The Companies Act is more than 20 years old and needs a revamp – particularly when it comes to insolvency, Louis Cassar Pullicino, the managing partner of Ganado Advocates, believes.
The number of insolvency cases is on the increase and they cut across commercial activity, he explained.
“The moment that a company faces financial difficulties, it inevitably has implications for employees, suppliers, creditors and banks, for example. So the impact is quite widespread,” he stressed, adding that as Malta has been attracting more companies with international shareholders, there is also an impact on foreign jurisdictions.
Dr Cassar Pullicino noted that insolvency should be the last resort for companies in trouble but lamented that the section of the Companies Act related to company reconstruction and company recovery procedure had, for some reason, rarely been picked up by practitioners and corporate entities
“It could well be a cultural problem but it is more likely that the particular requirements to qualify for this rescue procedure are too onerous as they require agreement between the creditors who hold more than half of the claims against the company. The possibility of actually engineering a corporate rescue becomes quite a tall order,” he said.
We used to be much more dynamic and innovative as we had to compete. We are losing our cutting edge
Another provision which does not ever seem to have been applied is that which enables the disqualification of directors.
“It is a pity as I am sure there are cases where directors should have been disqualified… Clearly in this scenario, there is no disincentive for directors to act appropriately and to cultivate the levels of corporate governance that Malta wants to achieve as a serious jurisdiction,” he said.
Another aspect worrying the law firm is the courts, which require specialised judges to deal with the complex cross-border disputes that arise more often as Malta’s economy becomes more international.
There is a specialised division within the Civil Court presided over by two judges which has been working very well for insolvency and maritime cases, and Ganado Advocates would like to see this extended to other economic sectors: “The idea is working very well as it gives them the opportunity to get familiar with the precedents set by case law in these disputes. We need to have more specialised division at both the level of the Court of First Isntance and the Court of Appeal to give incentices to judges already on the bench to specialise in particular fields.”
Apart from specialisation, the attitude of the court towards these cases has also been improved: “Only this summer, we were involved in a dispute which involved foreign maritime parties. We applied to the court to hear the case with urgency since a number of containers with cargo were ‘trapped’ here by the dispute. The court was very receptive and I am very pleased to report that the court heard the case over 10 days with a judgment five days later.”
The Merchant Shipping Act has been revised periodically to keep Malta competitive and to keep legislation relevant to the players in the sector. In aviation, the firm was also at the forefront of the 2010 Aircraft Registration Act, for which amendments are already in the pipeline. But he is concerned about other legislative innovation and called for the setting up of a permanent law reform commission to promote or recommend new laws and review existing ones – adding that the financial services sector deserves a commission of its own.
“A similar commission some years ago was instrumental in dealing with procedural amendments. Too much of our attention is being taken up by transposing European legislation and, as a result, we have lost momentum. We used to be much more dynamic and innovative as we had to compete. We are losing our cutting edge…”