MP calls for modern insolvency law

Labour MP Jose Herrera warned yesterday that new legal provisions that would make possible the granting of warrants against companies as going concerns could be detrimental to some shareholders.

He was speaking in Parliament during the debate on a Bill amending the Code of Organisation and Civil Procedure.

Earlier in the sitting, Opposition Justice spokesman Anglu Farrugia said one had to be careful about having a system where warrants were issued against companies as going concerns, with administrators appointed to run them. Copying the British model might not be good for Malta, especially given the local banking scenario. One knew the thick skin which the banks in Malta, particularly HSBC had, and one could therefore wonder what protection would be allowed to the owners. Safeguards clearly needed to be in place if such warrants were to be introduced.

Dr Herrera said a reform of the warrants system and the execution of court decisions had long been sought. The opposition "on the whole" agreed with this Bill. There was nothing worse than having a person, particularly a creditor, who won a court case but did not having the judgment enforced.

Indeed, he had been against the removal of warrants of impediment of departure because they had been an effective way for debtors to be forced to make their deposits. Although the time for such warrants may have passed, a suitable alternative should have been found to counter those people who hid their assets in order not to pay their creditors.

He also felt the legislator should have acted to further curtail abuse by moving legislation to "lift the corporate veil" so that one could not hide behind companies, or set up new companies, in order to avoid paying up debts. Although some progress had been made, the possibility of abuse remained and better provisions were needed on the personal responsibility of directors and shareholders.

Malta also urgently needed a modern insolvency law. At present, in Malta a person who went bankrupt remained bankrupt. Abroad assets were sold off to pay creditors and the courts imposed a general interdiction from trading for a period of, say, 10 years, but then one could start to recover.

Interjecting, Parliamentary Secretary Carm Mifsud Bonnici said the government was working on a reform of the Commercial Code, including this aspect.

Continuing, Dr Herrera said the opposition generally agreed with the provisions of this Bill. He felt that there should be some sort of sanction against those who disposed of their assets after a warrant was issued against them. This should be regarded as contempt of court in the same way as contempt of court existed when seized items were not consigned and when deposits, say of part payments, were not made as ordered by the courts.

In his speech, Dr Farrugia, resuming where he left off in Tuesday's sitting, said that reforms and changes to procedure would not have the desired effect before administrative shortcomings in the courts were sorted out.

For example, in the civil court, some sittings had to be put off because transcripts of previous sittings were not ready. Court marshals were lacking transport and this was hindering their efficiency. Security had been improved, but access from the registry and the St John Street side had been closed off, apparently for lack of security personnel. Was the government planning to award a security contract to somebody?

At the Family Court there were major procedural problems. One of the consequences was that separated women were not able to get arrears of missing maintenance payments because of prescription. There were also problems on the interpretation of court decrees on access to children, often by the fathers.

Magistrate Quintano was snowed under drugs-related cases, as well as other criminal cases while others had a much smaller workload. Clearly the allocation of cases needed to be improved.

The Labour Party would be issuing a position paper on justice and the courts. It would certainly not continue to remove so many cases from the competence of the courts just to improve the caseload numbers, Dr Farrugia said.

Referring to sections of the Bill, Dr Farrugia asked if a debtor could contest a valuation given by the creditor or a court expert.

He reiterated that court experts should be paid a flat rate and there should be a stop to exaggerated fees.

Dr Farrugia said he was in favour of procedures for the courts to authorise set-offs. Indeed, set-offs should also be introduced with regard to taxes. The Labour MP expressed concerns that personal arrest could be authorised when payments were not made on time. This clause could be contested constitutionally, not least because one could not hold a person without due hearing.

Concluding, Dr Farrugia said the Opposition would vote in favour of this Bill, but there was a need for the courts in Malta and Gozo to function more efficiently and some clauses needed deeper consideration.

Other speakers will be reported tomorrow.