By Times of Malta
Following a court application filed by Skillpro Malta Ltd (the ‘company’), on February 26, 2025, the Civil Court Commercial Section (‘court’) acceded to the company’s request to enter the preventative restructuring procedure as set out in the Pre-Insolvency Act (Chapter 631 of the Laws of Malta, and hereinafter referred to as the ‘Act’). This not only marked Malta’s first application by a legal entity for the newly enacted preventative restructuring procedure, but also the first successful application, with the court approving the proposed restructuring plan by means of a decree given on May 21. Background to pre-insolvency proceedings in Malta Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019, on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132, was transposed into Maltese law through the promulgation of the Act, the Insolvency Practitioners Act (Chapter 632 of the Laws of Malta), and through amendments to the Commercial Code. Legal and natural persons (carrying out a trade, business, craft or profession) who are exposed to a likelihood of solvency can make a court application under the Act to enter a preventative restructuring procedure aimed at rescue. This procedure seeks to give the debtor time to restructure its debts, particularly by staying enforcement actions and ensuring that their creditors do not terminate any essential executory contracts during the process. It also allows the debtor to renegotiate executory contracts in a way that may improve and support their prospects of recovery, or alternatively, terminate them unilaterally where this is not possible. An application for a debtor to be placed in a preventative restructuring procedure must be made or endorsed by an insolvency practitioner, who must continue to assist debtors at other stages of the process. Maltese companies have now long had at their disposal the Companies Act provisions on the company recovery procedure, though these provisions have rarely been tested in Maltese courts. The Act adds another option for debtors, who can enjoy the benefits of a debtor-in-possession process with minimal court involvement. Background to the debtor company Skillpro Malta Ltd was established to provide various marketing and accounting services to the group of companies it forms part of. The company started facing economic difficulties which exposed it to a likelihood of insolvency, having accumulated losses exceeding €26 million along with other financial difficulties. Nevertheless, the company (and the insolvency practitioner appointed) was of the view that it had a reasonable prospect of recovery, and that its economic viability was likely to be preserved or restored through the preventive restructuring procedure. Specific contracts were identified as excessively onerous on the company, which, unless terminated, would have caused the company’s insolvency. The company therefore sought to commence a preventive restructuring procedure to benefit from the possibility of unilaterally terminating these contracts on the basis of Article 30 of the Act. The court positively noted that the company had already implemented a number of measures aimed at improving its financial situation, including a reduction in the company’s workforce. The financial situation of the company’s parent had also been improved, which in turn had a positive effect on the company. Court considerations The court noted positively that the restructuring plan presented by the insolvency practitioner was sufficiently detailed and well prepared. It further noted that the company’s application satisfied the requirements laid down in the Act. The court thus considered that its approval of the preformulated preventative restructuring application presented by the company would help it execute its restructuring plan with due consideration being given to the interests of creditors, equity holders, employees and other relevant stakeholders. In view of the above, in its decree of February 26, the court proceeded to order that the company be placed in the pre-formulated preventative restructuring procedure as contemplated under Article 9(3)(b) of the Act (and as requested by the debtor company in its application). The debtor company proceeded to put together a restructuring plan, which was approved through a decree delivered by the court on May 21. Key takeaways This case marks a significant development in Malta’s restructuring framework and although the laws which transposed the directive are still in their infancy, it is good to note that Maltese companies have already started to utilise them. This is even more relevant given the lack of uptake of the company recovery procedure throughout the years (which continues to provide an alternative rescue option). For companies which have a reasonable prospect of business viability but which face financial turmoil due to extraneous circumstances, the preventative restructuring procedure can be a lifeline, with knock-on benefits for all parties involved, including equity holders, creditors, employees and, ultimately, society at large. Naturally, not every application for preventative restructuring will be successful. As illustrated by this case, only applications which are sufficiently detailed, include a restructuring plan capable of preventing the insolvency of the debtor and ensuring the viability of the business, will be accepted. This ensures that restructuring frameworks are not misused to the detriment of creditors and other interested parties. George Bugeja is a partner, and Luisa Cassar Pullicino and Chris Grech are associates, all at Ganado Advocates.