New court procedure use ‘limited’, but insolvency regime beginning to influence behaviour – MBR official

Malta’s new insolvency regime is beginning to influence behaviour and institutional practice, although formal use of the new court procedure "remains very limited," Ingrid Hamilton, Official Receiver, Insolvency and Receivership Service Unit of the Malta Business Registry, told MaltaCEOs.

New insolvency and pre-insolvency frameworks were introduced through three Acts in 2022 – the Pre-Insolvency Act, the Insolvency Practitioners Act and amendments to Malta's Commercial Code. They aimed to broaden the options available to companies facing financial difficulties, and offer a suite of tools to help financial controllers notice warning signs as early as possible.

Among other things, the changes introduced preventive restructuring, which allows debtors to get protection from judicial attack by their creditors for a set amount of time. It is understood that during the restructuring period, the company is allowed to continue in its day-to-day business, and will not give up total control of its operations.

Describing how the new insolvency rules changed how insolvency is approached in the country, Dr Hamilton said that the introduction of the Pre-Insolvency Act has shifted the legislative framework from a system primarily concerned with what happens once insolvency has occurred, “to one which increasingly asks whether a viable business can be rescued before insolvency becomes irreversible.”

The Pre-Insolvency Act regulates the restructuring of companies at a point in time which precedes dissolution, meaning that the company could still be potentially viable and could benefit from a second chance at recovery.

“Previously, Malta had other rescue mechanisms, notably the company recovery procedure, however case law indicates that these mechanisms had relatively little success. Therefore, the new framework, which also includes heavier debtor involvement and a stay of individual enforcement actions, should prove to be more successful.”

While the preventive restructuring procedure remains relatively little tested in practice, Dr Hamilton explains that the procedure works.

Although the Pre-Insolvency Act was enacted in December 2022, she said, “the first application under the new preventive restructuring procedure did not occur until February 2025. This first case is important because it demonstrates that the procedure actually works. A debtor experiencing serious financial distress was able to use the procedure, obtain protection and emerge with a court-approved restructuring relatively quickly.”

She told this newsroom that while her unit is not actively involved in individual preventive restructuring cases, to her knowledge there has only been one publicly reported court case where the procedure was formally approved by court. 

But she holds that a more important trend may actually be occurring outside the realm of formal court applications. 

“The Insolvency and Receivership Service has developed an early warning infrastructure, including a confidential online self-assessment tool, which is actively being used by businesses. Utilisation of such tools is very important, given that one of the traditional problems in insolvency is that directors seek professional advice too late and by the time advisers are called in, there may be very little business left to rescue.”

She said that this early warning tool, as well as the involvement of insolvency practitioners, may be changing this frame of mind.

Recently, it was reported that out of 81 users who completed a self-assessment tool, 51 were identified as having a risk of insolvency of more than 50 per cent.

With these new laws, she said, Malta now has “sophisticated rescue tools and licensed insolvency practitioners,” but the intended movement from late-stage liquidation towards early intervention and rescue "will depend upon directors seeking assistance sufficiently early and creditors trusting the restructuring process.”

This makes the new Directive (EU) 2026/799, which entered into force earlier this year, particularly significant, she said. Whereas Directive (EU) 2019/1023 (the EU Directive which was transposed through the three legal Acts) concentrated principally on preventive restructuring and rescue, “the new Directive moves EU harmonisation further into substantive insolvency law itself. Therefore, whilst the 2022 reforms modernised the notion of early intervention and rescue, Directive (EU) 2026/799 now provides a further harmonising impetus in the traditional insolvency system, for companies which can no longer consider the option of restructuring,” Dr Hamilton said.

Carve-outs for aircraft and vessels 'treated as genuine, substantive protections'

She was also queried about a particular exception to the stay of enforcement actions against debtors procedure. Given that Malta is a major registry of choice for the world’s ships, and in recent years it has also become an increasingly popular jurisdiction for the registration of aircraft, the stay of individual enforcement actions regarding ships and aircraft is not applicable. Asked whether these exceptions are working as intended or if workarounds have been found, she said available evidence suggests that the carve-outs for aircraft and vessels are being treated as genuine, substantive protections for secured creditors, “rather than as protections that can readily be neutralised by commencing preventive restructuring."

“These provisions reflect a longstanding history where the attractiveness of Malta as a ship and aircraft registration and finance jurisdiction depends heavily upon financiers being confident that their proprietary and security rights remain enforceable, notwithstanding the owner's insolvency or restructuring.”