Giving business a fair chance?

The government plans to amend the Companies Act so as to set up a mechanism that would enable companies in financial difficulties to be given some time in which to attempt a recovery. As things stand today, these companies can be forced into immediate liquidation if they are insolvent.

These proposals have been welcomed by the president of the Chamber of Commerce, Reginald Fava, who is quoted as having said that he hoped they would instil greater confidence in the market.

Two leading lawyers, Henri Mizzi and Karl Grech Orr, also welcomed the proposed procedures. Dr Mizzi is reported to have said he views these amendments as a very positive development for company law generally while Dr Grech Orr highlighted the flexibility in the new procedures.

Dr Mizzi also observed that an informal plan was tried out in the case of the Price Club but, unfortunately, there was nothing to salvage as it was too far down the line for any recovery.

The bill, as proposed, states that where the directors of a company become aware that their company is unable to pay its debts or is imminently likely to become unable to pay its debts, they must convene a general meeting. This meeting will decide whether the company should make a company recovery application to the court.

If this application is accepted, all claims of a monetary nature against the company shall be stayed and no judicial proceedings may be started or continued against the company. During the period the order is in force, the company will continue in operation under the management of a special controller who will be appointed by the court for 12 months.

All powers conferred on the directors or its officers shall be suspended so that in effect the special controller will be the de facto chief executive officer of the company.

At the end of the 12-month period, the special controller shall report back to the court saying whether or not the company has a reasonable prospect of surviving as a viable concern and pay its debts regularly in the future. When the outlook is positive and the plan accepted by the court, it would become binding on all parties including the creditors. If not, the court would order that the company be wound up.

If the adoption of these new procedures means that companies that would have otherwise folded are given a genuine opportunity to reorganise and recover, then it must be viewed in a positive light. I am, however, concerned about the policing of these procedures.

Unfortunately, creditors do not become aware of the dire straits of a business concern much before the lapse of two years after the end of their accounting period. This often means that, as in the case of the Price Club, matters would have deteriorated so much that any chances of recovery are minimal to say the least.

Why cannot companies be obliged to submit their accounts to the Malta Financial Services Authority not later than six months from the end of their accounting year and, likewise, the MFSA is given one month to have these accounts available to the public?

In this way creditors would be able to check on the status of their debtors within a relatively short period of time.

As a member of the business community, I am all for giving entrepreneurs a fair chance to recover if and when they hit a rough patch but I similarly hope that creditors' chances of recovering their debts are not prejudiced.

I also hope these new regulations will not simply add another layer of bureaucratic procedures to the already complex nature of the Companies Act.