A critical examination of the preventive restructuring framework introduced by the Pre-insolvency Act, 2022

Abstract

The main focus of this study is the viability of the preventive restructuring framework established by the Pre-Insolvency Act (‘PIA’) as a proactive alternative to traditional insolvency proceedings and its potential impact on corporate economic recovery, particularly in the post-COVID-19 era. The principal discussion analysed the relationship between the ‘old’ framework under the Companies Act and the new framework introduced by the PIA. A comparative analysis with other jurisdictions, including a detailed exploration of insolvency and restructuring frameworks, offered some salient points of comparison and emerged promising aspects and challenges. While the PIA framework demonstrates potential feasibility in providing distressed companies with options to restructure debts and sustain business operations, concerns linger regarding its affordability, sustainability, stakeholder acceptance, and scalability. These aspects are crucial for the framework's success, necessitating ongoing dialogue, collaboration, and stakeholder engagement. Addressing these challenges requires investment in administrative capacity, digital infrastructure, and specialised training programs tailored to legal professionals and restructuring experts. Innovative funding mechanisms, such as public-private partnerships and venture capital investments, can alleviate financial constraints and promote greater participation in restructuring proceedings. Regular evaluation and monitoring of the framework's performance, coupled with impact assessments and stakeholder feedback, are imperative for iterative improvements and alignment with broader economic recovery objectives. The study also explored the hypothesis that increased regulation, particularly for entities operating in regulated markets, could mitigate factors contributing to corporate insolvency. By integrating enhanced regulation with pre-insolvency frameworks, companies could receive vital support and infrastructure necessary for sustainable business operations. Ultimately, while Malta's pre-insolvency framework offers a promising alternative to traditional mechanisms, attention to these critical areas is essential to maximise its efficacy.