The ranking of creditors in corporate insolvency

Abstract

This thesis seeks to achieve a number of aims: (i) to give an insight into the relevant policy considerations underlying corporate insolvency; (ii) to provide a comprehensive analysis of the lawful causes of preference in the Civil Code and in other special laws and to highlight the main amendments effected through Acts VIII and XV of 2007 and 2008 respectively; (iii) to conduct an exercise of the lawful causes of preference in accordance with the rules enunciated in the Civil Code and the special laws and in the light of certain general principles of interpretation; and (iv) to identify and discuss certain issues which could affect the exercise of ranking of creditors. Chapter 1 deals with fundamental notions in corporate insolvency. It commences with a discussion of the philosophy behind corporate insolvency law, the objectives and principles of corporate insolvency law and the causes of business failure. This Chapter then looks into the meaning of insolvency in a corporate scenario, the procedural aspects of competition proceedings. Chapter 1 concludes with an analysis of the pari passu principle and the exceptions thereto. Chapter 2 contains a detailed examination of the exceptions to pari passu principle brought out in Chapter 1 - these exceptions being, in effect, the lawful causes of preference. The lawful causes of preference are identified in the Civil Code and a number of special laws. Chapter 2 also discusses the salient features of two sets of significant amendments to the Civil Code introduced by Act VIII of 2007 and Act XV of 2008. This Chapter indicates how these amendments affect the lawful causes of preference in the Civil Code. Chapter 3 attempts to rank the lawful causes of preference in accordance with the rules contained the Civil Code and the special laws. This exercise also involves a discussion and application of two general principles of interpretation, namely lex specialis derogat generalis and lex posteriori derogat priori. In conducting the ranking of creditors, this Chapter identifies certain ambiguities and inconsistencies that have arisen. Chapter 4 delves into a number of miscellaneous issues that are relevant to the ranking of creditors, namely, (i) the accrual (or otherwise) of interest during insolvency; (ii) the notion of set-off on insolvency; (iii) the creation of "cell" companies; (iv) the notion of trusts and (v) private international law. Virtually all of these issues have been substantially affected by developments in Maltese law over the last few years.