20th May, 2020
Author: Maria DeBono, Associate
On the 12th of May 2020, Legal Notice 192 of 2020 titled Companies Act (Company Reconstructions Fund) Regulations, 2020 (the “Regulations”) was published. The scope of these Regulations is to create and regulate the administration of the “Company Recovery Fund” (the “Fund”) which is intended to facilitate company recover procedures which can be instituted in accordance with Article 329B of the Companies Act.
The Company Recovery Procedure (“CRP”) provides for a court regulated procedure with the purpose of helping companies to recover from temporary financial difficulties to essentially safeguard the interests of the company and the company’s stakeholders such as employees and creditors. In a previous article, https://fenechlaw.com/the-company-recovery-procedure-as-a-viable-tool-after-the-covid-19-crisis/ it was highlighted that although the Government had taken some measures to assist businesses attempting to stay afloat in light of the COVID-19 pandemic, such measures might not be enough and that the CRP could provide the additional relief that some companies require to be able to weather the storm. The publication of these Regulations seems to foresee the use of the CRP potentially gaining more prominence in the months and years to follow.
The Regulations primarily hold that the Malta Business Registry (the “Agency”) shall transfer to the Fund the sum of five hundred thousand euro (€ 500,000) annually or any lesser sum so that the Fund shall not at any time have at its disposal a sum exceeding €500,000. Payments shall be made from this Fund to Special Controllers (“SCs”) who shall be appointed to take charge of the management and control of the company when the Court accepts to subject a company to the CRP. Persons who “fit the bill” to act as SCs in terms of Article 329B of the Companies Act, must submit an application in prescribed form to the Official Receiver to be admitted to the list of Special Controllers that is kept and updated by the Official Receiver himself. The Regulations also provide for situations where applicants shall not be qualified for appointment as a Special Controller which include inter alia, when such person is interdicted, incapacitated or is an uncharged bankrupt or has been convicted of any offences under the Prevention of Money Laundering Act. Applicants must also possess a minimum of five years proven experience in the administration of companies or two years proven experience in the administration of companies together with a bachelor’s degree or equivalent from a recognised university.
Notably, Article 9 of the Regulations specifies that the remuneration and expenses of a Special Controller in terms of the Regulations shall be paid out from the Fund in respect of the period of appointment, up to a maximum of:
- two thousand five hundred euro (€2,500) as remuneration for the original period;
- one thousand five hundred euro (€1,500) as remuneration for the first extension; and
- one thousand euro (€1,000) as remuneration for the second extension.
Moreover, expenses which are deemed necessary for the continuation of the CRP, after taking into account the circumstances of each case, may be satisfied from the Fund up to a maximum of five thousand euro (€5,000). In total, the maximum amount that can be claimed from the Fund in terms of the remuneration and expenses of the Special Controller together with the necessary expenses for the continuation of the CRP, is ten thousand euro (€10,000) per recovery procedure. The amounts specified are inclusive of VAT and the financial limits imposed may be increased by the Official Receiver on the recommendation of the Court in complex cases or cases involving cross-border elements.
Finally, the Regulations regulate the procedure to file such a claim for payment from the Fund. Same must be submitted to the Official Receiver with all supporting documentation as the latter may require. The Special Controller may submit such a claim at any time during the CRP or within twelve months from the court order terminating the CRP. This gives the Special Controller more than enough time to make such a claim. The Official Receiver shall pay claims from the Fund in accordance with the Regulations as he deems appropriate and in terms of any directions given by the Agency, regard being had to the circumstances of the case and nature of the claim. Therefore, it is clear that the Official Receiver has some discretion in terms of which claims shall be satisfied from the Fund and must consider the particular circumstances of the case at hand when making his decision.
With the implementation of these Regulations which seek to establish a Fund to aid in company recovery procedures, the Government seems to have recognised the ability of the CRP to serve as a useful tool to aid companies which are struggling due to the effect of the COVID-19 pandemic to avoid unnecessary liquidation, if there is a reasonable prospect that such company can return to viability.
©Fenech & Fenech Advocates 2020
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