A look at corporate, personal and, where relevant, partnership insolvency proceedings in Malta, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.

Arrangament jew kompromess ma’ kredituri

Compromise or arrangement with creditors

  • Can be proposed by a limited liability company, its members or its creditors and may be sanctioned by the court if approved by three-quarters in value of creditors present and voting on the proposed scheme.
  • There is no moratorium or stay at the initial approval stage.
  • Once approved by creditors and sanctioned by the court, the scheme is binding on all creditors.
  • The procedure is most commonly used when a company is in financial distress as a way of facilitating its financial recovery. However, a scheme of arrangement or compromise may also be proposed by a liquidator.
  • The scheme itself can propose a stay that will come into effect if the scheme is approved by the requisite majorities and sanctioned by the court.
  • This restructuring procedure does not apply to partnerships or individuals (solely to companies).

Procedura biex kumpannija tirkupra

Court-monitored company recovery procedure

  • Where a company is unable to pay its debts or is imminently likely to become unable to pay its debts, a company recovery application may be made to the court (by the company, its directors or creditors representing more than half its total debts) to place the company into a “company rescue” regime and appoint a special controller to take over, manage and administer the business of the company.
  • The court may only accede to the application if: (i) it is satisfied that the company is, or is imminently likely to become, unable to pay its debts; and (ii) it considers that the making of the order would be likely to achieve either the survival of the company as a viable going concern (in whole or in part), or the sanctioning of a compromise or arrangement between the company and any of its creditors of members.
  • If the court issues a company recovery order it will appoint a special controller for a period not exceeding 12 months (extendable by up to a further 12 months).
  • Following the application (unless dismissed by the court) and during the company recovery procedure a stay prevents action against the company or its assets including provision that no steps may be taken to enforce any security over property of the company or to repossess goods under any hire-purchase agreement except with the leave of the court.
  • While the order is in force, the directors’ powers are suspended and the special controller manages the company’s activities, business and property.
  • The special controller must submit reports to the court and may ask the court to terminate the procedure if they feel that it serves no purpose or if they feel that the company can settle its debts and continue as a viable going concern.
  • At the end of their appointment, the Special Controller must submit a final report to the court. If they think the company can continue as a viable going concern (in whole or in part), they must attach a detailed recovery plan that, if accepted by the court, binds all parties, including any dissenting creditors.
  • At the end of the procedure, the company is either wound up or continues in existence, as determined by the court.



  • Shareholders may resolve to dissolve and wind up a company either by means of court proceedings or voluntarily by passing an extraordinary resolution. They are not required to disclose the reasons for their decision.
  • A resolution to dissolve the company may be passed at any time, regardless of the solvency of the company.
  • A company may also be dissolved and wound up by means of a court order if the company’s business has been suspended for an uninterrupted period of 24 months, or if it is unable to pay its debts. Alternatively, other reasons may be put to the court when petitioning for the company's dissolution and winding up, e.g. where the internal organisation and structure of the company warrants such a dissolution.

Hatra ta’ amministratur provvizorju

Appointment of a provisional liquidator

  • Not a standalone procedure: a court-appointed official may be appointed at any time following the filing of a winding-up application until such time as the court either makes a winding-up order or dismisses the winding-up application, with powers and functions relating to the administration of the estate or business of a company.

Stralċ volontarju mill-membri jew mill-kredituri

Members or creditors voluntary winding up

  • A members winding up is a solvent procedure that requires the directors to make a declaration of solvency that the company will be able to pay its debts in full within a maximum of 12 months from the date of the resolution.
  • Creditors voluntary winding up is an insolvency procedure commenced by members’ resolution, in which the creditors have the option of nominating a liquidator.
  • In a voluntary winding up, from the date of the resolution, the company ceases to carry on its business and a liquidator is appointed for the purposes of winding up the company’s affairs and distributing its assets. All powers of the directors cease upon the appointment of a liquidator.
  • Title to the company’s assets remains vested in the company.
  • A secured creditor has a right of preference over other creditors. A voluntary winding-up order does not give rise to an automatic stay on proceedings; however, the liquidator may apply to the court for such a stay.

Stralċ mill-qorti

Winding up by the court

  • A terminal process, typically commenced by an unpaid creditor, although it may also be commenced by the company, a shareholder, director, debenture-holder or a contributory.
  • The presentation of a winding-up petition (the rikors għal stralċ) alone does not give rise to an automatic stay of proceedings. However, at any time after the filing of the winding-up petition, but before the making of a winding-up order (ordni għal stralċ), it is possible for the company, or any creditor or contributory to apply to the court to request a stay of judicial proceedings pending against the company.

Falliment f'każ ta' kummerċjant

Bankruptcy of a trader

  • Partnerships en nom collectif (a partnership formed by two or more partners, which has its obligations guaranteed by the unlimited and joint and several liability of its partners) and en commandite (a partnership where the obligations are guaranteed by the unlimited and joint and several liability of its general partners, and by the limited liability of its limited partners) may be rehabilitated in accordance with the provisions on bankruptcy of a trader under the commercial code. “Trader” refers to any person who, by profession, exercises acts of trade in their own name, and includes any commercial partnership.
  • As a general rule, where a trader suspends payment of their debts, they are held to be in a state of bankruptcy. The trader makes a declaration that must be filed at court together with their commercial books and documents. A creditor may also apply to court for a judgment confirming the debtor’s state of bankruptcy (stat ta' falliment).
  • From the date of the trader’s declaration, or delivery of the court’s judgment, the bankrupt trader is dispossessed of the administration of their property. Debts that have not yet fallen due become demandable upon the making of the declaration of bankruptcy.
  • The court appoints curators to administer the bankrupt’s estate. Perishable goods must be sold by auction and non-perishable goods cannot be sold by the curators until a scheme of arrangement is agreed.
  • A meeting of creditors takes place in the presence of a judge on a day and time to be fixed by the court. Every creditor is required to present an application for admission of its debt and produce any documents in support of its claim. The court will deliver a decree stating which debts have been admitted. If the decree is not challenged within eight days following the publication of a notice in the government gazette, the decree is deemed to have been accepted.
  • Creditors whose claims have been admitted are summoned to a further meeting before the judge. The bankrupt trader proposes the terms of a composition and creditors are given at least eight days to consider the proposal. In order for the composition to be approved, a majority in number, and three-quarters in value of those creditors whose claims have been admitted must vote in favour of the proposal.
  • Once approved, the composition is binding on all creditors, the trader is deemed to be rehabilitated, and once again, able to administer their property (subject to the terms of the composition).

Xoljiment ta’ socjetajiet f’isem kollettiv u socjeta in akkomandita

Dissolution of partnerships en nom collectif and en commandite

  • Partnerships en nom collectif (a partnership formed by two or more partners, which has its obligations guaranteed by the unlimited and joint and several liability of its partners) and en commandite (a partnership where the obligations are guaranteed by the unlimited and joint and several liability of its general partners, and by the limited liability of its limited partners) may be dissolved voluntarily by common accord of the partners, or by court order if the partnership is adjudged to be bankrupt or if, in the court's opinion, sufficient grounds exit to warrant its dissolution.



talba ta’ bejgh ta’ immobli jew il-hwejjeg mobbli mghobbija b’ipoteka

Demand sale of immovable or movable charged with hypothec

  • Essentially, a hypothec is a right over property for the security of a debt.
  • Hypothecs can be sub-divided into three broad groups:
    • General hypothecs that affect all the property, movable and immovable, corporeal and incorporeal, present and future, of the debtor.
    • Special hypothecs that affect one or more particular immovables.
    • Special hypothecs over movables (movables capable of being subject to a special hypothec must be expressly created by the minister responsible for justice).
  • The ability to take enforcement action in respect of a debt requires the existence of an executive title, a list of which is set out in the code of organisation and civil procedure (chapter 12 of the laws of Malta).
  • Once an executive title has been obtained (and however so obtained), lenders can apply for the charged assets to be sold by judicial auction:
    • In the case of movables, there must be a warrant of seizure before their judicial sale by auction.
    • If there is a special hypothec over immovable property and that property has been transferred to a third party, the third party in possession of the property must either: (i) surrender the property charged with the hypothec, without any reservation; or (ii) undertake to pay all the hypothec debts, as each of them falls due, regardless of their amount. If the third party possessor fails to surrender the immovable or to pay the debts as they fall due, the hypothec creditor can: (i) serve a protest on the debtor and third party possessor demanding payment of the debt, or surrender of the property; and (ii) demand a judicial sale of the property if the debt remains unpaid and the property has not been surrendered after 30 days from the date of the protest.

Rahan ta’ mobbli

Pledge of movables

Bejgh ta’ Rahan fl-irkant taht is-setgha tal-Qorti

Enforcement of pledge by judicial sale and appropriation

  • A pledge is defined in the Maltese civil code as a “contract created as a security for an obligation.” A pledge may be given either by the debtor himself or by a third party for the debtor (e.g. a surety). Ownership of the asset is not transferred by the creation of the pledge and is retained by the pledgor.
  • The Maltese civil code draws a distinction between assets pledged which are: (i) movables (other than debts); and (ii) debts.
  • In the case of movables, the pledgee may only realise the pledged movable by means of a judicial sale by auction. Any covenant allowing appropriation, or disposal in any other manner, is null and void.
  • However, if the pledged property is a debt and the debt secured by the pledge is due, the creditor/pledgee is entitled to retain from any payments received in respect of the pledged debt an amount sufficient to satisfy its rights.
  • Under the general rules of the civil code, the only situation in which the law permits appropriation is where the asset pledged is a debt, as the debt is already quantified and liquidated, and there is no risk that abuse will occur. Any surplus should be paid to the pledgor. This method of enforcement is subject to the sanction of the court.
  • In the case of a pledge of shares, if the debtor defaults, the pledgee is entitled to enforce the pledge by either:
    • Applying to the court for a judicial sale of the pledged shares.
    • Giving notice by judicial act to both the pledgor and the company that it wishes to dispose of the shares, or appropriate and acquire the shares for itself.
    The pledgee can only sell or appropriate those shares needed to repay the debt. All other shares must be released to the pledgor.
  • Enforcement in relation to pledged shares may also be sought in accordance with the provisions of the financial collateral regulations (s.l. 459.01) (FC) that provide for a more creditor-friendly approach to enforcement. Under the FC, enforcement must accord with the terms of the pledge agreement and may be effected by way of sale or appropriation of the shares or receivables, offsetting their value against, or applying their value in discharge of, the secured obligations.
  • If the pledgor defaults on an agreement secured by a pledge of a bank account, then all rights over the account that are vested in the pledgor are terminated and vest in the pledgee, who can then exercise all rights and remedies previously possessed by the pledgor. This includes, without limitation, applying any balance held in the account on the date of enforcement against the secured obligations. Under the FC, on the occurrence of a specified event, the pledgee can realise pledged cash or the contents of a pledged bank account by offsetting it against, or applying it in discharge of, the secured obligations.



  • A form of guarantee given by a third party. A suretyship contracted for a principle obligation, in general terms, extends to all accessories of the debt.
  • In the case of a simple suretyship, the lender can only enforce its rights against the surety after attempting to enforce its rights against the principal debtor and finding that the estate of the principal debtor is insufficient to settle the debt. In the case of a joint and several suretyship (which is generally the default scenario in commercial transactions) the agreement usually entitles the lender to enforce its rights against the surety and the principal debtor at the same time, or to enforce against the surety without first enforcing its rights against the principal debtor.
  • A surety who has paid the debt is subrogated, by operation of law, to all the rights of the creditor against the principal debtor, and has a right of relief against the principal debtor (whether or not the suretyship was created with the consent or knowledge of the principal debtor).



Jedd Biex Izomm F’idejh Il-Hwejjeg

Right of retention

  • A lien is a right that entitles a party to retain assets in their possession pending payment of a debt owed. Liens occur more commonly in commercial transactions, typically when goods are being supplied, repaired or transported.
  • The civil code sets out various rights of retention. For example, in relation to the law of mandate, the mandatory is entitled to the right of retention against their mandator as long as they are not paid what is due to them under the mandate.

Fuq garanzija bi trasferiment ta’ titolu

Security by title transfer

Infurzar tad-drittijiet

Enforcement of rights

  • Security by title transfer is a contract pursuant to which the debtor, or a third party for the debtor, transfers or assigns movable assets to a creditor to secure a present or future obligation.
  • In the event of a default, the creditor is, upon giving notice in writing to the debtor (and the transferor of property by way of security, if different) entitled to realise the property transferred by sale, or by setting off or netting its value, and applying the same in discharge of the secured obligations. Set-off or netting is only permitted if it has been expressly agreed to in the agreement between the parties. Where a creditor exercises their rights as aforesaid, they must exercise such rights in a commercially reasonable manner, will be bound by fiduciary obligations in that regard and will be bound to account to the debtor as to the value used for such enforcement.

Anticipated changes in the next two years

The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

  • An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
  • A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
  • An ability to cram down dissenting classes of creditors.
  • Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
  • Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

With thanks to Andrew Muscat and Simon Pullicino of Mamo TCV Advocates for writing this chapter of the dictionary.

1 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.