General Information

There is a very critical time window before a company becomes irretrievably insolvent and unable to pay its debts, during which period company officers should be aware that the company is likely to face insolvency. The Pre-Insolvency Act, Chapter 631 of the Laws of Malta, acknowledges this crucial moment in time and addresses it in various ways.

In a bid to introduce more efficient restructuring alternatives and to help debtors restructure their business using limited resources, EU Directive 2019/1023 (hereinafter the “Directive”) introduced two novel concepts to be developed at a national level. The first is the notion of having comprehensive checklists for restructuring plans and the second is the notion of introducing early warning tools, specifically put in place to warn debtors of the urgent need to take action, without having to engage the costly intercession of experts in the field.

The earlier a debtor can detect its financial difficulties and can take appropriate action, the higher the probability of avoiding an impending insolvency. Therefore, the Insolvency and Receivership Service, as the competent authority at law, has developed this platform whereby a company can make a self-assessment of its position in order to ascertain the viability of continuing to trade. Such a tool, if used properly, can flag the adverse situation to the company itself by assisting enterprises in detecting very early on that the business is likely to face distress, and therefore that immediate action should be taken to address the situation.

The Insolvency and Receivership Service has also introduced a number of early warning tools in the form of alert mechanisms. These alert notifications kick in when the debtor has not made certain types of payments, such as when a company is falling behind on the payment of taxes or social security contributions. Likewise, alert notifications will be triggered when a company is not making up to date fiscal filings, submission of annual returns and financial statements and paying invoices for utilities. Early detection is key for a company to undertake remedial measures at a point in time when it is still possible to turn around the company’s prognosis to a favourable outcome.

When finding itself in such a position, the company should be aware that there are alternative measures that it can resort to in a bid to prevent insolvency. Therefore, effective early warning tools which can be adapted for use by enterprises across the board, regardless of the size of the enterprise and the nature of the business that it carries out, are an essential tool in this process.

Early warning tools are just one of the many instruments which businesses should use in an attempt to gauge whether they are viable and profitable. Businesses are also encouraged to resort to the expert guidance of professionals, specifically insolvency practitioners, to assess the financial situation of the entity on a case-by-case basis in more detail and to try to find concrete solutions for their problems. A list of accredited Insolvency Practitioners can be found here.

To this aim, the Insolvency and Receivership Service has also innovatively introduced a self-assessment protocol for use by entities which suspect that their position might not be as favourable as one would hope, including those entities which would have been alerted to this situation by the early warning mechanisms. The results of this self-assessment exercise are entirely confidential, available only to the user, and no information contained therein will be shared with the Insolvency and Receivership Service or with any other agency. The Self-Assessment Test can be accessed here.