A Brief Overview of the Company Recovery Procedure in Malta

2022-11-21T12:20:18+01:00November 18th, 2022|Publications|

When a company finds itself in financial difficulty, it is in the best interest of the many relevant stakeholders that the firm is not declared bankrupt. Before having to declare bankruptcy and going into liquidation, a company can opt to avail itself of the Company Recovery Procedure (CRP), as laid out in Article 329B of the Companies Act, a notion based on the concept of administration under UK law.

Therefore, where a company is unable to pay its debts or is imminently likely to become unable to pay its debts, the Civil Court, upon application, may place the company under the Company Recovery Procedure. This would mean placing the company under the control of a special controller for an initial period of four (4) months and for a maximum term of twelve (12) months.

Who may apply for the Company Recovery Procedure?

As previously stated, it is in the best interest of a company’s main stakeholders that said company doesn’t go under. Therefore, the Companies Act gives the following stakeholders the ability to file an application before the competent court in order to place the firm under the recovery procedure:

  1. The shareholders via an extraordinary resolution passed during a general meeting
  2. The directors via a decision of the board of directors in the event a general meeting could not be convened, a quorum could not be met or a tie vote is left unresolved.
  3. The company’s creditors jointly making up more than 50% of the company’s debts or more than 50% of the firm’s debt in a particular class.

How to apply?

As part of the application, the applicant must include the facts showing the court, to the best of his ability, a brief rundown as to how the company arrived to the point where it is unable, or likely to become unable, to pay its debt and a statement which gives the court an idea as to how placing the company under the Company Recovery Procedure would improve the company’s financial position.

Furthermore, if the application is being made by the company, it must provide documents showing the company’s assets and liabilities drawn up within two months preceding the application and a list containing the names and addresses of the company’s creditors along with the amounts due to each creditor any securities that such creditors may have.

Effects of application

Once the court has decided that placing the company under the CRP may result in the survival of the company and/or in the coming to an agreement between the company and its creditors it shall issue a company recovery order. The decision by the Court to issue such an order must be taken within 20 days from the filing of the application.

Once the aforementioned order is issued, the company will benefit from the following:

  • Any pending or ongoing winding up proceedings shall be stayed.
  • The company cannot be dissolved.
  • The execution of any claims against the company shall be stayed.
  • No judicial proceedings can be instituted against the company or its property without prior authorisation of the court.
  • No Executive acts or warrants can be issued against the company except with the authorisation of the court.
  • No proceedings to enforce any security over the property of the firm can be instituted without the authorisation of the court.
  • The landlord of any premises that the company rents cannot terminate the lease without prior authorisation from the court, even if the firm has failed to comply with the lease agreement.

Special controller

Once the court has issued the Company Recovery Order it shall appoint a special controller who shall take control of all of the company’s assets, property and running of the day-to-day operations of the company.

While in control, the special controller shall look into the affairs of the company and report his findings to the court within at least 2 months of taking up the role.

The controller shall also have the power to call shareholders’ meetings, engage persons to carry out professional and administrative services and to remove directors and appoint managers after informing the courts by means of a note. The controller may also, by means of an application, request the Court to condemn any of the company’s officer for wrongful or fraudulent trading if he finds proof to that effect.

On the other hand, the controller cannot enter the company into any commitments lasting longer than six months or terminate the employment of any of the firm’s employees without prior authorisation of the Court.

Upon the end of his term, the controller shall draw up a final report wherein he expresses whether he thinks that the company has a reasonable chance of continuing as a viable going concern or not. If his report is positive, he shall also attach a recovery plan, which if approved by the courts shall become binding on all interested parties.

Termination of the Company Recovery Procedure

If at any time during the Recovery Procedure the controller feels that the company is in a position to pay its debts, he shall file an application to the Court in order to terminate the CRP. The company’s directors or shareholders may also file such an application but for it to succeed the court would need to hear from the controller first.

Lastly, if the court feels that it is not possible for the company to continue on as a viable going concern, it shall terminate the Company Recovery Order and decide the company to be dissolved and wound up.

In conclusion, one must say that the Company Recovery Procedure allows businesses which are still potentially viable to escape insolvency when times become challenging and this despite the fact that such potential viability needs to be proven to the court’s satisfaction.

The article is intended to serve as a general guide on the subject matter. For further information and guidance on the subject we recommend seeking professional assistance.

How can we help?

At SMM Advocates we provide legal advice depending on the subject matter, file a relevant application before the competent Court and do all as required in order for the issue to be resolved in the shortest time possible. Our practice spans over various areas of law, find out more on our expertise page or contact us directly with your particular query.

We are available for both face-to-face or online consultations, get in touch by filling in our contact form or call +356 2123 7167 for immediate assistance.

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