Companies Act (Cap. 386), article 329B

329B. (1) ( a) Where a company is unabl e to pay its debts or is imminently likely to become unable to pay its debts, a company recovery application may be made to the Court requesting the Co urt to place the company under the co mpany recovery procedure and t o appoint a special controller to t ake over, manage and administe r the business of the company for a period to be specified by the Cou rt subject to the limitation imposed by paragraph ( d). (b) A company recovery application, hereinafter in this article also referred to as the "application", shall be made by means of an application which may be made: (i) by the company following an extraordinary resolution; ( i i ) b y t h e d i r e c t o r s f o l l o w i n g a d e c i s i o n o f t h e board of directors whenever, following a notice to convene a general meeting in terms of article 329A, the general meeting does not convene, or a quorum is not present at the said meeting, or a resolution with regard to the filing of a recovery application is not passed due to an unresolved tie following a vote; or (iii) by creditors of the company representing more than half in value of the company’s creditors; or (iv) by creditors forming part of a class of creditors if such creditors represent more than half in value of the company’s creditors in that class. (c) (i) Creditors with different interests should be treated in separate classes which reflect those interests. (ii) Where both secured and unsecured creditors exist, they shall be treated a s separate classes. (d) The appointment of a special controller shall be made for a period not exceeding four mon ths; provided that, at any time during which the company recovery procedure is in force, the court may, upon good cause being shown, extend the period by further periods of four months, provided that the aggregate additional periods do not exceed a further eight months. (e) The Minister may, by regulations, amend or substitute the criteria for the purpose of establishing the applicability of the provisions of this article. COMP ANIES [CAP. 386. 201 (f) No application may be submitted by a company after it has been dissolved voluntari ly or if, in respect of the same company, a winding-up order has already been made. (2) ( a) The application shall, as far as possible, give the full facts, circumstances and r easons which led to the company’s inability or likely imminent inability to pay its debts, together with a st atement by the applicants as to how the financial and economic situation of the company can be improved in the interests of its creditors, employees and of the company itself as a viable going concern. (b) Where an application is made by the company, the following documents shall be annexed to it: (i) a statement of the company’s assets and liabilities made up to a date not earlier than the date of the application by more than two months; and (ii) a list containing the names and addresses, including electronic mail addresses, of the creditors together with an indication of the amount due to each such creditor and the security, if any, of th e respective creditors. (c) Where the application is made by the creditors, it shall be accompanied by appropriate supporting documentation and statements. Power of the Court. (3) ( a) On the hearing of an application, the Court may, after examining all the circumst ances and the options that are available, either dismis s the application or issue a company recovery order, hereinafter also referred to in this article as an "order", acceding thereto and placing the company under the co mpany recovery procedure. (b) The Court shall accede to the application, and accordingly place the comp any under the company recovery procedure and i ssue an order, only if - (i) it is satisfied that the company is, or is imminently likely to become, unable to pay its debts within the meaning of article 214(5); and (ii) if it considers that the making of the order would be likely to achieve one of the following purposes: - the survival of the company as a viable going concern in part or in whole; or - the sanctioning under article 327 of a compromise or arrangement between the company and any of its creditors or members. (c) In making an order, the C ourt shall take into account: (i) the best interests of the creditors, regard being 202 CAP. 386.] COMP ANIES h a d t o t h e d i f f e r e n t c l a s s e s o f c r e d i t o r s , o f t h e shareholders and of the company itself, and the possibility of safeguarding employment as appears to be reasonably and financially possible in the circumstances; and (ii) the cost that would have to be incurred by adopting the company recovery procedure, particularly the fees and charges that would have to be incurred. (d) Where the company is in possession of a licence or other authorisation under the laws regulating banking, insurance, investment services, financial institutions or listing of securities on a Maltese regulated market, the court shall not proceed to make an order without first having consulted with the relevant competent authority responsible for supervising that company or any of its activities. (e) The Court shall take its decision whether to dismiss the application or to make a company recovery order within not more than forty working days from the filing of the application. Effect of the company recovery order. (4) (i) The provisions of this article shall not apply with respect to any new financing given to the company for the purpose of impleme nting a recovery plan: Provided that new financing under this Act shall exclude financing, debts or obligations which already existed at the time of the recovery order, even if such financing, debts, or obligations are restructured in any manner in order to be included with any financing obtained or to be obtained after the recovery order. (ii) Upon the submission of an application and unless it is dismissed, or during the period during which the company recovery procedure is in force: (a) any pending or new winding up application shall be stayed; (b) no resolution for the dissolution and consequential winding up of the company may be passed or given effect to; (c) the execution of claims of a monetary nature against the company and any interest that may otherwise accrue thereon shall be stayed; (d) during the tenure of the lease, no landlord or other person to whom rent is payable may exercise any right of termination of lease in relation to premises leased to the company in respect of a failure by the company to comply with any term or condition of its tenancy of such premises, except with leave of the Court and subject to such terms as the Court may deem fit to impose; (e) no other steps may be taken to enforce any security COMP ANIES [CAP. 386. 203 over the property of the company, or to repossess goods in the possession of the company under any hire-purchase agreement, exc ept with the leave of the Court and subject to such terms as the Court may deem fit to impose; Cap. 12. (f) no precautionary or ex ecutive act or warrant mentioned in the Code of Organization and Civil Procedure shall be made or continued against the company or any property of the company, including any warrant in terms of article 312 of the Code of Organization and Civil Procedure except with leave of the Court and subject to such terms as the Court may deem fit to impose; (g) no arbitration proceeding shall be made or continued against the company or any property of the company; and (h) notwithstanding anything cont ained in this sub-article, no judicial proceedings shall be commenced or continued against the company or its property except with leave of the Court and subject to such terms as the Court thinks fit to impose. Appointment of special controller. (5) ( a) In the order, the Court shall: (i) appoint an individual to act as a special controller for a period as specified in sub-article (1)(c). The special controller shall carry out such functions and powers as the Court may entrust to him in the administration and management of the property and business of the company; (ii) fix such reasonable rem uneration of the special controller, as the Court may consider appropriate after taking into account the company’s financial position, business and assets, and in terms of any applicable regulations made by the Minister; (iii) order that the remuneration and the disbursements of the special controller are initially paid out of a fund established by regulations in terms of sub-article (15), which expense shall be recoverable from the company in accordance with this ar ticle. On the making of such order, a copy thereof shall forthwith be forwarded by the Registrar of Courts to the Official Receiver. The expense paid out pursuant to this article shall be notified in writing to the company. The company shall effect payment of expenses paid out pursuant to this article without delay, upon a request by the Official Receiver and in the event that the company has been dissolved, the Official Receiver shall, in regard to the said expense, enjoy the same preferential ranking as a liquidator fo r his expenses as properly incurre d in accordance with this Act. 204 CAP. 386.] COMP ANIES Cap. 12. Without prejudice to the previous paragraph, a copy of the aforementioned request for payment, served by means of a judicial act on the company or its officers, shall constitute an executive title for all effects and purposes of Title VII of Part I of Book Second of the Code of Organization and Civil Procedure . (b) The Court shall appoint as the special controller an individual from the list of individuals eligible to occupy the office of special controller held by the Official Receiver, regard being given to the nature of the company to be restructured and the special controller’s experience and expertise in the management of business enterprises. The Court shall ascertain that there is no conflict of interest in relation to his appointment. (c) For so long as the special controller holds office, the fact of his appointment to such office and his full name together with his residential or business address shall be clearly indicated in all the business letters, order f o r m s , i n v o i c e s a n d a n y o t h e r d o c u m e n t s o f t h e company. Powers and duties of the special controller. (6) ( a) During the period that an order is in force, the company shall continue t o carry on its normal activities under the management of the special controller. (b) The special controller shall, as soon as possible upon his appointment, take into his custody or under his control all the property of the company and he shall thenceforth be responsible to manage and supervise its activities, business and property. (c) The special controller shall examine the assets, affairs and business performance of the company, and any proposals made by the applicant in terms of sub-article (2)(a) as to how the financial and economic situation of the company can be improved, and shall ascertain and verify whether there is a reasonable expectation of the company’s recovery and continuation as a viable going concern, in whole or in part, and he shall submit an initial report thereon to the Court not later than two months from the date of his appointment. (d) On the appointment of the special controller, any power conferred on the comp any, its directors or its officers, whether by this Act , by any other law , or by the Memorandum or Articles of Association of the company, shall be suspended unless the consent of the special controller to exercise such power has been obtained, which consent may be given either generally or in relation to a particular case or cases, and no meeting of the company may be summoned except with leave of the Court and subject to such terms as the Court may deem fit to impose. COMP ANIES [CAP. 386. 205 (e) During such time as the company recovery procedure is in force, any duty conferred on the company, its d i r e c t o r s o r i t s o f f i c e r s , w h e t h e r b y t h i s A c t , b y a n y other law, or by the Memorandum or Articles of Association of the company, shall be assumed and exercised by the s pecial controller. (f) In addition and without prejudice to any other duty assigned to the special controller by the Court or this Act or any other law, the special controller shall be obliged to perform his functions fairly and equitably taking into account the best interests of the company, its shareholders and creditors together with the interests of any other interested party. (g) In addition to the functions and powers entrusted to him by the Court, the special controller shall have the power: (i) after informing the Cou rt, by means of a note, to remove any director of the company and to appoint any individual to serve as a manager; ( i i ) t o e n g a g e p e r s o n s f o r t h e p r o v i s i o n o f professional or administrative services, and c o m m i t t h e c o m p a n y t o t h e p a y m e n t o f t h e i r respective fees or charges; or (iii) to call any meeting of the members or creditors of the company. (h) The special controller shall not, without the prior express authorisation of the Court: (i) engage the company into any commitment of more than six months duration; or (ii) terminate the employment of company employees as he considers necessary for insuring the continuation of the company as a viable going concern in whole or in part; or (iii) sell or otherwise dispose of property of the company to himself, or to his spouse or relatives and the provisions of article 306 shall apply as though references to the liquidator were references to the special controller. (i) The Court may, upon the request of the special controller, and upon good cause being shown, extend his appointment and relative functions and powers to any company being a group company in relation to the company placed under the company recovery procedure, provided that, in so far as possible, the Court shall, before so doing, hear the views of the directors, or any of them, of such group company, as it may deem appropriate. Meeting of creditors and members. (7) ( a) Within one month from his appointment, the special controller shall convene a meeting or meetings of creditors and members, or classes thereof, whether 206 CAP. 386.] COMP ANIES separately or jointly as he may consider appropriate, for the purpose of - (i) laying before them for their information and review a comprehensive statement of the company’s affairs toge ther with preliminary proposals on the future prospects and management of the company; (ii) appointing a joint creditors and members committee, consisting of not more than three creditors and not more than three members, to render such advice and assistance as the special controller may require in the management of the affairs, business and property of the company and its recovery as a viable going concern; (iii) discussing the proposals for the future prospects and management of the company, to be presented to the court. (b) Not less than seven days notice shall be given of the holding of the first meeting of creditors and members, or classes thereof, and the special controller shall also send a copy of the notice convening the meeting to any directors or other officers of the company, including persons who have been directors or other officers in the past, whose presence at the meeting is, in the opinion of the special controller, required. (c) The special controller shall publish a notice of the first meeting of creditors and members, or classes thereof, in a daily newspaper circulating wholly or mainly in Malta, not later than seven days before the holding of the meeting. (d) Where for any reason the creditors or the members or both do not appoint their representatives on the joint creditors’ and members ’ committee, the special controller may proceed to co ntinue in the exercise of his functions without such committee or solely with a creditors’ or members’ com mittee, as the case may be; (e) The special controller shall ensure that any notice convening the first meeting of creditors or members, or classes thereof, shall also be given to known creditors residing or based abroad, and such foreign creditors shall also be given the opportunity to participate in any such meeting, and any voting rights may be exercised by means of electronic communication. Fraudulent trading. (8) ( a) If during such time as the company recovery procedure is in force, it appears that any business of the company has been carried on with intent to defraud creditors of the company or for any fraudulent purpose, the Court on the application of the special controller, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid be personally COMP ANIES [CAP. 386. 207 responsible, without any limitation of liability for all or any of the debts or other liabilities of the company as the Court may direct. (b) Where the business of a company is carried on with such intent or for such purposes as is mentioned in paragraph (a), every person who was knowingly a party in the carrying on of the business in the manner aforesaid, shall be guilty of an offence and liable on conviction to a fine (multa) of not more than two hundred and thirty-two thousand and nine hundred and thirty- seven euro (€232,937), or imprisonment for a term not exceeding five (5) years, or to both such fine (multa) and imprisonment. Wrongful trading.(9) ( a) The provisions of this sub-article shall apply where a company recovery procedure i s in force and it appears that a person who is a director of the company knew, or ought to have known, that the company is unable to pay its debts or is imminently likely to become unable to pay its debts. (b) The Court, on the application of the special controller of a company to which this sub-article applies, may declare the person being a director referred to in paragraph ( a) liable to make a payment towards the company’s assets as the Court thinks fit. (c) The Court shall not grant an application under this sub-article if it is satisfied that the person who is a director took every step he ought to have taken with a view to minimising the potential loss to the company’s creditors. (d) F o r t h e p u r p o s e s o f p a r a g r a p h s (b) and ( c) , t h e f a c t s which a director of a company ought to know or ascertain, the conclusions which he ought to reach and the steps which he ought to take, are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both - (i) the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by or entrusted to that director in relation to the company; and (ii) the knowledge, skill and experience that the director has. (e) For the purposes of this sub- article, director includes a person in accordance with whose directions or instructions the directors of the company are accustomed to act. Removal or vacancy in the office of special controller. (10) (a) If a vacancy occurs by reas on of death, resignation or otherwise in the office of the special controller, the Court may appoint another individual to fill the vacancy on an application ma de for this purpose by the outgoing special controller, b y a creditor, by a member, 208 CAP. 386.] COMP ANIES by a director, or by the Court of its own motion, as the case may be. (b) The Court may, of its own motion or on the application of any member or creditor, review, confirm, modify or reverse any act or decision of the special controller and give him such directions or orders as it deems fit or remove a special controller if it is satisfied that there exist sufficient grounds to warrant his removal and appoint another special controller. Reports to be submitted by the special controller. (11) (a) (i) At the end of the original period of appointment or at the end of each extension, the special controller shall submit to the Court a comprehensive report in writing on the proceedings of his administration and of his proposals regarding the prospects for the recovery of the company as a viable going concern in whole or in part. (ii) The special controller may, if he deems it is reasonably necessary, togeth er with the said report, present an application to the court for a one time extension of his appointment for a further period of four months up to a maximum period of appointment not exceeding twelve months; (b) When the special controller submits to the Court the report referred to in paragraph ( a) , t h e R e g i s t r a r o f Courts shall forthwith forward a copy of it to the Registrar for registration; (c) The court shall within a p eriod not exceeding twenty working days from the termination of the period of appointment of the special c ontroller, including any extension thereof, declar e the termination of the company recovery procedu re, and that the company has recovered, or that it shall be dissolved and wound up, irrespective whether it has received the said report from the special controller. The court shall make such provisions and conditions, as it may consider necessary in the circumstances of the case; (d) Any creditor or member or the Registrar or the Official Receiver may at any time after the lapse of the twenty working days mentioned in paragraph (c) apply to the court for a declaration of the termination of the recovery procedure. Termination of company recovery order. (12) (a) If, at any time during which a company recovery procedure is in force, it resu lts to the special controller, after consulting the joint creditors’ and members’ committee, that it would serve no useful purpose for the company to continue wi th the said procedure, the special controller shall forthwith make an application to the Court for the termination of the company recovery procedure, containing his detailed and comprehensive reasons therefor. Following the receipt of th e application made by the COMP ANIES [CAP. 386. 209 special controller for the termination of the company recovery procedure, the Court shall order that the company be wound up by the Court. On the making of the winding up order, a copy thereof shall forthwith be forwarded by the Registrar of Courts to the Registrar for registration. (b) If, at any time during which a company recovery procedure is in force, it results to the special controller, after consulting the joint creditors’ and members’ committee, that the affairs of the company have improved to the extent that it is in a position to pay its debts, he shall submit an application to the Court, containing his detailed and comprehensive reasons to that effect, and requesting the Court to issue an order for the termination of the company recovery procedure. In the event that the Court accedes the application, it shall make such provisions and conditions, as it may consider necessary in the circumstances of the case. (c) If, at any time during which a company recovery procedure is in force, the d irectors of the company or the members at an extraordinary general meeting become satisfied that the affairs of the company have improved to the extent that it is in a position to pay its debts, they may submit an application to the Court, accompanied by appropriate s upporting documentation and information, confirming that they are so satisfied, and requesting the Court to issue an order for the termination of the company recovery procedure, and the Court shall not proceed to make an order acceding to or declining the application without having first heard the special controller. In the event that the Cour t accedes the application, it shall make such provisions and conditions, as it may consider necessary in the circumstances of the case. (d) At the end of the period of his appointment, the special controller shall submit a written final report to the Court containing his detailed and comprehensive opinions and reasons as to whether or not the company has a reasonable prospect of continuing as a viable going concern in whole or in part and will be in a position to pay its debts regularly in the future. (e) Where the final report submitted by the special controller expresses the opinion that the company has a reasonable prospect of continuing as a viable going concern, in whole or in part, regard being had to the interests of the creditors, the company and its members, and the particular classes of members and creditors, or where an application is m a d e t o t h e C o u r t b y t h e special controller under paragraph ( b), it shall additionally have attached t o it a precise and detailed recovery plan which shall contain all the proposals 210 CAP. 386.] COMP ANIES required to enable the company to continue as a viable going concern, with such explanations as may be required to give effect to such recovery, including proposals in relation to financial resources, including new financing the retention of employees and the future management of the company. The said recovery plan shall also explain the proposed manner of paying creditors the whole or a proportion of their claims, whether a voluntary com promise has been reached with all the creditors, or whether it is proposed that the Court sanction a compromise which has not been approved by all the creditors, and shall include the position of the creditors with regard to the said proposals. (f) Following receipt of the ap plication referred to in paragraph ( b) or of the final report and the recovery plan, the Court may request any explanations and clarifications as it may consider appropriate which shall be provided either verbally or in writing as the Court may direct. (g) The Court may either reject the proposed recovery plan, or it may accept and approve it in whole or in part and may require amendments thereto. Where the Court approves the recovery plan submitted by the special controller, whether with or without amendments as the Court may direct, the recovery plan shall be effective and binding on all interested parties for all purposes of law. (h) Where the court accepts the proposed recovery plan, with or without amendments, the dissenting creditors may apply to the Court of Appeal (Inferior Jurisdiction) constituted in terms of article 41(6) of the Code of Organization and Civil Procedure, if they consider that their rights are likely to be reduced to a level which is lower than what they would be granted had the company been dissolved and wound up at the time of the recovery application in terms of sub-article (1)(b). In the interest of the creditors supporting th e plan, such appeal shall not automatically suspend the implementation of the recovery plan and procedures, and remedies shall be limited to compensation for the loss suffered by the applicant as a result of the recovery procedure. (i) Where the proposed recovery plan seeks new financing, the providers thereof shall, in the absence of any fraudulent actions, be exempt from civil and criminal liability relating to the recovery procedure. Submission of documents to Registrar for registration. (13) (a) Upon the submission of a company recovery application, the issue of a company recovery order, the appointment and termination of the appointment of a special controller and the appointment of a replacement thereof, the submission of an application for the termination of a company recovery order and the order of the Court terminating the company COMP ANIES [CAP. 386. 211 recovery procedure for any reason, the Registrar of Courts shall forthwith submit a copy of any such application, Court order or other relevant document to the Registrar for registration. (b) The Registrar of Courts shall forthwith forward a true copy of the final report, a s accepted and approved by the Court, to the Registrar for registration. (c) Notwithstanding the provisions of paragraphs ( a) and (b), a copy of the recovery plan, attached to the final report or required to be att ached to an application for the termination of a company recovery order, shall not be delivered to the Registra r together with such report or application. Winding up by the Court. (14) Where, in terms of any of the provisions of this article, t he Court issues an order for the te rmination of the company recove ry procedure on the grounds that the company has no reasonable prospect of continuing as a viable going concern and will not b e in a position to pay its debts regularly in the future, it shall o rder that the company be wound up by the Court. On the making of the winding up order, a copy thereof shall forthwith be forwarded by the Registrar of Courts to th e Registrar for registration. Power to make regulations. (15) The Minister may make regu lations for the better carrying out of any of the provisions of this article. PART VII - CONVERSION OF COMMERCIAL PARTNERSHIPS Requirements for conversion of commercial partnerships. Amended by: IV . 2003.124.