Last Updated on December 7, 2020
Ranking of Creditors
When a company is insolvent the liquidator should distribute the assets of the company in a pro rata manner among its Creditors. This is known as the pari passu principle (Art 287 of the Companies Act). This notion is subject to various exceptions, such as when there are secured Creditors who lawfully enjoy a preference over other Creditors. The whole process is referred to as the Ranking of Creditors. The liquidator faces no easy task when it comes to such Ranking of Creditors, as the laws which give preference to one creditor over another, even if both enjoy a right of preference, are scattered throughout various chapters of the law. There is no one single piece of legislation which list the causes of preference and how these are ranked. The only comfort for liquidators are the decisions of the courts which throw some light on how such preferences are to be ranked. Even though our system does not abide by the binding precedent, decisions of Superior Courts are bound to be upheld at least by the Inferior Courts. Below is a review of how certain causes of preference are likely to be treated.
With regards to claims from employees, such as claims for salaries, holiday pay or pension contributions these would be treated with preference over claims. This rule emerges from Article 20 of the Employment and Industrial Relations Act, Chapter 452 of the Laws of Malta, which provides that a claim by any employee shall constitute a privileged claim over the assets of the employer and shall be paid in preference to all other claims. Claims which rank higher are usually the ones listed below. However, it is up to the court to decide in view of the fact that in ranking such debts the wording of the law gives some leeway to the court in setting the order of priority.
(a) expenses properly chargeable or incurred by the official receiver or the liquidator in preserving, realising or collecting any of the assets of the company;
(b) any other expenses incurred or disbursements made by the official receiver or under his authority, including those incurred or made in carrying on the business of the company;
(c) the remuneration of the provisional administrator, if any;
(d) any necessary disbursements by the special controller in the course of his office in terms of articles 329A and 329B;
(e) the remuneration of the special controller;
(f) the costs of the applicant, and of any person appearing on the application whose costs are allowed by the court;
(g) the remuneration of the special manager, if any;
(h) any amount payable to a person employed or authorised to assist in the preparation of a statement of affairs or of account;
(i) any allowance made by order of the court, towards costs on an application for release from the obligation to submit a statement of affairs, or for an extension of time for submitting such a statement;
(j) any necessary disbursements by the liquidator in the course of his administration, including any expenses incurred by members of the liquidation committee or their representatives and allowed by the liquidator;
(k) the remuneration of any person employed by the liquidator to perform any services for the company, as required or authorised by the provisions of this Act;
(l) the remuneration of the official receiver and of the liquidator;
(m) any new financing granted to the company for the purpose of a recovery procedure in terms of articles 329A and 329B.
The ranking of other creditors remains as established within the various applicable laws.
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.