Last Updated on December 7, 2020
Are there any special arrangements facilitating insolvency proceedings for SMEs?
These liquidation proceedings as described below are all designed for Small and Medium Enterprises (SMEs) because in Malta 99.9% of our companies are considered as SMEs.
What are the main insolvency procedures for voluntary and compulsory liquidations?
- Compromise or Arrangement between a Company and its Creditors
- Company Recovery Procedure
- Creditors’ Voluntary Winding Up
- Dissolution and Winding Up by the Court
A company may be dissolved voluntary, but it may also be dissolved by order of the Court. (‘Dissolution’ under Maltese law refers to the decision to start the liquidation process). A Voluntary Winding Up occurs when the shareholders of the company resolve to dissolve a company which in the opinion of the Directors is solvent (‘Winding Up’ refers to the actual process of liquidation). This would be referred to as a Members’ Voluntary Winding Up. However, the shareholders of a company may also decide to dissolve the company in instances where the Directors of the company do not certify that the company is solvent. In this case the Winding Up happens under the control of a liquidator appointed by the Creditors.
Voluntary dissolution in view of the insolvency of the company therefore can only take the form of a Creditors’ Voluntary Winding Up following the decision of the company to be dissolved. However, Dissolution and consequential Winding Up may also take place by order and under the control of the Court. One of the reasons for the Court to dissolve a company would be if it is insolvent. All forms of liquidation have the same aim, and in all cases a liquidator would be appointed, but there are procedural differences in relation to the different types of liquidations.
The decisive criteria for adopting one form of Dissolution and Winding Up against the other forms relates to the solvency of the company. In the case of a Voluntary Winding Up the liquidator will have enough company assets to pay off all the debts of the company, and any excess would be distributed among the shareholders, according to their share of shareholding.
On the other hand, in the case of a Creditors’ Winding Up, or a Dissolution and Winding Up by the Court for insolvency reasons, the assets of the company would not suffice to satisfy all the debts of the company. The assets would be distributed in terms of the pari passu principle, that is, according to the security and ranking each creditor has in terms of various laws within the Maltese legal system.
This document does not purport to give legal, financial or any other advice. Please be directed to seek appropriate advice from warranted professionals. Do not hesitate to contact the Office of the Official Receiver for further information if necessary or for any clarification.