Malta’s Pre-Insolvency Regime: Launch of the Self-Assessment Insolvency Tool by the MBR

On the 15^th of November, 2024, the Insolvency and Receivership Service within the Malta Business Registry (the “MBR”) launched a new online portal with an innovative tool designed to help companies in self-assessing their financial position and determining whether they can continue with their business operations.

The tool is part of a broader legislative framework and associated key reforms, launched in terms of suite of pre-insolvency legislation initially enacted in December 2022, primarily the Pre-Insolvency Act (Chapter 631 of the laws of Malta) and the Insolvency Practitioners Act (Chapter 632 of the laws of Malta), as well as the overhaul of the bankruptcy regime in the Commercial Code (Chapter 13 of the laws of Maltese) which entered into force in March 2023. These pieces of legislation were enacted in order to transpose the provisions of Directive (EU) 2019/1023 of the  European  Parliament  and  of  the  Council  of  20  June  2019  on preventive  restructuring  frameworks,  on  discharge  of  debt  and disqualifications,  and  on  measures  to  increase  the  efficiency  of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency), and introduced significant changes, including the introduction of accredited insolvency practitioners in Malta. A full list of accredited Insolvency Practitioners can be found here.

The Self-Assessment Insolvency Tool

The insolvency tool is the means by which the Insolvency and Receivership Service shall provide companies access to early warning mechanisms, one feature of the new pre-insolvency legislative framework. The early warning notifications are actioned when a debtor falls behind on certain obligations, including a failure to file its annual returns and financial statements with the Malta Business Registry, as well as a failure to make certain payments, such as taxes or social security contributions.

The purpose of the insolvency tool is to help businesses monitor and self-assess their operations, with the aim of hopefully avoiding insolvency and resulting in a better chance of companies in financial difficulty recovering or restructuring their debts. To maximise the effectiveness of this early warning tool, companies should implement certain mechanisms that alert directors as early as possible to a potential risk that the company may face financial distress, including:

• Keeping accurate and up-to-date accounting records including management accounts;
• Creating budget and cash flow projections to ensure debts can be paid;
• Monitoring debt collection and the payment of suppliers;
• Creating an adequate system to ensure that tax obligations are met.

The self-assessment tool asks a series of questions that serve as indicators of the company’s financial feasibility. With the input of key financial data such as debt amounts, cash flow, and liabilities, the tool generates an assessment of the company’s insolvency risk. Having access to these indicators will help directors of the entity assess the company’s situation and prevent potential breaches of their duties if financial difficulties do arise. However, the results of this self-assessment tool are based solely on the data provided by the company. Therefore, such results are to be considered merely indicative and by no means definitive evidence of the company’s viability.

In circumstances where the self-assessment tool indicates a potential risk for insolvency or if the directors think that a company is, or is likely to be, unable to pay its debts, the directors should consider seeking appropriate advice.

Should you have any queries on the self-assessment tool or the Maltese insolvency and pre-insolvency regimes, please do not hesitate to get in touch.