be authorised in terms of law and the Insolvency and Receivership Service provides specialised training to this aim. After the interested practitioners have followed the mandatory training, the competent authority then determines whether the practitioner is, first and foremost, sufficiently competent to perform the required functions; and secondly whether he or she is fit and proper to carry out such functions.
Apart from this accreditation, for a person to be eligible to take up the role of insolvency practitioner, he or she needs to be authorised to exercise the profession of an advocate, accountant or auditor, whether in Malta or in any other recognised jurisdiction. There are also some outright exclusions for the eligibility to practice as an insolvency practitioner in Malta (Art. 3 of the Insolvency Practitioners Act), and these include:
i. Persons who are interdicted, incapacitated or is an undischarged bankrupt;
ii. Anyone convicted of crimes affecting public trust, theft or fraud or of knowingly receiving property obtained through such crimes;
iii. Minors who have not been emancipated; and
iv. Persons subject to a disqualification order in terms of article 320 of the Companies Act.
The Insolvency Practitioners Act also provides for firms to be registered as insolvency practitioners. In these cases, the responsibility for the performance of the functions of an insolvency practitioner will need to be undertaken by a physical person who is himself or herself authorised to act as an insolvency practitioner in his or her own name, and who would be registered as the principal of such registered firm. Upon assuming such responsibility, the principal becomes jointly and severally liable with the registered firm for any act or function carried out by the registered firm or its officers.
The Insolvency and Receivership Service is also obliged by law to keep a public register of Insolvency Practitioners and registered firms (Art. 10 of the Insolvency Practitioners Act). This register also includes information about insolvency practitioners whose authorisation has been suspended, revoked or withdrawn in full or in part, as well as information about practitioners and firms who are in default of their obligations in terms of law.
This list can be accessed through the Business Restructuring platform of the Insolvency and Receivership Service within the Malta Business Registry here.
There are hefty fines for breaching the professional duties in the exercise of the functions of an insolvency practitioner, and the punishment may also be in the form of imprisonment.
Insolvency Tests and Self-Assessment
There are two tests to determine whether a company is insolvent or not. These are the Liquidity Test and the Balance Sheet Test and are both outlined in Article 214 (5) of the Companies Act. These tests may be applied by the court independently of each other.
For the purposes of dissolution and winding up a company needs to satisfy one of these two tests. In order to contemplate choosing the Company Recovery Procedure (Art. 329B of the Companies Act), it is enough for the company to be likely to fail any one of the tests in the near future.
The Liquidity Test
In terms of Article 214(5), if a debt due by the company has remained unsatisfied in whole or in part after 24 weeks from the enforcement of an executive title against the company by any executive act, then the company is deemed to be unable to pay its debts and would have consequently failed the liquidity test. This would be a ground for the court to order the dissolution of the company. The reasoning behind this test is that creditors need to be paid in a timely manner. Therefore, a company may be deemed insolvent even if it has assets, such as immovable property, but no liquidity.
The Balance Sheet Test
Moreover, if it is proved to the satisfaction of the Court that the company is unable to pay its debts, account being taken also of contingent and prospective liabilities of the company, then the company shall also be deemed unable to pay its debts. A prerequisite for the court to be able to apply this test is that the company’s financial statements would have to be updated regularly. If the company fails to present financial statements, a matter which combined with other considerations may bring about personal liability of the directors as well as penalties in terms of the Companies Act, then the court would be unable to apply the Balance Sheet Test.
Self-Assessment
Constant efforts are being made to enable local laws to be effectively used as tools to enhance business development and to give a second chance to companies facing the likelihood of insolvency. These tools, when effectively and efficiently used, can be a lifeline to an enterprise going through a rough patch. In fact, as a direct result of the implementation into Maltese law of Directive (EU) 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, the Insolvency and Receivership Service has introduced the notion of early warning tools, which take the form of alert mechanisms, specifically put in place to warn debtors of the urgent need to take action.
The earlier a debtor can detect its financial difficulties and can take appropriate action, the higher the probability of avoiding an impending insolvency. Therefore, as part of these early warning tools, the Insolvency and Receivership Service has developed a platform whereby companies can engage in a confidential self-assessment exercise of their position in order to ascertain the viability or otherwise of continuing to trade. Such a tool will hopefully be able to flag the adverse situation to the company itself, and therefore indicate that immediate action should be taken to address the situation.
Naturally, early warning tools are just some of the many instruments which businesses should use in an attempt to gauge whether they are viable and profitable. When faced with such circumstances where the directors have reasonable cause to believe that a company is, or is likely to be, unable to pay its debts, it should always resort to the expert guidance of professionals, specifically insolvency practitioners, to assess the financial situation of the entity on a case-by-case basis in more detail. However, these early warning tools can at least act as an eye opener for debtors, highlighting to them the urgent need to take stock of the situation and implement the necessary changes.
The self-assessment exercise and a comprehensive list of Insolvency Practitioners authorised to act in Malta can be accessed through the Business Restructuring platform of the Insolvency and Receivership Service within the Malta Business Registry here.
Disclaimer
This document does not purport to give legal, financial or any other advice. Please be directed to seek appropriate advice from accredited professionals. Do not hesitate to contact the Insolvency and Receivership Service for further information if necessary or for any clarification.