As the Maltese economy evolves over the coming years, the ‘digital’ economy will take more of centre stage. Whereas much attention is given by our legislators to enacting laws dealing with regulation, less consideration is being given to our laws dealing with private commercial law considerations. However, experiences in other jurisdictions show us that it is critical that Malta’s commercial laws remain in line with economic realities on the ground.

The granting of credit and collateral go hand in hand. Underlying most credit facilities supplied by lenders is some form of collateral or ‘security’. Whereas Maltese lenders would, of course, review a company’s business prospects for the future prior to granting credit, they traditionally place reliance on real estate as the main form of security, whether this real estate is owned by the borrower or the guarantor.

We are all familiar with the lenders’ requests that they want the credit to be secured by a general and special hypothec attaching to land. The question we pose is whether real estate security will serve Malta’s economy in the future in the same manner?

A key asset in modern start-ups or technological companies is their intellectual property (trademarks, patents and copyright). Maltese law has not been very accommodating when creating security over intellectual property. Consequently, the main asset of a technological company cannot be used as collateral.

The recently-enacted Trademarks Act, 2019 (Cap. 597 of the laws of Malta) and the Trademark Rules, 2021 (LN 50 of 2021) finally cater legislatively for the granting of a trademark by way of collateral.

In simple words, a bank can now lawfully accept a valid pledge over trademarks with much less legal uncertainty than was the case prior to these Trademark Rules 2021. The new provisions are, one might say, raw and in need of polish on various fronts, not least on the process of enforcement and other such matters.  However, they are one small step in the right direction. In particular, we could build on other models such as that in the shipping/aviation sector or in the financial collateral sector, where the laws are much more elaborated following years of input from the private legal sphere.

We reiterate our call for a unified electronic register

We do call for further attention to this critical area of law, together with concomitant provisions allowing for taking of security over other forms of intellectual property assets, namely patents, designs and copyrights. With respect to the latter, often a significantly valuable form of IP, particularly in this age where cutting-edge solutions are provided through technological solutions based on coding, it is about time that, as a jurisdiction, we facilitate and encourage the taking of finance through the use of such assets by way of collateral.

In this vein, we reiterate our call made in other publications for a ‘unified electronic register’ of all forms of IP assets which would act as a centralised database of all intangible assets and security interests over them, backed by solid laws that give financiers privileges over these assets should they come to enforce their rights of recovery. Having such a register over a distributed ledger technology (DLT) platform is the way forward.

Following the 2008 financial crisis, many jurisdictions have undertaken major overhauls to their commercial legislation, especially with respect to lending and security interests. Unfortunately, we still lag behind in many aspects of commercial law which facilitate the granting of credit both by local and international financiers.

Conrad Portanier heads the banking practice and Paul Micallef Grimaud heads the intellectual property practice of Ganado Advocates.