‘Pre-packaged’ reorganization : introducing an alternative debt restructuring mechanism within Maltese insolvency law and practice

Abstract

Within the Maltese Shores, there are three recognised debt-restructuring procedures that could be pursued by a company that finds itself in financial distress. In the authors view, there is space within the current legislative framework for a fourth-kind of debt restructuring mechanism, which has not yet been explored within the context of national law. This tool is known as ‘pre-packaging’. ‘Pre-packs’ are a hybrid form of debt restructuring mechaism that lies between a court-supervised Company Recovery Procedure and an out-of-court private workout. This tool allows the swift sale of a business’ assets in order to eradicate the company’s debts. The swift nature of ‘prepackaging’ could however at times be controversial, as some of its qualities may seem to be unethical and contrary to the rights provided by our Companies Act. The first chapter of this paper shall illustrate the restructuring procedures that are already prevalent in Maltese insolvency law and practice, discussing the pros and cons of the current legislative framework. The second chapter shall offer a deeper insight into what ‘pre-packs’ really are and how they work in foreign jurisdictions, focusing mainly on legislation and regulations found in the United States and the United Kingdom in this regard. The third chapter, meanwhile, shall explore the possibility of introducing ‘pre-packs’ into Maltese insolvency law and practice through our current legislative framework, while at the same time comparing our national insolvency structure to the British equivalent. The reasoning behind this comparison lies in the fact that Maltese insolvency proceedings and regulations are heavily influenced by British laws, despite the lack of implementation of ‘pre-packs’ as of yet. While staking the claim for the introduction of ‘pre-packs’ as an ancillary form of reorganisation, the author shall also delve into the ethical problems that one may face when trying to implement this form of debt restructuring.