MBR Introduces Self-Evaluation Tool for Insolvency

On November 15, 2024, the Insolvency and Receivership Service, a part of the Malta Business Registry, unveiled a new self-evaluation insolvency tool. This tool is designed to give businesses preliminary resources to assess their own financial health and viability.

Proactive Warning Tools

The self-evaluation insolvency tool is part of the proactive warning tools referred to in Article 3 of the Pre-Insolvency Act (Chapter 631 of the Laws of Malta). The Act’s objective is to equip companies and their representatives with the means to identify situations that could lead to a probability of insolvency.

Directors’ Responsibilities

The Pre-Insolvency Act, which has been in effect for nearly two years, places a proactive responsibility on a company’s directors. If they become aware of a potential insolvency, they are required to convene a directors’ meeting within 30 days to assess the company’s situation and decide on the necessary actions to address the issue. This review should consider whether the company should seek advice from an insolvency practitioner and/or submit a preventive restructuring application.

The Self-Evaluation Tool

The self-evaluation tool is an online survey that generates results based on the user’s input data. The results are kept confidential and are only accessible to the tool’s users. The tool poses questions about the company’s financial stability, such as whether it has been experiencing decreases in sales or cash flow issues. The outcomes of the self-evaluation should be viewed as suggestive and not definitive evidence of the company’s viability.

Objective and Impact

The introduction of this tool is designed to assist directors in their duty to monitor developments that could expose the company to a risk of insolvency and to implement appropriate countermeasures. The goal is to prevent insolvency and liquidation and ensure business continuity where possible. The revamp of Maltese insolvency law in 2022 and the introduction of this tool are expected to foster a rescue culture and reinforce the notion that prevention is better than cure.

Limitations and Additional Resources

These tools are not designed to protect directors who continue to operate detrimentally to creditors when they knew or should have known that there were no reasonable prospects of the company avoiding insolvency. Directors’ responsibilities in the context of insolvency remain relevant. These tools are not the only resources available to companies to assess their viability. Professional advice from insolvency practitioners, lawyers, and financial advisors remains crucial.

Insolvency Practitioners

The highly anticipated list of insolvency practitioners has been completed and is available upon request from the Insolvency and Receivership Service. In addition to potentially resulting in the filing of Malta’s first preventive restructuring application soon, this should encourage businesses and their representatives to contact qualified insolvency practitioners so that they can receive prompt assistance when concerns about impending insolvency arise.