Pre-Packaged Insolvency

‘PRE-PACKAGED’ REORGANISATION:
INTRODUCING AN ALTERNATIVE DEBT

RESTRUCTURING MECHANISM WITHIN MALTESE
INSOLVENCY LAW AND PRACTICE
Nicholas Mizzi
Research Project Submitted in Partial Fulfillment of the degree of Bachelor of

Laws (LL.B.)
Faculty of Laws
University of Malta
April 2016
1
DECELERATION OF AUTHENTICITY
2
ABSTRACT
Key Words: ‘Pre-packaging’ - Debt Restructuring Procedure - Corporate Rescue

Culture - Insolvency - Dissolution and Winding Up
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 ‘pre-
packaging’ 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
3
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.
4
TABLE OF CONTENTS
DECELERATION OF AUTHENTICITY ................................................................... 2

ABSTRACT .................................................................................................................... 3
TABLE OF JUDGEMENTS ......................................................................................... 6
TABLE OF STATUTES ................................................................................................ 8
TABLE OF FIGURES ................................................................................................... 9
ACKNOWLEDGEMENTS ......................................................................................... 10
LIST OF ABBREVIATIONS ...................................................................................... 11
INTRODUCTION ........................................................................................................ 12
CHAPTER ONE ........................................................................................................... 13
RECOGNISED DEBT RESTRUCTURING PROCEDURES UNDER MALTESE
INSOLVENCY LAWS & PRACTICE....................................................................... 13
1.1 Company Recovery Procedure ...................................................................................... 13
1.1.1 Underutilisation of Company Recovery Procedure within the Local Sphere .......... 16
1.1.2 ‘The One That Got Away’ ......................................................................................... 19
1.2 Private Workouts ............................................................................................................ 21
1.3 Compromise or Arrangement ........................................................................................ 22
1.4 ‘Pre - Packaged’ Reorganisation: an introduction ...................................................... 23
CHAPTER TWO .......................................................................................................... 25
THE EMERGENCE OF ‘PRE-PACKAGED’ ADMINISTRATION IN THE
UNITED KINGDOM ................................................................................................... 25
2.1 How ‘pre-packs’ became part of UK Insolvency Law ................................................. 25
2.2 Administrating a ‘Pre-packaged’ sale within the context of UK Law ....................... 30
2.3 The reason why ‘pre-packaging’ became popular in the UK ..................................... 36
2.4 Benefits that arise from the use of ‘Pre-packaged’ Administration ........................... 38
2.5 Difficulties that come along with ‘Pre-Packs’: the disadvantages .............................. 41
CHAPTER THREE...................................................................................................... 45
INTRODUCING ‘PRE-PACKS’ WITHIN THE AMBIT OF MALTESE
INSOLVENCY LAW & PRACTICE ......................................................................... 45
3.1 Implementing ‘Pre-packs’ through the Company Recovery Procedure ................... 45
3.2 Problems that may Arise ................................................................................................ 45
3.3 A balance of Interests ..................................................................................................... 52
CONCLUSION ............................................................................................................. 55
BIBLIOGRAPHY ......................................................................................................... 59
5
TABLE OF JUDGEMENTS
Malta:
Judgments available on the Ministry of Justice website:
DI Limited v X, Civil Court, First Hall, per Mr Justice Joseph R Micallef, 29 October
2007
D.I. Limited v X, Civil Court, First Hall, per Mr Justice Joseph R Micallef, 9 December
2009
More Supermarkets (Hamrun) Limited Vs X, Civil Court, First Hall, per Mr Justice
Joseph Zammit McKeon, 27 October 2014
Publishers Enterprise Group Limited v X, Civil Court, First Hall, per Mr Justice Joseph
Zammit McKeon, 9th June 2009
Zammit McKeon,, 5 August 2009
Zammit McKeon, 2 November 2015
Sakaras Holding Limited vs. X, Civil Court, First Hall, per Mr Justice Joseph Zammit
McKeon 27 March 2012.
6
Socjeta CI Gauci Limited v X, Civil Court, First Hall, per Mr Justice Joseph R Micallef,
9 May 2008
Judgments available at the Archives of the Courts of Justice (Gozo):
Application number 1/2006 of Joseph and Loreta Galea in their capacity as directors of
the company ‘Value Foods Co. Ltd’, Court of Magistrates, Gozo, Superior Jurisdiction
(General), per Magistrate Dr Paul Coppini, 13 January 2006
7
TABLE OF STATUTES
Maltese Legislation:
• Chapter 16 of the Laws of Malta: Civil Code.
• Chapter 386 of the Laws of Malta: Companies Act.
Foreign Legislation:
• Title 11, Chapter 11, United States Bankruptcy Code.
• UK Enterprise Act 2002.
• UK Insolvency Act 1986.
• UK Insolvency Rules 1986.
8
TABLE OF FIGURES
Figure 1: Company prior to entering into ‘pre-packaged’ administration. ................... 37

Figure 2: Shell and new companies after the ‘Pre-packaged’ sale has been completed 38
9
ACKNOWLEDGEMENTS
Firstly, I would like to express my sincere thanks to my tutor, Dr. Louis De Gabriele
LL.D., LL.M (Lond.), for his guidance and professional advise throughout the
realisation of this Research Project. His expertise in this field were second to none. I
would also like to thank Dr. Andrew Caruana Scicluna LL.D., LL.M, (Lond.) for
patiently reviewing my work and promptly answering to all my queries.
In addition, I would also like to show gratitude to Dr. Maria Grima LL.D. who
encouraged me throughout the writing of this Research Project and assisted me by
clarifying issues related to corporate law. I would also like to express my sincere
thanks to Dr Nicola Jaccarini LL.D., MCL (Cantab.), Diploma in Taxation (Dip. Tax),
for providing me with documents that she had used for her Thesis.
Last but not least, I would like to thank my parents for their consistent support and
encouragement, not only through the time I was writing this work, but also throughout
my whole life. For this, I feel forever indebted to their patience and for my righteous
upbringing.
10
LIST OF ABBREVIATIONS
CRP Company Recovery Procedure
CA Companies Act
CUP Cambridge University Press
DIP Debtor in Possession
EA Enterprise Act
EU European Union
FHCC First Hall Civil Court
IA Insolvency Act
IR Insolvency Rules
Newco New Company
Oldco Old Company
OUP Oxford University Press
SIP 16 Statement of Insolvency Practice 16 (UK)
UK United Kingdom
UNCITRAL United Nations Commission on International Trade Law
US United States
QFCH Qualifying Floating Charge Holder
11
INTRODUCTION
When a company is operating on the cusp of insolvency, there are three debt
restructuring tools found under Maltese law and practice that rescue a financially
distressed firm from its winding up. One of the methods available within the local
forum is the court-supervised Company Recovery Procedure (‘CRP’), which is
regulated by the Companies Act (‘CA’). 1 Alternatively, a Private Workout is an
informal recovery mechanism that emerges from the negotiations between the debtor
and their creditors with the aim of reaching an amicable agreement without any
intervention from the court. Compromise or Arrangement reorganisation lies in
between both mechanisms mentioned above, as the process of such recovery starts
outside the court however, could only enter into force after the court grants consent.2
There is another hybrid form that has recently witnessed a spike in popularity,
especially within the European Union (‘EU’), which limits court intervention while
simultaneously strengthening the possibility of an out-of-court contractual agreement
between the distressed company and its creditors. This expedited corporate rescue
procedure is known as ‘pre-packaged’ administration.
Ultimately, the rescue procedure pursued by the company in question depends on a
number of factors, amongst others: (i) the gravity of the company’s financial state; (ii)
the remedies which are accepted and provided by local law and practice; (iii) the
directors’ decision, which should primarily be taken in the best interests of the
company, its employees and creditors.
1
Vide Companies Act, Chapter 386 of the Laws of Malta, Art 329B.
2
Ibid. Art 327.
12
CHAPTER ONE
RECOGNISED DEBT RESTRUCTURING PROCEDURES UNDER

MALTESE INSOLVENCY LAWS & PRACTICE
1.1 Company Recovery Procedure
Company Recovery Procedure (‘CRP’) is a court-supervised reorganisation process
found under the Maltese CA, which is modelled closely on the United Kingdom (‘UK’)
administration order, whereby a company submits a formal request to the court which is
only accepted thereafter if the company is unable to or likely to become unable to pay
their debts.3 In conjunction to this rule, the court must also take into consideration
whether the survival of the company as a going concern, or the sanctioning of a
compromise or arrangement between the company and any of their creditors or
members could be achieved.4 In this situation, a special controller is appointed to ‘take
over, manage and administer the business’ for a specific amount of time,5 while the
company must provide in its application information regarding its current financial
situation, debts owed and nature of the business carried out.6 The special controller is
appointed for a period that does not exceed twelve months. However, the court may
choose to extend this appointment by a maximum of a further twelve months while the
reorganisation remains ongoing.7 Application for this procedure may be made either by
the extraordinary resolution of the company, by its directors, or by the creditors that
3
CA (n 1) Art 329B(3)(b)(i).
4
Ibid. Art 329B(3)(b)(ii).
5
Ibid. Art 329B(1)(a).
6
7
Ibid. Art 329B(1)(c).
13
embody more than half of the value of the company’s creditors.8 Moreover, the claim
submitted must also provide clear facts and reasoning behind the company’s financial
malaise while also including a statement from the applicant which sets out a roadmap
for how the situation can be improved.9
In assessing whether the company recovery order should be issued or not, the court
takes into consideration the applicants’ request in conjunction with the interests of the
creditors and shareholders, while at the same time working towards the most
appropriate solution for the company’s employees. Unlike in the UK, under local
legislation, there is no hierarchal structure regarding what should prevail in conflicting
situations when deciding the principal reason for the restructuring.10 In fact, the law
seems to suggest that there should be a balance between the company’s survival while
taking into consideration the interests of the creditors, shareholders and employees.11
Under the UK Insolvency Act (‘IA’) 1986, the company’s survival is prioritised at the
top of the hierarchy, hence being the primary goal of the restructuring.12 If the company
seems increasingly unlikely to stay afloat, then the administrator will seek to protect the
interests of the all the creditors.13 The last tier directs an added level of protection
towards the preferential or secured creditors, in a bid to achieve the best outcome for
their repayment in the event that the company’s survival could not be achieved and the
8
Ibid. Art 329B(1)(b).
9
10
Vide Andrew Caruana Scicluna, ‘Legal Issues in Corporate Debt Restructuring’ (LL.D Thesis, University of Malta,
2013) p. 90.
11
Ibid. Art 329B (3)(c)(i).
12
UK Insolvency Act 1986, Schedule B1, para 3(1)(a).
13
Ibid. para 3(1)(b).
14
interests of all the creditors could not be protected.14 If the intervention of the court is
successful, the decision taken would be binding on all the creditors.
Locally, a moratorium is automatically granted upon application and continues to be so
for the duration of the court-supervised procedure, unless the application is dismissed,
the order is withdrawn,15 or the court deems it fit to lift this form of protection.16 Since
the court is involved in the company’s financial reorganisation, the procedure tends to
be lengthy and at times not as efficient when compared to other debt restructuring
procedures. These factors could, therefore, deviate the firm into greater financial
difficulty rather than resolving the problem at hand, as the debtor may incur further
procedural costs that accumulate as time passes.
Due to the court’s involvement in the CRP, the ongoing affairs of the company will be
publicly disclosed, which will likely have a negative impact on the firm’s reputation and
value. 17 If this occurs, then it could irreparably damage the possibility of the
restructuring from being successful, as it could lead to a decrease in trade. This stage
represents a very delicate phase for the company, as it would determine whether it
survives the reorganisation. Preserving levels of trade is vital for the company to
maintain its presence in the market and to continue to generate income. A sustained
decrease in trade could erode the company’s chances of survival, potentially leading to
its liquidation due to its inability to pay off its debts.
14
Ibid. para 3(1)(c).
15
CA (n 1) Art 329B(4).
16
CA (n 1) Art 329B(4)(d) - (g).
17
Vide Rodrigo Olivares Caminal, Expedited Corporate Debt Restructuring (OUP 2015) para 1.06.
15
1.1.1 Underutilisation of Company Recovery Procedure within the
Local Sphere
Since the introduction of the CRP in Malta, there have only been a few attempts to use
this form of restructuring, none of which were ultimately successful and one case that
seems to have never terminated the order to date. D.I. Limited18 applied for a CRP in
view of keeping the company viable, safeguarding the jobs of their 120 employees,
while at the same time considering the needs of their creditors.19 The plan emphasised
on the fact that the liquidation of the company would have a more devastating result for
all the parties involved rather than if they enter into corporate restructuring, as their
debts would not be able to be paid off, both towards the creditors and also to their
employees. The company recovery order was eventually withdrawn based on the advice
of the special controller since the company was deemed unable to recover from its
distressed financial position.
The case concerning Publishers Enterprises Group Limited20 (‘P.E.G’) dealt with a
similar situation where the court, upon the request of Sado Limited, one of the
company’s creditors, issued a warrant of seizure on some of the publishing house’s
equipment, effectively halting the company’s business. 21 The court accepted the
proposed plan stating that it had the possibility of being successfully achieved.22 The
special controller for the same reasons stated in the previous case subsequently
18
DI Limited v X, FHCC, 29 October 2007.
19
Malcolm Naudi, 'First Maltese Company Enters Company Recovery Procedure' (Times of Malta, 2007)
<http://www.timesofmalta.com/articles/view/20071122/business-news/first-maltese-company-enters-company-
recovery-procedure.185318> accessed 3 March 2016.
20
PEG Limited v X, FHCC, 9 June 2009.
21
‘'Publication House Placed In Company Recovery Procedure - The Malta Independent' (Independent.com.mt, 2009)
<http://www.independent.com.mt/articles/2009-06-14/news/publication-house-placed-in-company-recovery-
procedure-226328/> accessed 3 March 2016.
22
(n 20) 9 June 2009 p. 7.
16
withdrew the order.23 The court eventually liquidated the company and ordered the
court’s registrar to erase P.E.G Ltd from the Registry of Companies.24
The other three cases that failed at the application stage of the procedure are those of
More Supermarkets Limited,25 Sakaras Holding Limited26 and Socjeta’ CI Gauci
Limited.27 In light of the recent judgement of More Supermarkets Limited, the court
had sustainable grounds to reject the application as the directors failed to present any
document confirming the extraordinary resolution required to be put forth by the
directors or creditors. This document is considered to be a necessity at law that must be
submitted as a prerequisite of this procedure's initiation.28 Notwithstanding the fact that
this is already a justifiable ground to deny the application, the court also pointed out
another reason for the application’s rejection. The court drew attention to a declaration
made during the sitting by Kurt Camilleri, one of the directors of More (Hamrun). Mr.
Camilleri stated that while the company was indeed in a state of insolvency and was
unable to satisfy the debts owed, he asserted that the company could recover from this
situation.
Moreover, it was stated in the appeal that a plan for the company's recovery was already
formulated.29 The sole director of D. More Holdings Limited, Darren Casha denied in
the hearing that there was any written plan for recovery and declared that there is no
possible strategy for the company to escape from this adverse financial situation. This
23
(n 20) 5 August 2009 p. 3.
24
(n 20) 2 November 2015.
25
More Supermarkets (Hamrun) Limited Vs X, FHCC, 27 October 2014.
26
Sakaras Holding Limited vs. X, FHCC, 27 March 2012.
27
Socjeta CI Gauci Limited v X, FHCC, 9 May 2008.
28
(n 25) October 2014 p. 7.
29
Ibid. p. 7.
17
statement directly contradicts Camilleri’s previous declaration,30 which confirmed the
courts' apprehension that this application was not being sought for the best interests of
the creditors, employees or the company itself, but rather as a tactic to delay the
repayment of their debts.
In the Sakaras Holding Limited case, the court stated that the rescue plan was not
executed to restructure the company’s debts, however, filed the order as a reaction to the
application of its winding up. This, therefore, went against the raison d`etre of Article
329B.31 For a recovery plan to be successful, the plan must have an evident possibility
of survival.32 In this case, the rescue agreement was unsuccessful as the company
suffered from a deficit in working capital, which restricted its capacity to generate
further profit.33
In the case concerning Socjeta’ C.I. Gauci Limited, the shareholders filed for an
application of a CRP. The primary reason for the company’s decline in sales was due to
the road works being carried out by Government authorities in the vicinity of their
showroom. During this period there was no access to the showroom and, even after the
road was re-opened, it took C.I. a while to start reeling in customers again. These
disruptions naturally led to the company purchasing fewer goods due to a lack of
turnover in stock, which lowered their cash flow and, resulted in the company being
unable to pay off their debts. The company subsequently relocated to a smaller
showroom and terminated all of their employees' contracts.34
30
Ibid. p. 9.
31
(n 26).
32
Caminal (n 17) para 21.135.
33
(n 26).
34
Vide Nicola Jaccarini, ‘An Appraisal of the Maltese Court’ interpretation of the Company Recovery Procedure’
(LL.D Thesis, University of Malta, 2014) p. 86.
18
The court held that the proposed plan did not provide any certainty for the repayment of
at least the preferential creditors.35 Moreover, the court stressed upon two further
points; that the plan was only formulated to delay the liquidation of the company and
that all the elements required by law to enter into a debt restructuring procedure were
not present in such plan,36 therefore rejecting the application on these grounds.
1.1.2 ‘The One That Got Away’
The first case of a Maltese company that requested an application for a CRP and was
thereafter accepted was that of Value Foods Co. Limited, to the Court of Magistrates
in Gozo back in 2006.37 One of the immediate aftereffects of Malta’s accession to the
EU in 2004 was the enforcement of the trading bloc’s industrial regulations, several of
which altered and amended lacunae within Value Foods’ operational sector. This,
however, was not the only reason the company deemed it appropriate to apply for a
CRP. The company directors sought to direct attention towards the way the local
authorities implemented these regulations and standards. In their assessment, the
Maltese regulatory system failed to anticipate the negative impact that Value Foods, as
well as other companies operating in the foodstuffs industry, would incur as a result of
opening up the local market to the importation of European chicken products. Other
notable factors that contributed to the company’s position include; (i) the outbreak of
the H5N1 Avian Influenza, which resulted in a drastic drop in sales and profitability (ii)
35
(n 26) p. 7.
36
(n 26) p.8.
37
Application number 1/2006 of Joseph and Loreta Galea in their capacity as directors of the company ‘Value Foods
Co. Ltd’.
19
an alteration implemented for the modus operandi in the manner of how the company
disposes of its waste; (iii) the revocation of the company’s abattoir license.
Prior to their application, the directors had tried to swap its debt owed to their creditors
into shares in the company, but this motion was not accepted. In the CRP application,
the directors sought to emphasise their opinion that the company’s winding up would
not only have adverse ramifications on the company itself, but also on their employees
and creditors. When the special controller was appointed, he did in fact, recommend the
conversion mentioned above, in addition to the obvious need for debt restructuring. He
also proposed that the directors find alternative, more cost-effective ways of disposing
of their waste and that the company regains its abattoir license to generate income and
increase sales. The special controller also earmarked the renegotiation of company’s
credit terms as a critical issue that needed addressing. Moreover, in his reports, he
expressed his professional opinion that the company was getting back on its feet, citing
the reacquisition of its abattoir license, an increase in human resources as well as the
expansion of their product portfolio, also to include other meat items, as proof of the
company’s improved position.
The special controller, in his final report in 2007, requested the court extends the period
of the procedure for another year, as the potential success of the recovery was still
heavily dependent on the existing moratorium. This was accepted by the court.
Something that stands out in this procedure is that after the 2007 decree, there was no
other report put forward by the controller, nor any further court orders to extend or
terminate the CRP. This lack of follow-up suggests that the CRP is an inefficient
method of recovery within the local forum as the procedure was never completed or
reported to have been so, and despite this, the company is still considered to be viable
20
and in operation to date in accordance with the Registry of Companies. 38 39
1.2 Private Workouts
A private workout is a debt restructuring procedure that lies on the other end of the
spectrum, as it aims to rescue the business from its distressed financial position without
the court’s intervention. This method is considered to be more cost and time efficient
than the above mentioned reorganisation tool since the debtor and creditors manage the
procedure without the obligation to abide by any specific formality.40 This process
instigates a change in composition or structure of assets and liabilities of the debtor with
the aim of keeping the business alive.41 In comparison to the CRP, private workouts are
less prone to negative publicity, and tend to be more flexible in nature as the creditors
and the debtor could protect their own interests through the negotiations and reach an
amicable agreement that suits both parties. Workouts also incur lower costs when
compared to the court-supervised procedure.42
Problems would however arise if the debtor does not reach an agreement with their
creditors as to the precise terms of the workout. Such difficulty would not surface
under the CRP if the majority needed is achieved. Therefore, the success of this out-of-
court procedure depends on the acceptance of the terms of the workout by both the
company and its creditors, as the contractual nature of this procedure requires the
consent of each individual creditor, due to the fact that moratorium is not applicable
38
MFSA Registry of Companies, (search: Value Foods Co. Ltd.) 'ROC Supporting Services'
(Rocsupport.mfsa.com.mt) <http://rocsupport.mfsa.com.mt/pages/SearchCompanyInformation.aspx> accessed 28
March 2016.
39
Vide Nicola Jaccarini, (n 34) p. 71.
40
Vide Rodrigo Olivares Caminal, Debt Restructuring in The EU (OUP 2011) para 1.07.
41
Vide Jose M. Garrido, Out-of-Court Debt Restructuring, The World Bank, (2012) p. 1.
42
21
under these circumstances.43 It is important to consider another principle issue that may
arise and affect the fulfillment of this procedure, as in the instance when creditors
holdout in order to derive personal benefits, and use this as leverage to gain individual
value.
1.3 Compromise or Arrangement
The third procedure accepted under Maltese law is the UK-influenced scheme of
arrangement, which is a hybrid form of reorganisation that lies between both debt
restructuring tools mentioned previously. It incorporates the need of out-of-court
agreement between the debtor and a three-fourths majority vote of the creditors or
members, or classes of each, which decision is enforced by the courts of law. This
sanction would bind all creditors and members of the company, meaning that even the
minority, who were not in favour of this decision, would be crammed-down into the
compromise or arrangement.44 This style of restructuring is rather flexible and quick
when compared to court-supervised procedure, as it limits the court’s involvement since
the court does not have to approve or review terms during the earlier stages of the
procedure. Court intervention will be applicable at a later stage.45
Nonetheless, there has never been a case within the local sphere that incorporated this
form of reorganisation despite its legal recognition. The lack of utilisation of formal
court-supervised proceedings may imply that companies in Malta prefer to settle their
debts with their creditors out of the public eye, despite the fact that every local case has
43
44
CA (n 1) Art 327(2).
45
22
failed in applying such method. Moreover, it is imperative to note that ‘pre-packs’ are
currently not recognised under local jurisdiction, and compromise or arrangement is not
a sought-after method of restructuring under local insolvency law and practice.
Furthermore, the company and its creditors would only be informed about the result of a
private workout, so its success or failure remains undisclosed. The introduction of ‘pre-
packs’ within the local insolvency forum would undoubtedly provide a useful
alternative. This development would deduce a breakthrough in insolvency practice
since this hybrid tool has both the privacy of the firms’ ongoing affairs as found in
private work outs, but at the same time includes court intervention, balancing the
remedies and providing a ‘best of both worlds’ case scenario.
1.4 ‘Pre - Packaged’ Reorganisation: an introduction
The-fourth kind-of debt-restructuring procedure-which as yet-remains unexplored
within-the-ambit of Maltese-insolvency law and practice is ‘pre-packaged’
reorganisation. This-tool-is also considered to-be a hybrid mechanism-that has recently
gathered-momentum-in the UK-and is-proving to be the most efficient form of
restructuring. Its-distinctive feature is-that it allows-a swift-sale of a company’s assets
that-eradicate their debts, which-are sold to a-third party or a phoenix-company.46 This
method is-favoured over other-mechanisms as instituting-a formal procedure-would
have-a negative impact-on the goodwill-of a company, 47 which-is one of the-most
crucial intangible assets a company carries as it includes everything the brand holds
46
A phoenix company is born when the distressed company is sold to the new company (‘Newco’) through an
insolvency practitioner that is bought by the same incumbent directors or shareholders. Therefore the term phoenix is
used when there is a ‘re-birth’ of the old company into a new one, which is managed by the same directors of the
previous company.
47
23
from its name to its customer base and the relations present with their employees. ‘Pre-
packs’ have been favoured as it allows the business to reorganise its debts through a
contractual agreement that takes place between the debtor and their creditors, a process
overseen by the courts to certify that the company does not part take in any fraudulent
activity but actually has the specific intent to restructure the company. Therefore a ‘pre-
pack’ is a hybrid form of restructuring that start off as an out-of-court workout, which
eventually evolve into a court-supervised procedure. 48 This method also provides
protection through consideration not only for the interests of the directors but also those
of their employees, creditors and business in general. Therefore, in the UK as well as in
the US, we find a visible structure of checks and balances that are carried out by the
administrative authorities, which-at the same time grant a degree-of liberty to-the
company-to agree-on terms-which are beneficial to both the debtor and their-creditors.
48
Vide Vanessa Finch ‘Corporate Rescue: a Game of Three Halves’, (2012) Legal Studies 302.
24
CHAPTER TWO
THE EMERGENCE OF ‘PRE-PACKAGED’ ADMINISTRATION IN

THE UNITED KINGDOM
2.1 How ‘pre-packs’ became part of UK Insolvency Law
Prior to the-UK IA of 1986, less importance-was given to the survival-of the company-
as the only-process available-to a company when it found-itself in financial distress was
that of liquidation. In fact, it was the Cork Report49 that had officially encouraged this
movement,50 which changed the previous mentality and secured the-possibility for a
company to-facilitate a debt-restructuring procedure which best suits their troubled-
financial situation. The Cork-Report led to the enactment of laws which contemplated
debt restructuring procedures based on the belief that a viable-business should be kept-
afloat rather than-having to enter into-liquidation. This belief is what lead to the rise of
the so-called ‘rescue culture’,51 a concept founded on the idea that ‘calculated risk
should be encouraged and if failure occurs then there should be a system in place to
49
Sir Kenneth Cork, ‘Insolvency Law and Practice’, Report of the Review Committee [1982]: Final publication was
issued during the time when a number of companies in the UK were entering into liquidation and eventually winding
up. This report suggested that there should be a reform in British insolvency law and practice, which include the
replacement of statutes in favour of a unified insolvency code and insolvency courts, as well as suggested the
introduction of debt recovery procedures which provide an alternative to a company’s winding up. This report also
insisted that the law should take the necessary actions when or if a director acts in any fraudulent manner. It also
sought to suggest that the restructuring of a company should be handled by a private insolvency practitioner as well
as shifting legislation away from its punitive nature, towards a more protective nature in regard to the survival of the
company. The rationale behind this reasoning boils down to the fact that rescuing a company from its winding up
impacts the economy less drastically rather than if the it had to enter into liquidation, as this would effect the market
in general, which would raise issues regarding employment, amongst other pivotal difficulties.
50
Kenneth Cork, Cork on Cork: Sir Kenneth Cork Takes Stock (Macmillan 1988) 202-203, as cited in Vanessa
nd
Finch, Corporate Insolvency Law: Perspectives and Principles (2 edn, CUP 2009) p. 16:
‘through publication of the Cork Report, I have ... put forward our principle that business is a national asset and, that
being so, all insolvency schemes must be aimed at saving businesses.’
51
John Michael Wood, ‘Corporate Rescue: A Critical Analysis of its Fundamentals and Existence’ (The-University-
of-Leeds-School of Law, Centre-for-Business Law-and-Practice-2013) p. 5.
25
help minimise the adverse effects that it may have on affected parties.’52 According to
Finch, the 1986 Act has two primary objectives, which are:
To establish formal legal procedures for business rescue and the
orderly realisation and distribution of assets and to erect a regulatory
framework that would prevent commercial malpractice and abuse of
the insolvency procedures themselves.53
As a result of this culture, together with the introduction of the 2002 Enterprise Act
(‘EA’), ‘pre-packaged’ administration began to develop.54 The primary goal of a ‘pre-
pack’ is the survival of the business where a swift sale of the company’s assets to a third
party or phoenix company would take place.55 The particular intricacies of these
negotiations are not disclosed to the public and enter into effect almost immediately
after the appointment of the administrator. Essentially, ‘pre-packs’ are completed
before formal proceedings take place.56 Since ‘pre-packs’ are not regulated by any act
or legislation, there is no actual definition of the term. In the absence of a formal
definition, the interpretation of a ‘pre-pack’ was provided for in the Statement of
Insolvency Practitioner 16 (‘SIP 16’):
The term ‘pre-packaged sale’ refers to an arrangement under which the
sale of all or part of a company’s business or assets is negotiated with a
purchaser prior to the appointment of an administrator, and the
52
Ibid. Wood (n 53) p.11 - 12.
53
Finch (n 28) p.15.
54
See Giuseppe Rizzo, ‘Phoenix Operations in the Pre-Packaged Administration: A Rescue for the Company or a
Trap for the Creditors?’ (Queen Mary, University of London, Dissertation in Commercial and Corporate Law 2013)
p. 4.
55
Ibid. (n 53).
56
Christopher Mallon and Shai Y Waisman, ‘The Law And Practice Of Restructuring In The UK And US’ (OUP
2011) para 8.57.
26
administrator effects the sale immediately on, or shortly after, his
appointment.57
The essence of this definition was originally extracted from the US Chapter 11
Bankruptcy Code. Chapter 11 promotes a debtor-friendly approach granting the
insolvent body a number of privileges while at the same time establishing a criterion of
requirements the company has to abide by. This pro-debtor approach is evidently
protected by US bankruptcy laws. The company could submit to the Bankruptcy Court
a formulated plan of recovery which aims at restoring their financially distort position,
while at the same time, the management remains the debtor-in-possession58 (‘DIP’) over
property that a creditor has security interest. This concept of ‘DIP’ does not apply
within the context of the British insolvency laws.59
When dealing with a ‘pre-packaged’ sale by Chapter 11 standards, the debtor would
have already agreed the terms of the ‘pre-pack’ with the major creditors before entering
into proceedings, having drawn up the settlement as well as gathered the required
votes.60 When a company files for a Chapter 11 Bankruptcy, a disclosing statement
must be submitted to the court. Under normal circumstances, the plan cannot be
accepted by the creditors prior to the courts’ approval. This statement provides the
creditors of a company with a detailed report regarding the company's financial
situation, who thereafter could accept or reject the plan proposed.61 However, when a
‘pre-packaged’ method is being implemented, this plan may be accepted or rejected
57
Association of Business Recovery Professionals (R3), 'Statement of Insolvency Practice 16’, Pre-Packaged Sales in
Administrations’
<https://www.r3.org.uk/media/documents/technical_library/SIPS/SIP%2016%20Version%203%20Nov%202015.pdf
> accessed 8 March 2016.
58
Ibid. Rizzo (n 34) p. 6.
59
Mallon (n 36) para 8.53.
60
61
Baran Bulkat, 'What Is The Disclosure Statement In Chapter 11 Bankruptcy? - Alllaw.Com' (AllLaw.com)
<http://www.alllaw.com/articles/nolo/bankruptcy/disclosure-statement-chapter-11.html> accessed 20 April 2016.
27
even if the court has not yet given its approval with regards to the disclosing statement
as long as the solicitation took place before the commencement of Chapter 11
proceeding and conforms with the relevant non-bankruptcy law.62
Once the plan is instituted, it automatically binds all the creditors under this
reorganisation where the company benefits from a temporary moratorium.63 It was, in
fact, this movement in the States that encouraged the formulation of the United Nations
Commission on International Trade (‘UNCITRAL’) Legislative Guide on Insolvency
Law. This guide defines mechanisms of expedited corporate debt restructuring such as
‘pre-packs’ as a:
… procedure of reorganisation, but on an expedited basis, combining
voluntary restructuring negotiations, where a plan is negotiated and
agreed by the majority of affected creditors, with reorganisation
proceedings commenced under the insolvency law to obtain court
confirmation of the plan in order to bind dissenting creditors. Such
proceedings are designed to minimise the cost and delay associated
with formal reorganisation proceedings, while at the same time
providing a means by which a restructuring plan negotiated
voluntarily by a debtor with some or all of its creditors nevertheless
can be approved in the absence of unanimous support of those
creditors.64
62
US Bankruptcy Code, Title 11, Chapter 11, Article 1125(g)
63
Caminal (n 17) p. vi.
64
‘UNCITRAL Legislative Guide On Insolvency Law' (Uncitral.org, 2004)
<http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/2004Guide.html> accessed 18 March 2016. para 31.
28
Even though the core definition of a ‘pre-pack’ was brought to light through US
legislation, it is imperative to note that the definition of this mechanism has a different
meaning in the UK. In the UK, the role of the administrator is to complete the swift
sale as soon as the formal proceedings have entered into force and to provide such
creditors with the proceeds according to their ranking.65
As mentioned in the previous chapter, the UK IA 1986 has a three tier hierarchal
foundation, which firstly prioritises the survival of the company as a going concern. If
the first objective cannot be accomplished, the administrator must attempt to provide
protection for the interests of the entire group of creditors. In the eventuality that this
also proves unachievable, the last resort is the protection of the interests of preferential
or secured creditors.66 The primary objective of an insolvency practitioner (‘IP’) who
files the 2.2B Form67 is to ensure the survival of a company as a going concern. If this
seems unattainable, or if the second tier furnishes a better result for all the creditors,
then he or she have the power and liberty to make final decisions aimed at securing the
best possible outcome for all the company’s creditors.68 The third objective is pursued
by the administrator only if he or she is of the opinion that the prospects of attaining
either of the first two objectives cannot be fulfilled. The administrator would then be
required to consider the best solution for the situation at hand, with the ultimate aim of
giving the preferential or secured creditors the best possible return.69
If the practitioner expresses his or her opinion that the first objective cannot be
achieved, there exists the possibility of implementing one of the two following options
65
Caminal (n 17) p. vi.
66
CA (n 1) Art 329B(2)(a).
67
Form 2.2B is the statement of the proposed administrator, in which details such as the name of the regulatory body,
the IP and the name of the company are declared.
68
UK IA 1986, Schedule B1, para 3(3).
69
UK IA 1986 (n 12) para 3(4).
29
mentioned above, bearing in mind that the sale must be primarily formulated in a way to
satisfy all the creditors. At this point, the company identifies the assets that are going to
be put on sale, where a third-party financial advisor would be appointed to search for
prospective buyers.70
Once a buyer is found, a sales document is subsequently drawn up by the IP, who
negotiates with the buyer to come to an agreement on terms that suit both parties.
However, this document is not signed until the practitioner has officially been
appointed, as an administrator’s power would only be of an authoritative nature once all
the formalities for the appointment are implemented. It is only after this agreement is
finalised that the practitioner is appointed. At this point, the administrator acts on
behalf of the company that enters into the contract with the purchaser.71
2.2 Administrating a ‘Pre-packaged’ sale within the context of UK Law
This sub-chapter shall serve as an analysis of the British method of ‘pre-pack’
administration. Moreover, the author shall compare the legislation found under the
Maltese CA that regulates the process of the CRP with the above-mentioned
administration for the purpose of identifying the similarities, as well as the differences
that exist between the two. Within the context of UK insolvency law, there are two
ways a company can enter into administration; (i) by virtue of an application made to
the court by the shareholders, a majority of the company’s directors or any creditor or;72
70
71
72
UK IA 1986 (n 12) para 12.
30
(ii) out-of-court through the decision of the company or its directors,73 or a qualifying
floating charge holder (‘QFCH’).74 75 The administrator that is chosen through either of
the procedures mentioned above must be an authorised IP76 and by extension an officer
of the court, irrelevant if the appointment was made through the court or not.77 Under
the Maltese CA, a special controller is appointed to administer the affairs of the
business once it enters into the CRP. The only criteria that must be fulfilled for the
appointment of a special controller are that the candidate has experience in managing a
business and that he or she must have no personal interest in the company.78
When an administration order in the UK is processed through the first method, the court
must also be convinced that this company is or is likely to become unable to pay its
debts. Moreover, the administration order must be possible to achieve.79 At first
glance, the CRP found under Article 329B(1)(a) of the Maltese CA seems to mirror the
above-mentioned procedure. The application for a CRP in Malta could be compared to
the in-court route found under UK law. This application could be made by the
shareholders, following an extraordinary resolution,80 the directors after the decision
taken by the board of directors,81 or by the company’s creditors that represent more than
half the value of the creditors.82
73
UK IA 1986 (n 12) para 22.
74
UK IA 1986 (n 12) para 14.
75
QFCH is the holder of a floating charge that relates to all or most of the property of the company, person of which
also has the authority to appoint an administrator.
76
UK IA 1986 (n 12) para 6.
77
UK IA 1986 (n 12) para 5.
78
CA (n 1) Art 329B (5)(a).
79
UK IA 1986 (n 12) para 11.
80
CA (n 1) Art 329B (1)(b)(i).
81
CA (n 1) Art 329B (1)(b)(ii).
82
CA (n 1) Art 329B (1)(b)(iii).
31
This proves the close affiliation there is between insolvency procedures in the UK and
those found in Malta,83 as the in-court procedure under both jurisdictions are based on
almost identical grounds. What separates local law from that British in this regard is
that Maltese laws permit the court a twenty working-day period to accept or reject the
application of the CRP,84 while the sale through ‘pre-packaged’ administration takes
place imminently after the appointment of the administrator.
A distinction must also be made between both jurisdictions when discussing the second
method. The UK EA 2002 brought amendments to the IA 1986 that simplified the
process of entry into administration, providing companies with restructuring procedures
that require fewer formalities to be implemented which are ultimately also more cost
efficient than if a company had to administer a fully-fledged court restructuring
procedure.85 Under Maltese law, the court may only appoint a special controller after a
company recovery application has been made and accepted by that same court.86
In the UK, if the shareholders or directors are to choose the administrator, then the
QFCH (if any) and the shareholders (if the directors are appointing) must be informed at
least five working days prior to this appointment.87 Despite being an out-of-court
procedure, the IP can only be appointed during the court’s office hours after the
shareholders or directors make this decision.88
On the other hand, there is no obligation to notify the directors or the shareholders if a
QFCH intends to appoint the administrator. The only requirement in this regard is to
give two working-day notice to another QFCH, (if any) who is ranked higher by
83
The administrator is referred to as a Special Controller within the context of Maltese Insolvency Laws.
84
CA (n. 1) Art 329B (3)(e).
85
86
Ibid. (n 5).
87
UK IA 1986 (n 12) para 26.
88
UK IR 1986, Rule 2.19.
32
contractual priority, or to that person whose qualifying floating charge was created first
in accordance to date.89 The QFCH can appoint an IP at any time, and possesses the
liberty of either emailing or faxing the forms even when the courts’ offices are closed.90
It is imperative to note that the necessary forms must still be submitted to the court.
Therefore, the court still has a minor role to play in order for this method to be
successfully implemented. The main difference between the in-court and out-of-court
procedures lays in the fact that there is no court hearing held for the administrator’s
appointment in the latter process. This ultimately speeds up the procedure, while at the
same time keeping publicity and cost levels as low as possible.91
A statement announcing the administrator’s consent must also be submitted to the court,
declaring that at the time he or she was appointed, the administrator had reasons to
believe that the ‘pre-packaged’ sale was likely to achieve a better outcome for all the
creditors or at least for the secured creditors, rather than if the company had to be
liquidated.92 After this proclamation, the administrator’s appointment becomes official.
The swiftness of this out-of-court route fits perfectly within the ambit of a ‘pre-
packaged’ sale, especially if a QFCH appoints the office holder.93 That being said, both
in-court and out-of-court routes have successfully implemented this form of sale within
the British insolvency context.94
After the administrator’s appointment, he or she must send a detailed report that notifies
the creditors about the sale of the company. The office holder should, within eight
weeks from the day he or she was appointed, call the first creditors’ meeting, stating in
89
UK IA 1986 (n 12) para 15.
90
91
92
93
Reference being made to the administrator.
94
33
that same report the way he or she intends to manage the administration.95 This report
must also be forwarded to the Registrar of Companies as well as to the members of the
company. The creditors’ meeting must be held within ten weeks of his or her
appointment in order to take a vote on what he or she is proposing.96 It is important to
stress on the fact that the sale of the assets occur immediately after the administrator is
appointed, therefore taking place prior to the creditors meeting.
Even though the meeting is held after the sale has been finalised, the creditors still cast
their vote in view of other issues, one of them concerning the exit strategy being
proposed. However, the principle reason for the meeting being held is for the IP to
explain in detail the sale itself and why this method was pursued.97 Under local law, the
creditors’ meeting held for a CRP takes place within one month of the special
controllers’ appointment.98
The administrator has the duty to file a semi-annual report to the court, creditors and
Registrar of Companies regarding the progress that the company has made since his or
her appointment to the court. The administration will be in operation for a duration of
twelve months, and can only be extended upon request with the consent of the creditors
or through a court order.99 A similar provision could be found under our CA, stating
that the special controller is appointed for the same length of time. However, only the
court could extend the duration of the administration of the CRP.100 The controller also
95
Caminal (n 17) Para 9.25.
96
UK IA 1986 (n 12) para 51.
97
98
CA (n. 1) Art 329B (7)(a).
99
Caminal (n 17) para 9.28-9.29.
100
Ibid. (n 7).
34
has the duty to report the progress made under the CRP every four months from the day
of his or her appointment till the day the administration is terminated.101
Similarities could be made regarding the effects administration has in the UK with the
effects of the CRP. In the duration of the CRP, any existing winding up applications
will be suspended, and any new application would be dismissed provided that the order
has been accepted. 102 The same protection is afforded to the British company. 103
Throughout the administration procedure, the administrator takes under his or her
control the management of the business, which continues with its normal day-to-day
activities. The administrator would also take into his custody all the property of
the company, were the office holder also has the authority to sell such
property.104105
As mentioned above, the duration of the administration lasts for a period of twelve
months, unless an extension of this period is requested. Upon termination, there are two
possible outcomes that could be achieved which depend on the assets available. On one
hand, if the sale produces sufficient funds in order for the company to be able to pay the
unsecured creditors, provided that the assets have been distributed to the secured
creditors, then the administrator will terminate the administration and place the old
company into a creditors’ voluntary liquidation.106 On the other hand, if there are
insufficient funds available for distribution towards all the creditors post-sale, then the
administrator will inform the Registrar of Companies where at this moment, his or her
101
CA (n 1) Art 329B (11)(a).
102
CA (n 1) Art 329B (4)(a).
103
UK IA 1986 (n 12) para 40(1).
104
CA (n 1) Art 329B (6)(a) - (b).
105
UK IA 1986 (n 12) Schedule B1 para 59.
106
UK IA 1986 (n 12) Schedule B1 para 83(1).
35
appointment will be terminated and that company would be dissolved three months
later.107
2.3 The reason why ‘pre-packaging’ became popular in the UK
Since the introduction of ‘pre-packaged’ administration in the UK, the insolvency
structure has recognised a decrease in the use of other forms of reorganisation procedure
in favour of this relatively new method of recovery. The reason behind this is due to the
advantages this form of reorganisation offers when compared to other debt restructuring
procedures.
Handling the insolvency of a company is a risky task as if the general public find out
about its troubled financial situation, then that company would find it hard to retain its
suppliers, customers as well as their employees. These three separate but jointly
dependent bodies are vital components to the day-to-day operation of the company. A
‘pre-pack’ offers a cost efficient alternative that preserves the reputation and value of
the company, while at the same time tries to provide the best return possible for all the
creditors.108 When this is not possible, the administrator has the duty to provide the best
return possible for the secured creditors. The fact that the costs are low also indirectly
bestows benefits upon the creditors, as there would be a larger sum of assets available to
be distributed after the sale has been finalised.
The figures illustrated below depict, in the first image, the company prior to entering
into ‘pre-packaged’ administration. The following two images (on the following page)
107
UK IA 1986 (n 12) Schedule B1 para 84.
108
R3, ‘Pre-Packages Briefing’<https://www.r3.org.uk/media/documents/publications/press/Pre-packs_briefing.pdf>
accessed 21 March 2016.
36
reproduce the movement that occurs when the sale by the administrator is made,
distinguishing between the valuable assets that are shifted into the Newco, and the
invaluable assets and liabilities that are left in the shell company. Ultimately, the
proceeds that are made from the sale are diverted towards the creditors the company
owes monies to.
Figure 1:
The company prior to entering into ‘pre-packaged’ administration.
• Employees
• Suppliers
• Customers
• Brand
• Equity investment
• Financial Debt
• Profitable/ Unprofitable outlets
• Onerous / Valuable contracts
37
Figure 2:
Shell and new companies after the ‘Pre-packaged’ sale has been completed. 109
Shell Company New Company
• Proceeds of sale
• Profitable outlets
• Unprofitable outlets
• Sustainable debt
• Non-Performing debt
• New Equity Investment
• Equity Investment
• Customers
• Onerous contracts
• Valuable contracts
• Brand
• Employees
2.4 Benefits that arise from the use of ‘Pre-packaged’ Administration
A ‘pre-packaged’ sale has been favoured in recent years over other procedures, as it
possesses unique features that other mechanisms do not entail. Since a ‘pre-pack’ is
formulated before the IP is officially appointed and is sold shorty after the appointment
reveals that this form of reorganisation offers the business a greater chance of surviving
as most, if not all of the agreement is done out of the public eye. Due to the speed and
secrecy of the procedure, questions such as that of transparency are often raised.
Despite this fact, since IPs are persons of great experience in the field, and administer
this procedure, the purchaser, employees, directors, and creditors tend to be more
comfortable with the ongoing negotiations as this person has no personal interest in the
company and therefore acts impartial to the matter.
109
38
In the following paragraphs, the author shall set out the statistical benefits a ‘pre-
packaged’ sale has over the sale of a business as a going concern, which is negotiated
and finalised after the insolvency procedure, has commenced. This statistical data was
gathered by R3,110 a British company that represents over 97% of all the insolvency
practitioners in the UK.
Through the research compiled, it has resulted that when ‘pre-packaged’ administration
is successfully achieved, the employees’ placements have a better chance of being
retained rather than if the business was sold as a going concern, negotiations of which
materialise and finalise after the insolvency procedure has commenced (hereinafter
referred to as ‘business sale’). In fact, in 92% of ‘pre-pack’ administration cases
resulted in all the employees of the Oldco being transferred to the Newco, when
compared to a business sale, only succeeding in 65% of the cases to preserve all the jobs
of their employees.111 Had the firm proceeded into taking the formal route, some
employees may start to doubt the stability of the firm and whether their future with the
company is secure. These doubts may lead the employee to find alternative
employment elsewhere.
The retention of employees is crucial not only for the company but also for the economy
as a whole. When taking into consideration the economy, if jobs are not safeguarded
when a company is undergoing financial restructuring, then there would be an increase
in people trying to find alternative placements. If the company is eventually dissolved
or decides to reduce their employees to cut costs, then this would affect a potential rise
in the rate of unemployment. If this rate were to be effected, then a higher sum would
be demanded from the taxpayer as the government provides unemployed people with
110
R3, Rescue, Recovery, Renewal - Association of Business Recovery Professionals.
111
Ibid. (n 57).
39
financial benefits. This also results in a decrease in spending power both from those
employed and unemployed, making it a vicious cycle that could potentially be a
contributing factor to an economic recession. One must keep in mind that there may be
other companies that are going through similar financial difficulties, while this company
is going through debt restructuring. So an economic rescission would not occur because
of the reorganisation of one company, but due to an accumulation of companies that
either enter into liquidation or reduce employees to cut their costs.
Even though the administrator aims to achieve the best return for all the creditors, one
has to take into consideration the financial position the company finds itself in at the
time of the administration, coupled with the amount the purchasers are willing offer.
These are variable issue that could only be assessed on a case-to-case basis. In reality,
when a company finds itself in this distressed financial position, the creditors hardly
ever receive all the debts owed to them. Critics have denounced ‘Pre-packs’ as they
believe that this form of debt restructuring does not offer the unsecured creditors
enough protection. Research shows that while the average return to unsecured creditors
in a business sale was that of 3%, the average return when ‘pre-packs’ were
implemented was that of 1%. The discrepancy in percentage is marginal, especially
when one takes into consideration that secured creditors obtain an average return of
42% when ‘pre-packs’ were used, contrasting with the 28% return to the secured
creditors for the above-mentioned business sale.112
112
R3, ‘Pre-Packaged’ Sale <https://www.r3.org.uk/media/documents/publications/press/Pre-packs_briefing.pdf>
accessed 21 March 2016
40
2.5 Difficulties that come along with ‘Pre-Packs’: the disadvantages
‘Pre-packs’ carry certain scepticism as to whether this form of reorganisation is ethical
due to its secretive and swift nature, two attributes which are considered to be its strong
hold over other mechanisms available when a company is undergoing debt
restructuring. The process of ‘Pre-packaging’ has been criticised as it lacks
transparency since the sale of the company is negotiated behind closed doors113 by the
IP before his or her appointment, prior to any formal proceeding of administration is
initiated or creditor meeting held. Since the sale occurs before the creditors meeting,
the creditors could only raise their claims against the shell company, where technically
all that remains there are the proceeds of the sale as all the valuable assets have been
transferred to the Newco.114 This stance is however arguable as the ideology behind the
method in which the ‘pre-pack’ procedure is processed is in view of the fact that if the
employees, customers or suppliers were to be informed about the ongoing negotiations,
then each body could enter in a state of panic, which would have a negative impact on
the value of the company and even potentially disrupt the administration from taking
place. Moreover, since the negotiations are done before the administrator is appointed,
and the company would not be protected by a moratorium, so the creditors would be
able to take action against the company in order to claim the debts owed.
If the employees were to be informed about the reorganisation, then there is a greater
chance of them leaving the company, as they fear that they could end up unemployed or
even not paid for their current placement. Moreover, the suppliers will start to doubt
whether the company has sufficient assets to pay for what they provide. The key
113
114
41
importance in this method of reorganisation is that the business continues to operate
functionally on a day-to-day basis to keep generating income. This ultimately leads to
the company having more assets available after the sale is complete which are then
distributed to their creditors according to their rank. The swift and secretive nature of
this kind of sale also raises another fundamental issue. The creditors of the company
may be of the opinion that the administrator did not formulate a proper marketing
campaign as the business was not sold on the open market, but in secrecy, therefore
potentially preventing the company from obtaining a better price on the sale.115
The IP has the duty to achieve the best possible price in order to offer the best possible
return to all the creditors. When a company is undergoing financial restructuring, it
cannot afford employees leaving, suppliers not delivering or customers not buying. If
this had to occur, then it would definitely diminish the value of the company as well as
effect the price of the sale. It is already a difficult task for an administrator to find a
purchaser that is willing to buy a company in the position it is in, let alone if the above-
mentioned situation occurs. Therefore ‘pre-packs’ are favoured as the value of the
company is retained, which not only preserves the company’s image but also assists in
safeguarding the position of their employees, and the relationship with their customers
and suppliers.
Since the introduction of the SIP 16, the issue relating to the lack of transparency has
improved as this document requires the administrator to keep records of the process,
were he or she must be able to provide the creditors with a detailed explanation for the
reason this form of administration was chosen over others. Failure in doing so will lead
115
42
to disciplinary or regulatory action.116 The UK IA 1986 also provides an added level of
protection towards the creditors or members of the company as they are given the
opportunity to challenge the actual sale in court if they feel that the IP has acted unfairly
in a way that harms their interests.117
‘Pre-packs’ have also been criticised by landlords. When a company is operating at the
cusp of insolvency, and has in its possession an outlet that is leased, the landlord is not
usually informed about the ongoing ‘pre-pack’ negotiations. When the sale occurs, the
license to occupy this property is handed over to the purchaser without the landlord’s
prior consent and therefore would be in breach of the lease agreement. Problems tend to
be of a greater nature if the company has multiple locations, as the buyer will choose to
make use of the outlets that are producing fruits while disregarding unprofitable ones.
Due to the statutory moratorium impounded by the administration process, the landlord
cannot make use of the standard remedies available at law without prior approval of the
court or administrator. Landlords have been awarded some protection in this regard as
if the company is making use of any property, then the rent is considered to be an
expense of the administration.118
The most controversial property a ‘pre-pack’ holds is known as phoenixing,119 which
takes place if the business is sold to a connected person, such as any former owner,
manager or lender. In such situations, the company is ‘reborn’ from the ashes, carrying
no liability onto the same people who were directly or indirectly involved in the
116
Statement of Insolvency Practitioners 16 (November 2015)
<https://www.r3.org.uk/media/documents/technical_library/SIPS/SIP%2016%20Version%203%20Nov%202015.pdf
> accessed 21 March 2016.
117
UK IA 1986 (n.12) para 74.
118
119
Ibid. (n 26).
43
previous company. Ethical questions are raised, as this method seems to be abusing the
fundamental principles that make up a limited liability company.120
Furthermore, since a ‘pre-pack’ is negotiated in secrecy, then any connected party gains
an advantage over other potential buyers since they are the only persons who would be
aware of the ongoing negotiations. This being said, the preservation of the value of a
company is considered to be a vital element in order for the company to survive.
Therefore at times, the ideal option is to sell the company back to a connected party as
they may be the only people who have the skill to manage this kind of business or at last
resort, if there is no other party interested in purchasing the business. Certain
limitations have been introduced to prevent the connected parties from taking advantage
of this kind of sale.
Paragraphs 216 and 217 of the UK IA 1986 prohibit the buyer who is directly or
indirectly involved in the management or formation of the Newco from using the same
or a similar name as that of the previous company for the first five years. If this
situation arises, the director will either be imprisoned, fined, or both and could also be
held personally liable for any debts incurred under this new company. These
provisions of the law could discourage the directors from purchasing the
company as retaining the name of the company is crucial when one takes into
consideration the company’s goodwill and the reputation that it has built
throughout the years.
120
44
CHAPTER THREE
INTRODUCING ‘PRE-PACKS’ WITHIN THE AMBIT OF

MALTESE INSOLVENCY LAW & PRACTICE
3.1 Implementing ‘Pre-packs’ through the Company Recovery
Procedure
Although this was never explored within the ambits of local jurisdiction, a ‘pre-pack’
seems to fit conformably if it were to be coupled with a CRP.121 The nature of the
negotiations of a ‘pre-pack’ start off out-of-court, where the sale of the company would
take place imminently after the formal procedure is initiated. This rapid sale could
therefore be completed as soon as the CRP enters into force.122 Putting the differences
aside, the method used by the courts in the UK for the appointment of an administrator
is very similar to the procedure of appointment of the special controller in a CRP found
under Maltese law. This period for any company is very delicate, as there are only two
very diverse routes it can go down; either that of survival or of its winding up.
3.2 Problems that may Arise
The main objective of a CRP is that of the survival of the company as a going concern,
while that of a ‘pre-pack’ essentially is the transfer of viable assets to a Newco that
121
122
45
leaves the undesirable assets in the insolvent shell. 123 What places our law at a
disadvantage is that our legislation permits the court a twenty working-day period to
accept or reject the CRP. 124 The swiftness found in a ‘pre-packaged’ sale could
therefore be delayed. This salient feature is one of the main reasons why this method is
favoured over others. Such delay could obstruct a ‘pre-pack’ from being successfully
implemented. The time period a company remains under court-supervision must be
short in order for the company to protect its image and sustain its goodwill.125 The
longer it takes, the more the company would be exposed to negative publicity. During
this procedure, it is important for the company to retain its clientele, employees and
suppliers for their business to keep functioning on a day-to-day basis. This ultimately
safeguards the value of the company, which would reflect in a better return once the
business is sold.
In the UK, ‘pre-packs’ are administered through an independent professional class
known as insolvency practitioners (‘IPs’), of which the majority of such class are
chartered accountants.126 The main role of an IP in a ‘pre-pack’ is to negotiate with a
purchaser prior to the formal appointment of the administrator. IPs, as an independent
profession do not exist within the context of Maltese insolvency law and practice.
Under local jurisdiction, an administrator could only be appointed by the court upon the
company’s presentation of its winding up.127 Likewise, a special controller in the CRP
could only be appointed to administer the financially distressed company by the court
after the application is made.128 However one must not exclude the possibility of ‘pre-
123
124
Ibid. (n 65).
125
126
127
CA (n 1) Art 228(1).
128
CA (n 1) Art 329B(1)(a).
46
pack’ negotiations within the local sphere supported by the company’s accountant, for
example, prior to entering into a CRP. In the UK, one of the most common routes
pursued to become a licensed IP is based on having the requirements necessary to be a
qualified chartered accountant. Such person must therefore be a member of the
ACCA,129 has at least three years of practical experience in an accounting firm and 600
hours of experience in insolvency. Once this is acquired, then all that is necessary to
become an IP is to pass the Joint Insolvency Examination Board.130
It would be premature of the author to suggest the introduction of a regulatory
framework matching that found in the UK. One must take into consideration the size of
the country as well as the number of insolvency cases that have taken place in the past.
An accountant could not be solely dependent on administering liquidations or recovery
procedures, due to the low incidences of insolvency proceedings in Malta. Moreover,
the 600-hour requirement when narrowed only towards insolvency experience would be
difficult to achieve when compared to our demographic. This being said, there are
chartered accountants within the local sphere who have administered liquidation
proceedings, meaning that locally we do find a professional body that could administer
these kinds of proceedings.
Since the legislation regulating the appointment of a special controller are extremely
vague,131 there have been instances where such person held the bare minimum of
129
Association of Chartered Certified Accountants.
130
R3, ‘Making a Career as an Insolvency Practitioner’
<https://www.r3.org.uk/media/documents/publications/professional/Making_a_Career_Brochure_V2.pdf> Accessed
15 April 2016 p.5.
131
CA (n 1) Art 329B(3)(5)(b) ‘The Court shall appoint as the special controller an individual who the Court has
ascertained to its satisfaction enjoys proven competence and experience in the management of business enterprises, is
qualified and willing to accept the appointment, and has no conflict of interest in relation to his appointment’.
47
requirements in order to administer the CRP.132 This has been seen in the Value Foods
case,133 for example, where the controller that was appointed by the court held a
chemical engineering degree and was describe as having managerial competence and
experience in managing a business.134 These qualities barely have any association with
the knowledge and skill required to improve the financial situation of a firm that is
heading towards insolvency. A chartered accountant that has experience in the field
would be more than capable of negotiating a ‘pre-packaged’ sale prior to entering into
formal negotiations, which then only becomes enforceable by the court after the
necessary judicial review is made.
Even though the law states that a special controller could only be assigned once the
company recovery application has been accepted, it would be irrational for the courts
not to consider the use of a ‘pre-pack’ if the only other viable route is the company’s
liquidation. If the court disregards the ‘pre-packaged’ plan before actually considering
its acceptance, then the court may seem to be contradicting legislation prescribed by the
CA, as the best interest of the employees, creditors, shareholders as well as of the
business of the company itself at this point would be to implement the ‘pre-pack’ as it
offers a better return for all the parties involved.
In view of the controversial issue between shareholder and creditor claims, there is a
course of action a secured creditor may take that would provide a better solution for the
shareholders and improves the chances of a ‘pre-pack’ being accepted by the courts. A
creditor may agree to grant the shareholders of the previous company a small equity
132
Ibid. (n 59).
133
Vide Chapter 1.1.2 p.19.
134
Vide Nicola Jaccarini, (n 34) p. 70.
48
entitlement in the Newco, after the assets have been transferred to it. This will act as an
incentive for the shareholder to co-operate in the proceedings, as both parties would be
gaining an advantage through the formation of the new company.
The co-operation between both parties is necessary for a ‘pre-pack’ to fit within the
ambits of the CRP, due to the way the law is worded, as the creditors and shareholders
are afforded the same level of protection under our CA.135 This will therefore provide
the court with another valid reason to recognise this form of restructuring within the
local sphere, as it could produce a better outcome for both parties rather than if the
company had to dissolve. The co-operation could be agreed upon through a waiver of
pre-emptive rights, which secures the shareholders of the previous company their right
to first refusal for the shares being issued in the Newco, before they are offered to any
other person.
If this technique is upheld, then the ‘pre-packaged’ sale will provide an advantage for
all the parties affected. Through this procedure, some value would be saved in favour
of the existing shareholders while leaving the unserviceable debt in the shell company.
Senior debt could be swapped for equity in the Newco, which also improves
sustainability as it reduces the amount of debt from the Newco’s balance sheet.136
What cannot be left unnoticed is that the directors of a company are obliged to come
forth within thirty days from the day they find out that the company is unable or
imminently likely to be unable to pay their debts, and set a meeting by means of notice
within forty days from when this fact was known. In this meeting a decision would be
135
CA (n 1) Art 329B(3)(c)(i).
136
49
held in regard to which route the company is going to take; either that of liquidation or
applying for a CRP. 137 During this timeframe, the directors, together with the
company’s accountant have considerable time to try find a potential buyer. The
directors have the obligation to inform the rest of the members about the ‘pre-pack’ as if
they fail to do so, then the directors would be in breach of the fiduciary duties enshrined
in Articles 1124A and 1124B of the Civil Code.138 In anticipation of the issue, the
directors of the company may offer a fair equity stake in the Newco after the ‘pre-pack’
is finalised. At this point the shareholder should consider the facts that their return upon
liquidation is inexistent, and the return after a CRP has been completed is still left
unknown as there have been six cases in Malta, five of which have all lead to the
companies liquidation due to insufficient funds139 and one which has never seemed to
exit the CRP to date.140 This reveals how ‘pre-packaging’ offers a better overall
outcome for the creditors, shareholders, employees, and the business of a company,
when compared to liquidating the company, provided that there are sufficient funds to
satisfy the needs of the majority (if not all) of the parties involved, after the sale has
been completed.
Within our legal framework, there seem to be grounds available to attack ‘pre-packs’
after its execution. Actio pauliana is a remedy awarded to a creditor that impeaches a
fraudulent act committed by the debtor.141 For this action to succeed, both the elements
of (i) eventus damni142 and (ii) consilium fraudis143 must be present, which makes it
137
CA (n 1) Art 329A.
138
Vide Civil Code, Chapter 16 of the Laws of Malta.
139
140
141
Civil Code, Chapter 16 of the Laws of Malta, Art 1144(1).
142
Concerns the prejudice or harm caused to the creditor. Refers to the intention to deceive.
143
Refers made to the intention to deceive.
50
difficult to achieve, as the element of fraud is difficult to prove.144 This being said, if
this ground is raised and the person actually had the intent to deceive, then such person
must be held liable after the required judicial review has taken place. It is important to
note that the implementation of a ‘pre-pack’ should have the intent to restructure the
company, and not specifically used to cause prejudice to the creditors.
Another ground a ‘pre-pack’ could be attacked on is that of unfair prejudice, where the
shareholders could bring an action if they feel that the company has acted in an unjust
manner that harms the interests of all the members. This ground could be definitely
arguable as the person administrating a ‘pre-pack’ has the duty to find the best possible
outcome for the parties involved. The shareholder must keep in mind that he or she
would not receive anything upon the dissolution of the company, therefore a ‘pre-pack’
prima facie already offers a better solution.145
After its execution, a ‘pre-pack’ could also be attacked on grounds of fraudulent
preference,146 as the assets that are not sold to the Newco may be put into liquidation.
The company that enters into a transaction which is deemed to have been sold at an
undervalue, if the transaction entered into was less in value than the worth of the
consideration provided for by the company.147 This could be invoked by junior creditors
if the ‘pre-pack’ transfers the assets to the Newco owned by the secured creditor as the
assets transferred exceed the value of senior debt.148 A company would also give
preference to a person if such person is a creditor, surety or guarantor for any of the
144
145
146
CA (n 1) Art 303.
147
CA (n 1) Art 303(2)(a)(ii).
148
51
company’s debts or other liabilities. 149 Moreover, preference is also given if the
company does anything or suffers anything to be done that has the effect of putting a
person in a position where if the company had to dissolve, he or she would be in a better
position than if such act or omission would not have occurred.150
3.3 A balance of Interests
The Maltese courts will only issue a company recovery order on two conditions. First,
the court must be satisfied that the company is unable or is likely to become unable to
pay its debts.151 Moreover, the order must be likely to rescue the company as a viable
going concern or sanction under Article 327 a compromise or arrangement between the
company and its members or creditors.152 The applicants have the duty to provide the
court with a plan of 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.’153 The court also has the duty to consider upon accepting the
order the best interests of the creditors, employees, shareholders, and of the company
itself.154
The first condition is mirrored under the UK IA 1986. When considering the hierarchal
division found under UK legislature, the primary goal of debt restructuring is the
survival of the company as a going concern. This goal is reflected in the second
condition within Maltese insolvency framework. What our law fails to consider is the
149
CA (n 1) Art 303(2)(b)(i).
150
CA (n 1) Art 303(2)(b)(ii).
151
CA (n 1) Art 303(3)(b)(i).
152
CA (n 1) Art 329B(3)(b)(ii).
153
CA (n 1) Art 329B(2)(a).
154
CA (n 1) Art 329B(3)(c)(i).
52
possibility of safeguarding the business through its sale when the company itself cannot
be rescued. What may influence the courts decision in sanctioning a ‘pre-packaged’
sale is that when a company enters into liquidation, the shareholders and junior creditors
would not be paid. Moreover, the employees will be left without a job.155 Thus,
instituting such form of reorganisation has a better outcome for the parties involved.
If the courts are to abide by Article 329B(3)(c)(i) in its strict sense, then it should
consider allowing the use of a ‘pre-pack’ through the CRP as it aims at providing a
suitable return to all the parties mentioned therein. Furthermore, the applicants would
be overlooking a possible remedy if they had to shy away from reorganising their debts
through a ‘pre-packaged’ sale as it could substantially be the best remedy for the
‘financial and economic situation of the company [in view of] … the interests of its
creditors, employees and of the company itself as a viable going concern.’156, or its
business if the company itself cannot be rescued. If the company, or at least its business
cannot be rescued, then the only other alternative is the liquidation of the company.
Hence, this mechanism provides the ideal balance of interests when compared to other
procedures as; (i) the relationship with the company’s suppliers and customers are kept,
(ii) the business retains its value, (iii) almost all (if not all) their employees are
transferred to the Newco, (iv) offers the best return possible in favour of the creditors or
at least those secured, and (v) keeps the business viable through its sale rather than
liquidating the company. This mechanism therefore revives a viable business that
155
156
CA (n 1) Art 329B(2)(a).
53
appears to have ‘sick’ balance sheet, as the valuable assets are transferred to the Newco,
while the unserviceable debt is left in the shell company.157
157
54
CONCLUSION
In the author’s opinion, the best interests of the creditors, employees and company itself
could be safeguarded through the use of a ‘pre-pack’ via the implementation of a CRP,
rather than entering into a fully-fledged court supervised procedure. This also provides
a favourable solution to liquidation, provided that sufficient funds are available after the
sale, which should provide the best return possible for all the parties involved. It is
important to note that in the real world, every theory in its application does not function
to its total capacity. What must be targeted is the best possible outcome for all of the
affected parties. In application, a ‘pre-pack’ would aim to achieve the preservation of
the business as a going concern, safeguards the employment of the majority, if not all of
the employees of a company, while providing for the payment of at least the secured
creditors as the unsecured creditors are not always paid. If the company itself is not
preserved, then the business of the company would be sold in order to retain its value
and provide the interested parties with sufficient returns.
Due to the company’s troubled financial situation, the creditors hardly ever receive all
the money that is owed to them, regardless of which form of debt restructuring
mechanism is applied. Problems thicken if the company had to enter into liquidation.
When a ‘pre-pack’ is successfully implemented, the value of the business is retained
where at the same time, all the employees and suppliers could possibly be kept. This
however does not usually result in a fully blown court supervised reorganisation. The
CRP would be subject to public exposure that damages the value of the company, and a
lengthier process that will increase the expenses, and erode the finances available. The
creditors would therefore be at a disadvantage as once the funds available decrease, less
55
assets would be available for distribution towards all the creditors when the procedure is
concluded. If the CRP had to be dismissed by the court as seen in five of the local
cases, then it would generally leave the shareholders and unsecured creditors without
any return.158
Furthermore, during the CRP, the employees will be concerned as to whether their
future with the company is secured. It is natural at this point for some of the employees
of a company to try terminate their contracts and find a placement elsewhere, as they
fear that the company they currently work with will be liquidated.
Therefore, a ‘pre-pack’ within the local context could be coupled with the CRP and
used as a method of ‘last resort’ to avoid liquidation where other procedures could not
provide a beneficial return in view of all the interests of the parties mentioned under
Article 329B. In doing so, this would minimise the negative effect a court-supervised
reorganisation would have on the value of the company, while reaching the best
possible return for all the parties involved. In the UK, if the administrator is of the
opinion that the survival of a company could not be attained, or the second tier provides
a better return for all the creditors, then he or she has the authority to protect the
interests of the creditors.159 Under local law, there is no hierarchal institution but rather
the applicants and the court itself have to provide for and safeguard the joint interests of
the creditors, shareholders and employees. Such balance is attainable through the
implementation of a ‘pre-pack’.
158
159
Refer to p. 19.
56
When one takes a closer look at the CRP, protection is awarded to the parties on equal
footing, insisting that a balance should be found to satisfy each interest involved. In
reality, the perfect balance is hard to achieve as creditors claims rank higher than those
entitled to the shareholder upon winding up. Due to the financial position the company
finds itself in, there will definitely not be sufficient funds to satisfy all the claimants.160
There may be times when the creditors are awarded an adequate sum while the claims
of the shareholder are left in the insolvent shell.161 One party always benefits at the
detriment of another since the distribution is made out of the same pool of assets.
Despite the fact that our courts have the duty to consider the best interests of the
shareholders and creditors, apart from those of the company and its employees, this
balance could not always be attained especially since the company is operating at the
cusp of insolvency. The plausible route one should consider in the opinion of the author
is to find the best possible outcome from a global perspective that benefit all the parties
involved. There are times where the company itself could not be rescued as a going
concern, so the logical alternative in this case is to sell the business in order to retain
value of the company, rather than liquidating.
Every restructuring tool has its pros and cons, and each situation has to be assessed
according to the facts present. ‘Pre-packs’ should be accepted as an alternative debt
restructuring tool within Maltese insolvency law and practice, to provide a more cost
and time efficient alternative, mechanism of which has the potential to provide the best
outcome for all the parties involved.
160
161
57
While analysing the CRP, one should realise that this process is less beneficial for all
the parties involved when compared to the possibility of coupling such procedure with
that of a ‘pre-pack’. The exposure and expenses that are incurred through the formal
procedure damages the company’s reputation and value, which also could sever ties
with their suppliers and employees. These characteristics of a CRP therefore make it
harder for the company to survive as a going concern. ‘Pre-packaging’ prima facie
seems to be a more ideal method of restructuring especially when it is compared to a
fully-blown court-supervised procedure. Paring a ‘pre-pack’ with the CRP would be the
most beneficial route for all the parties involved, and will substantially provide more
advantageous results rather than if the company had to be liquidated.
58
BIBLIOGRAPHY
Books
• Cork K, Cork on Cork: Sir Kenneth Cork Takes Stock (Macmillan, London, 1988).
• Finch V, Corporate Insolvency Law: Perspectives and Principles (2 edn, Cambridge

nd
University Press 2009).
• Garrido J, Out-Of-Court Debt Restructuring (World Bank 2012).
• Mallon C and Waisman S, The Law And Practice Of Restructuring In The UK And
US (Oxford University Press 2011).
• Olivares-Caminal R, Expedited Corporate Debt Restructuring In The EU (Oxford
University Press 2015).
• Olivares-Caminal R, Debt Restructuring (Oxford University Press 2011).
Consultation Papers
UK
• R3, ‘Making a Career as an Insolvency Practitioner’
<https://www.r3.org.uk/media/documents/publications/professional/Making_a_Career
_Brochure_V2.pdf>
• R3, ‘Pre-Packages
Briefing’<https://www.r3.org.uk/media/documents/publications/press/Pre-
packs_briefing.pdf>
59
UN Documents
• 'UNCITRAL Legislative Guide On Insolvency Law' (Uncitral.org, 2004)
<http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/2004Guide.html>
Newspaper Articles
• Naudi M, 'First Maltese Company Enters Company Recovery Procedure' (Times of
Malta, 2007) <http://www.timesofmalta.com/articles/view/20071122/business-
news/first-maltese-company-enters-company-recovery-procedure.185318>
• 'Publication House Placed In Company Recovery Procedure - The Malta Independent'
(Independent.com.mt, 2009) <http://www.independent.com.mt/articles/2009-06-
14/news/publication-house-placed-in-company-recovery-procedure-226328/>
Theses and Dissertations
Malta
• Andrew Caruana Scicluna, ‘Legal Issues in Corporate Debt Restructuring’ (LL.D
Thesis, University of Malta, 2013) p. 90.
• Jaccarini N, ‘An Appraisal of the Maltese Court’ interpretation of the Company
Recovery Procedure’ (LL.D Thesis, University of Malta, 2014).
UK
• Wood J M, ‘Corporate Rescue: A Critical Analysis of its Fundamentals and
Existence’ (The University of Leeds School of Law, Centre for Business Law and
Practice 2013).
60
• Rizzo G, ‘Phoenix Operations in the Pre-Packaged Administration: A Rescue for the
Company or a Trap for the Creditors?’ (Queen Mary, University of London,
Dissertation in Commercial and Corporate Law 2013).
Reports
UK
• Finch V ‘Corporate Rescue: a Game of Three Halves’, (2012) Legal Studies 302.
• Sir Cork K, Insolvency Law And Practice: Report of the Review Committee (the Cork
committee) (HMSO 1982).
• 'Statement Of Insolvency Practice 16’ (2015)
<https://www.r3.org.uk/media/documents/technical_library/SIPS/SIP%2016%20Vers
ion%203%20Nov%202015.pdf> accessed 20 April 2016.>
Websites
Bulkat B, 'What Is The Disclosure Statement In Chapter 11 Bankruptcy? -
Alllaw.Com' (AllLaw.com)
<http://www.alllaw.com/articles/nolo/bankruptcy/disclosure-statement-chapter-
11.html> accessed 20 April 2016.
61

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‘PRE-PACKAGED’ REORGANISATION:

INTRODUCING AN ALTERNATIVE DEBT

Research Project Submitted in Partial Fulfillment of the degree of Bachelor of

Key Words: ‘Pre-packaging’ - Debt Restructuring Procedure - Corporate Rescue

restructuring mechaism that lies between a court-supervised Company Recovery

to be unethical and contrary to the rights provided by our Companies Act.

claim for the introduction of ‘pre-packs’ as an ancillary form of reorganisation, the

implement this form of debt restructuring.

DECELERATION OF AUTHENTICITY ................................................................... 2

Judgments available on the Ministry of Justice website:

Joseph Zammit McKeon, 27 October 2014

Zammit McKeon, 9th June 2009

Zammit McKeon,, 5 August 2009

Zammit McKeon, 2 November 2015

McKeon 27 March 2012.

Judgments available at the Archives of the Courts of Justice (Gozo):

(General), per Magistrate Dr Paul Coppini, 13 January 2006

• Chapter 16 of the Laws of Malta: Civil Code.

• Chapter 386 of the Laws of Malta: Companies Act.

• Title 11, Chapter 11, United States Bankruptcy Code.

• UK Enterprise Act 2002.

• UK Insolvency Act 1986.

• UK Insolvency Rules 1986.

Figure 1: Company prior to entering into ‘pre-packaged’ administration. ................... 37

patiently reviewing my work and promptly answering to all my queries.

encouraged me throughout the writing of this Research Project and assisted me by

CRP Company Recovery Procedure

CUP Cambridge University Press

DIP Debtor in Possession

FHCC First Hall Civil Court

Newco New Company

Oldco Old Company

OUP Oxford University Press

SIP 16 Statement of Insolvency Practice 16 (UK)

UNCITRAL United Nations Commission on International Trade Law

QFCH Qualifying Floating Charge Holder

forum is the court-supervised Company Recovery Procedure (‘CRP’), which is

regulated by the Companies Act (‘CA’). 1 Alternatively, a Private Workout is an

intervention from the court. Compromise or Arrangement reorganisation lies in

simultaneously strengthening the possibility of an out-of-court contractual agreement

procedure is known as ‘pre-packaged’ administration.

Ultimately, the rescue procedure pursued by the company in question depends on a

company, its employees and creditors.

RECOGNISED DEBT RESTRUCTURING PROCEDURES UNDER

1.1 Company Recovery Procedure

Company Recovery Procedure (‘CRP’) is a court-supervised reorganisation process

whether the survival of the company as a going concern, or the sanctioning of a

compromise or arrangement between the company and any of their creditors or

members could be achieved.4 In this situation, a special controller is appointed to ‘take

for how the situation can be improved.9

legislation, there is no hierarchal structure regarding what should prevail in conflicting

successful, the decision taken would be binding on all the creditors.

Locally, a moratorium is automatically granted upon application and continues to be so

procedural costs that accumulate as time passes.

its liquidation due to its inability to pay off its debts.

distressed financial position.

company’s creditors, issued a warrant of seizure on some of the publishing house’s

court’s registrar to erase P.E.G Ltd from the Registry of Companies.24

More Supermarkets Limited,25 Sakaras Holding Limited26 and Socjeta’ CI Gauci

document confirming the extraordinary resolution required to be put forth by the

directors or creditors. This document is considered to be a necessity at law that must be

submitted as a prerequisite of this procedure's initiation.28 Notwithstanding the fact that

repayment of their debts.

showroom and terminated all of their employees' contracts.34