A very recent important reform in the realm of company insolvency was passed in December 2022. This was the Insolvency Practitioners Act, 2022, Act No. XXV of 2022, whose objective is described as “to provide for the transposition of Directive (EU) 2019/1023, and to regulate the insolvency practitioner, and to make provision for matters ancillary or incidental thereto or connected therewith.” Here we briefly review this law and highlight certain issues.

The Insolvency Practitioners Act 2022

The Insolvency Practitioners Act 2022 consists of 29 articles, introduces the new profession of Insolvency Practitioner (or IP) and purports to partially transpose EU Directive 2019/1023. The Act imposes a new regulatory framework for IP’s. Some elements and implications of the new law are rather surprising.

A new Authority

The newly established Insolvency and Receivership Service within the Malta Business Registry is the competent authority for the implementation of this new Act and regulates the activities of insolvency practitioners. The Act empowers the competent authority to revoke, cancel, or suspend any authorization or registration issued under the Act. It is also required to open and maintain a Register of Insolvency Practitioners listing various details.

The law gives very wide discretionary powers to the new regulatory unit which forms part of the ever-expanding MBR. The law describes a list of powers assigned to the competent authority which include the powers to authorise, to oversee and regulate, to ensure IP’s take proper ongoing training, to carry out investigations, to address cases of “professional misconduct”, to disseminate public information, to provide advice and information to the Minister, and to publish an annual report on its activities.

It also describes the information that IP’s are required to submit to the competent authority. It also gives powers to the competent authority to “publish guidelines on the interpretation of this Act, and any regulations and directives”. The competent authority has powers to execute on-site inspections, appoint experts, impose administrative penalties, commission studies, and exchange information with overseas competent authorities to issue cease and desist orders and to issue public statements.

The new unit has been given powers way above its status. These discretionary powers are comparable to those assigned to the MFSA. Another cause for concern is the wide powers of intervention given to the Minister, a fact that might undermine its independence.

Acting as an IP without a licence amounts to a criminal offence

In fact, one may wonder whether IP’s really warrant this extensive and intrusive new layer of regulation and oversight seeing most of the practitioners would likely already be members of regulated professions: lawyers, accountants and auditors.

These three classes of professions are explicitly referred to as qualifying for an authorisation; and are the same three mentioned in the Companies Act. So, what is really new here?

A new authorisation

Article 3 requires an insolvency practitioner to apply for and obtain a specific authorisation from the competent authority, and describes the qualifications required and the criteria for disqualification. Article 4 describes the functions that an authorised IP may carry out. These include acting in various posts envisaged in the Companies Act.

Is this article clear enough? When it says that an IP may act as a “liquidator, special controller, administrator, or special manager in terms of the Companies Act”, does it mean that these posts can henceforth only be filled by an IP? The drafting seems inadequate. It implies that IP authorisation is now mandatory and that the Companies Act has been tacitly amended.

The negative side of this new regulatory framework is that more and more powers and discretions are being assigned to government agencies, while more bureaucratic obligations and administrative burdens and costs are being imposed on practitioners.

Similarly, the practitioners have to submit more and more information. Fortunately, a number of classes of disputes may be referred to the Administrative Review Tribunal, from which an appeal may be tendered to the Court of Appeal.

The Companies Act

The relationship between the new Act and the Companies Act merits some analysis. The law seems to leave at least partly unanswered the relationship with the Special Controller under the Company Recovery Proceedings and liquidators authorised and appointed under the Companies Act. Does the 2022 Act tacitly amend the Companies Act and is this really the right way of doing things? One must distinguish between the role of an IP and a liquidator, and the role and functions of the special controller appointed under the Special Recovery Procedure. It would appear, at least at first reading, that the provisions of this new Act supersede those of the Companies Act; this is not an ideal situation.

Criminal law

Acting as an IP without a licence amounts to a criminal offence. It is also a criminal offence where an IP carries out his job badly. It is a criminal offence punishable with a minimum of three months’ imprisonment for failure to provide the required information to the competent authority.

Breach of professional duties are punishable criminally with a maximum of five years imprisonment and 60,000 euros fine. The resort to the criminal law in these instances is controversial, misguided and should be re-considered.

(The MBR has recently published the application form that prospective IP’s would need to complete and submit in terms of this Act. Dr Fabri shall be publishing a study on Maltese company law in the coming months.)

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