Banking & Finance 2021 Comparisons

Last Updated October 06, 2021

Law and Practice


Fenech & Fenech Advocates was established in 1891 and is today one of the largest top-tier multidisciplinary law firms in Malta, recognised as a leader in practice areas including corporate/commercial, banking, financial services, taxation, litigation, mergers and acquisitions (M&A), aviation, shipping and maritime law, telecoms, media and technology (TMT) law, international trade and employment. The firm has a long-standing banking and finance practice, which advises on both the borrower and the lender side. Legal services are complemented by a full-service licensed corporate services-provider, Fenlex, offering company incorporation, trust, directorship, accounting and compliance services, amongst others.

With respect to the first half of 2021, some local banks reported reduced demand for corporate borrowing and personal loans because of the COVID-19 pandemic, while others reported an increase. Nevertheless, most reported that mortgage lending was on the rise, no doubt reflecting heightened activity in the residential property market, which appeared to be unfazed by the pandemic.

At the time of writing, it was still too early to determine what the direction and trends of the loan market would be for the second half of 2021, due to recent economic cycles. However, the outlook is, generally, positive. As of June 2021, it was reported that, while the level of general economic activity was still below pre-pandemic levels, the Maltese economy was said to be expanding at a similar pace to that experienced prior to the pandemic, with economic growth expected to remain strong.

Nevertheless, a limited downside risk exists in relation to the decision of the Financial Action Task Force (FATF) on 25 June 2021 to add Malta to the list of jurisdictions under increased monitoring.

While it is difficult to assess the full impact of this decision on the Maltese economy at this time, it is highly likely that contingency planning, together with the banking sector’s solid credit metrics and limited risk appetite, may contain the impact thereof. Nevertheless, the loan market may be impacted, as described in 1.6 Legal, Tax, Regulatory or Other Developments.

Most domestic credit institutions offered customers facing liquidity challenges due to the pandemic a moratorium on loan repayments. However, towards the end of June 2021, as economic activity began to normalise in most sectors and as the moratoria period for most loans began to expire, the value of loans subject to a moratorium decreased significantly.

Aside from the moratorium (where applicable), banks reported unchanged credit terms and conditions for non-financial corporations in Malta during the first quarter of 2021 and expected them to remain unchanged in the second quarter. This also largely applied with regard to credit for house purchases, as well as for consumer credit and other lending.

To alleviate the impact of the pandemic further, the Government launched the Malta Development Bank (MDB) COVID-19 Guarantee Scheme. The purpose of the scheme is to guarantee new loans granted by commercial banks to businesses facing cash-flow problems, up to a total portfolio volume of EUR777.8 million. By the end of June 2021, 606 facilities were approved under the aforesaid scheme.

There is currently no high-yield market in Malta.

Corporations have, in recent years, been consistently reducing their reliance on bank loans in favour of alternative sources of funding, such as those provided by financial institutions under the Financial Institutions Act (Chapter 376 of the Laws of Malta) (FIA). In fact, Malta has, since the enactment of the FIA in 1994, become home to numerous financial institutions.

However, this trend began to reverse with the onset of the pandemic, likely because of the availability of loan moratoria and guaranteed loans from banks.

Relying on alternative sources of funding as opposed to traditional bank financing generally entails a faster loan-approval process, less stringent requirements in terms of borrower credit score and provision of collateral. However, it can also entail higher interest rates, additional fees and shorter deadlines for full loan repayment.

No other banking and finance techniques reflecting the investor base and the needs of borrowers have been observed.

See 1.1 Impact of Regulatory Environment and Economic Cycles and 1.2 Impact of the COVID-19 Pandemic.

The decision of the FATF taken on 25 June 2021 to add Malta to the list of jurisdictions under increased monitoring is likely to impact the loan market in Malta, not least because of heightened supervision and enforcement of due diligence requirements in the loan-application process.

It was also reported in the local press that some level of reform of Malta’s corporate tax regime may be proposed as part of the country’s strategy to be removed from the FATF grey list, although few to no details have been formally announced by the Maltese government at the time of writing. It would appear that these reforms might involve the possible lengthening of the period within which certain tax refunds may be processed.

It was reported that the Ministry for Energy, Enterprise and Sustainable Development launched an initiative in June 2021 that will assist companies to invest in the environment, society and governance (ESG) as part of their operations and will showcase their contributions in this respect to both local and foreign investors (ESG Scoreboard).

The Malta Stock Exchange has recently introduced a framework for green bonds, which are a way to raise money for projects which contribute towards an environmental objective, such as climate-change mitigation, climate-change adaptation, pollution prevention, sustainable use of water and marine resources.

Developments in the private sphere have also been observed in this regard, with some Maltese banks committing to incorporate ESG factors in deciding whether to grant financing to clients and others, introducing a financing scheme aimed at assisting entities reduce their energy costs while reducing their negative impact on the environment.

When lending activities are funded through the taking of deposits of money or other means of raising money from the public, the entity (Bank) carrying out such activities in or from Malta will require a licence from the Malta Financial Services Authority (MFSA) under the Banking Act (BA) (Chapter 371, Laws of Malta).

When lending activities are not funded as aforesaid, the entity carrying out such activities regularly or habitually in or from Malta will generally require a licence as a financial institution from the MFSA under the FIA, unless already authorised under the BA.

However, a foreign lender that is licensed or holding an equivalent authorisation in a member state of the European Union (EU) or an EEA (European Economic Area) state is entitled to exercise its rights under EU Law.

Accordingly, a Bank licensed in an EU/EEA member state may operate in Malta through a branch or cross-border in accordance with and subject to the European Passport Rights for Credit Institutions Regulations (Maltese Subsidiary Legislation 371.11) and without requiring a licence under the BA from the MFSA.

Passport rights for financial institutions are available, inter alia, for payment services in terms of the EU Payment Services Directive and in respect of the distribution or redemption of electronic money in terms of the EU Electronic Money Directive.


If a licence under the BA is required, the statutory requirements and procedures that must be satisfied by the Bank are those applicable under the BA, the Banking Rules issued thereunder by the MFSA (particularly Banking Rule No 1 on the Application Procedures and Requirements for Authorisation of Licences for Banking Activities under the Banking Act 1994), and the applicable EU framework, including the Capital Requirements Regulation and the Capital Requirements Directive. The principal requirements can, in high-level outline, be summarised as follows:

  • it must be formed as a limited liability company under the Companies Act (Chapter 386 of the Laws of Malta) (CA) with its head office and registered office in Malta;
  • its initial capital must amount to not less than EUR5,000,000;
  • there are at least two individuals who effectively direct the business of the Bank;
  • the MFSA is notified of the identities of the shareholders or members, whether direct or indirect, that have qualifying holdings and of the amounts of those holdings or, where there are no qualifying holdings, of the 20 largest shareholders or members;
  • the MFSA is satisfied that those shareholders or members, in addition to controllers and all individuals who will effectively direct the business of the Bank, are suitable persons to ensure its sound and prudent management;
  • the MFSA is satisfied that, where there are close links between the Bank and another person or persons, those links do not prevent it from exercising effective supervision of the Bank, once in possession of a licence.


The Bank must apply in the prescribed form, together with the following supporting information/documentation to the MFSA, before commencing activities:

  • a copy of its Memorandum and Articles of Association (M&A);
  • audited financial statements for the last three years (if applicable);
  • a business plan, including the structure, organisation, management systems, governance arrangements and internal control systems of the prospective bank, which arrangements and systems must satisfy certain requirements as imposed by the MFSA; and
  • any other information that the MFSA may deem necessary for the purpose of determining the application.

The MFSA will determine each application for a licence within six months of receipt of the application. If the application is incomplete or further information is required, the MFSA shall determine the application within six months of that completed application or the furnishing of that further information. In any event, an application must be determined within 12 months of its receipt. Failure to determine an application within the aforementioned time will be deemed to constitute a refusal to grant a licence.

In granting a licence, the MFSA may subject it to any such conditions as it may deem appropriate, and when granting a licence, it may, from time to time, vary or revoke any condition so imposed or impose new conditions.

The Bank is entitled to appeal the MFSA’s refusal of a licence to the Financial Services Tribunal.

Financial Institutions

If a licence under the FIA is required, the statutory requirements and procedures to obtain it are set out in the FIA, the Financial Institution Rules issued thereunder by the MFSA (in particular, Financial Institution Rule No 1 on the Application Procedures and Requirements for Authorisation under the Financial Institutions Act 1994) and the EU Payment Services Directive and EU Electronic Money Directive, as applicable.

The requirements and procedures that need to be satisfied and followed are broadly similar to those listed above with respect to Banks, except that the initial capital of the financial institution is set by the MFSA on a case-by-case basis and is commensurate with the level of risk pertaining to the number and type of activities proposed to be undertaken and as laid out in the business plan submitted by the prospective applicant.

Foreign lenders must abide by the requirements and procedures described in 2.1 Authorisation to Provide Financing to a Company where applicable whenever transacting business “in or from Malta” or otherwise through any form of physical presence on the Maltese territory.

Under Maltese law, the granting of security or guarantees to foreign lenders is not restricted or impeded in any way.

No restrictions, controls, or other concerns on and regarding foreign currency exchange that might negatively affect trade are imposed in Malta.

Aside from any contractual restrictions, certain legislative restrictions will impact the borrower’s use of proceeds from loans or debt securities. These include sanctions (UN, EU and national) as well as laws against money laundering and the financing of terrorism. 

Both the agency and trust concepts are recognised under Maltese Law. Agency is regulated by the provisions governing a Mandate in the Civil Code (Chapter 16 of the Laws of Malta), as well as the provisions governing Agency in the Commercial Code (Chapter 13 of the Laws of Malta). Trust is regulated by the Trust and Trustees Act (Chapter 331 of the Laws of Malta) and, with regard to security trustees, by the relevant provisions in the Civil Code. Security trusts are the prevalent structure used in finance transactions.

Loan transfer in Malta usually takes place through assignment or subrogation, which are governed by the Civil Code. Novation is not considered a transfer but the extinguishment of the old obligation and the creation of a new one.


An assignment is not valid if it is not made in writing and, where the debts, rights or causes of action being assigned arise from public deeds, the assignment must take place by means of a public deed. The debtor’s consent is not required for the assignment to take place.

For the assignee to be able to exercise the rights assigned to him or her with regard to third parties, the debtor must acknowledge the assignment in writing unless he or she is formally notified of the assignment by judicial letter.

The assignment of a debt includes every security, privilege or hypothec attached to the debt. However, for the transfer of such security to be effective, Maltese law would, in some cases, require certain specific formalities, such as annotation of the transfer in a public register.

The Civil Code also regulates the transfer by assignment of debts that arise out of or in connection with the trade or business being carried on by the assignor qua trader and where the assignee is a person licensed to carry out the business of banking or the business of factoring in Malta or in another recognised jurisdiction.


A loan transfer through subrogation occurs by agreement through which the creditor subrogates the payer to all his or her rights against the debtor. In so doing, that subrogation must be expressly stated and made simultaneously with the payment.

The payer is subrogated to all the rights of the creditor against the debtor. These should include any security on those loans subject to certain formalities as previously held.

Aside from possible contractual restrictions, debt buy-back by the borrower or the sponsor is not prohibited by Maltese law.

According to the MFSA’s Capital Markets Rules (Rules) that transpose Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on Takeover Bids, an independent expert report on the consideration offered must be appended to the offer document and include:

  • an evaluation of the consideration being offered;
  • information as to whether the bid price can be defined as "an equitable price" or a "fair price"; and
  • confirmation that the offeror has sufficient resources to meet the consideration to be provided on full acceptance of the offer and to pay any debts incurred in connection with the offer.

The Rules also require that the offer document be made public by the offeror, not later than 21 calendar days from announcing their decision to launch the relative bid. However, prior to making it available to the public, the offer document must be communicated to the MFSA.

Only interest is considered to be income and, hence, potentially subject to tax. According to the Income Tax Act (Chapter 123 of the laws of Malta) (ITA), there should be no obligation on the payor to withhold tax at source upon the payment of interest to a lender if:

  • the lender is not resident in Malta for tax purposes; and
  • the lender, is not, respectively, engaged in trade or business in Malta through a permanent establishment (PE) and that the debt claim, in respect of which the interest is paid, is not effectively connected with that PE; and
  • the beneficial owner of the interest is a person not resident in Malta and that person is not owned and controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.

Maltese companies are subject to corporate tax on their worldwide income and capital gains, while foreign companies, incorporated outside Malta carrying out business activities in Malta, are liable to tax on income arising in Malta.

Income from a loan, including a loan that has characteristics of both debt and equity (for instance, where the lender is entitled to voting rights, to profits, etc), is considered interest for the purposes of the ITA and is not considered to be income from share capital or from an equity holding for the purposes of that Act.

Generally, the Civil Code restricts the charging of interest up to 8% per annum. Compounding of interest is also not enforceable in Malta unless the obligation to pay interest is due for a period of more than one year and certain procedures prescribed in the Civil Code are followed.

Limitations on the rate of interest and the compounding thereof do not apply, however, to certain debts or obligations as established by the Interest Rate (Exemption) Regulations (Subsidiary Legislation 16.06), and which include debts and other obligations:

  • which arise under a contract governed or otherwise regulated by the law of a country other than Malta; and
  • where the agreed rate of interest and/or compounding of interests are in accordance with international market conditions prevailing at the time that the debt or the obligation was contracted; and
  • where the payor of interest is not a natural person.

The assets typically available as collateral to lenders and the common types of security to which they can be subject, together with the formalities of that security, are as follows.

Immovable Property

Immovable property includes land, buildings, and any movable thing annexed permanently thereto, as well as certain real rights over such property including the right of emphyteusis or of usufruct.

Types of Security

Immovable property can be subject to two forms of security: hypothecs and privileges, both of which are regulated by the Civil Code. A hypothec is a right created over the property of a debtor or of a third party for the benefit of the creditor, whilst a privilege is a right of preference which the nature of a debt confers upon a creditor over other creditors, including hypothecary ones.

Hypothecs and privileges can be:

  • general – meaning they affect all the debtor’s property, present and future; or
  • special – meaning they affect only one or more of the debtor’s properties and generally continue to attach to such properties even if they are transferred to third parties (droit de suite).


Apart from legal and judicial hypothecs, there can also be conventional hypothecs in that they are established by means of a contract. In such cases, for the contract to be valid, it must be in the form of public deed and must specify the sum for which the hypothec is agreed upon.

In addition, the law mandates that all hypothecs must be registered in the public registry to be effectual by means of a note containing the particulars and in accordance with the formalities prescribed by law. In fact, a hypothec only ranks in priority from the date of registration.

The registration of a hypothec must be renewed before the lapse of 30 years from the registration thereof. Any such renewal must take place through a note presented to the Director of the Public Registry, similar to the one used to register the hypothec. A renewal made after the expiry of 30 years shall rank in priority from the date of the renewal.

All privileges, whether general or special, arise by operation of the law. Thus, no formalities are required for their establishment. The only formalities required are those relating to registration and the renewal thereof in the Public Registry, similar to the aforementioned formalities with respect to the registration of hypothecs.

Only special privileges over immovables and over certain movables can be registered and will be considered ineffectual unless they are so registered within the time prescribed by law.

Movable Property

The definition of movable property is very wide and ranges from tangible objects that can be moved from one place to another, such as machinery, aircraft or vessels, to intangible assets, such as shares or interests in companies. 

Types of Security & Formalities

Machinery or equipment

With regard to machinery or equipment, the most common forms of security are general hypothecs (as previously described), pledge and security by title transfer. The latter two are also regulated by the Civil Code, whereby:

  • a pledge is essentially a special privilege that confers upon a creditor the right to obtain payment from the thing pledged with privilege over other creditors. It may be given by the debtor himself or herself or by a third party for the debtor in relation to movable things, as well as debts and other rights over movable things.

A pledge exists only if the thing pledged or the document conferring the exclusive right to the disposal of the thing is delivered to and retained by the creditor or a third party chosen by the parties. Where there is no such document, the pledge must result from a public deed or a private writing, which must be acknowledged in writing by the debtor, or which is notified to the debtor by means of a judicial act.

Since ownership of the thing pledged is not transferred to the creditor, any agreement allowing the latter to appropriate the thing pledged or to dispose of it without complying with certain formalities is void. An agreement depriving the creditor or the debtor of the right to demand the sale of the pledge is also void.

  • Security by title transfer is a contract whereby the debtor, or a third party for the debtor, transfers or assigns movable things to secure a present or future obligation to a creditor (present or future) or trustee for the benefit of the creditor. Subject to the observance of certain formalities pertaining to the type of movable being transferred, ownership of the property is acquired by the creditor as soon as the transferor and the creditor enter into an agreement in writing, designating:
    1. the property being transferred;
    2. the secured obligations; and
    3. the rights of the creditor in the case of default.

For the security by title transfer to have effect against third parties, certain formalities must be observed. For instance, if the property being transferred is property that is registered in a public registry, the transfer must be registered in the relevant register.

The above (as well as a pledge of shares as discussed below) must, however, be considered in light of the provisions of the Financial Collateral Arrangements Regulations (Subsidiary Legislation 459.01) (FCAR) which regulates the provision of financial collateral arrangements under certain defined circumstances by means of a pledge or title transfer

Vessels and aircraft

Vessels and aircraft may be subject to various forms of security, such as general hypothecs and special privileges. However, the most common form of security over such assets is, arguably, the mortgage, which is regulated by the Merchant Shipping Act (Chapter 234 of the Laws of Malta) (MSA) and the Aircraft Registration Act (Chapter 503 of the Laws of Malta) (ARA), respectively.

A vessel or aircraft registered in Malta or a share therein may be made a security for any debt or other obligation by means of an instrument creating a mortgage executed by the mortgagor in favour of the mortgagee in the presence of, and attested by, a witness or witnesses, in the form specified by law. 

A mortgage shall have no effect unless and until the relative instrument creating the mortgage is recorded in the relevant register. If there is more than one mortgage registered in respect of the same aircraft or vessel, the mortgagees are entitled in priority, one over the other, according to the date and the time at which each mortgage is recorded in the relevant register.

A foreign mortgage over a vessel or aircraft not registered in Malta is recognised and considered to be equivalent to domestic mortgages if:

  • it is validly registered in the relevant registry of the country under whose laws the vessel or aircraft is documented;
  • that registry is a public registry;
  • under the laws of the country where the mortgage is registered, that mortgage is generally granted equivalent status as a mortgage under Maltese law. 


The CA mandates that, in the case of a public company, shares may be pledged unless otherwise provided in the M&A of the company or under the conditions of issue of those shares. In the case of a private company, however, shares may not be pledged unless the M&A of the company specifically permits this.

A pledge of shares is constituted by means of a private writing entered between the pledgor and the pledgee with notice thereof being delivered by the pledgor or the pledgee to the Registrar of Companies for registration within 14 days of the granting of the pledge.

The company whose shares have been pledged shall also be notified of the pledge in writing within the specified period and the company shall record that fact in the register of holders of the respective shares. The pledge of shares shall be effective in relation to a third party only after the registration by the Registrar of the notice previously referred to.

Intellectual property

To date, the only intellectual property that can be used as security for an obligation under Maltese Law are trade marks. By virtue of the Trademarks Act (Cap. 597 of the laws of Malta) and the Trademark Rules (Subsidiary Legislation 597.04), a trade mark can be granted by way of security through a pledge. Similar laws with respect to other intellectual property assets (patents, designs and copyright) have not been enacted at the time of writing.

A general hypothec (see 5.1 Assets and Forms of Security) constitutes a universal security interest over all present and future assets of a debtor. When the debtor is a company, that company has the power to hypothecate (whether by general or special hypothec) or charge its undertakings, property and uncalled capital or any part thereof as security for its obligations or for those of any third party, unless its M&A provides otherwise.

In terms of the CA, a company can guarantee the obligations of a third party, provided this is not prohibited by its M&A. The CA, however, restricts, in Article 110, subject to certain exceptions, the granting of “financial assistance” (see 5.4 Restrictions on Target).

Banks and financial institutions cannot grant any credit facility against the security of their own shares or against any other securities issued by them or against any shares or any other securities of another body corporate in which the credit or financial institution has control.

Under Article 110 of the CA, it is not lawful for a company to give, whether directly or indirectly (and whether by means of a loan, guarantee, the provision of security or otherwise) any financial assistance for the purpose of an acquisition or subscription by any person of its own shares.

However, this prohibition will not apply if the company granting the financial assistance is a private company and the following requirements are fulfilled:

  • the board of directors has resolved to authorise the grant of financial assistance for a specific transaction;
  • an extraordinary resolution of the general meeting of the company has been passed affirming the resolution taken, pursuant to the previous paragraph; and
  • a declaration signed by two directors (or one director where the board is composed of only one director), confirming that the requirements set out in the previous two paragraphs have been satisfied, is duly filed with the Registrar of Companies prior to the granting of the financial assistance.

There are no other particular restrictions or significant costs. The prohibition and procedures outlined in 5.4 Restrictions on Target do not apply to transactions effected with a view to the acquisition of shares by or for the company’s employees or where the provision of financial assistance is made by an investment company with fixed-share capital for the purpose of or in connection with the acquisition of its fully paid-up shares by another undertaking. However, in both of these cases, the transaction cannot have the effect of reducing the net assets of the company below a certain amount, as specified by the CA.

Security interests cannot exist independently of the principal obligations which they seek to secure. Accordingly, if the principal obligation being secured is extinguished, the security should also be extinguished. In some cases, such as privileges and hypothecs, security may also be extinguished through prescription or if the creditor renounces the security.

Notwithstanding this, in most cases certain formalities need to be adhered to.

Hypothecs and Privileges

Generally, hypothecs and special privileges that are subject to registration are released through the cancellation of the registration which occurs with the consent of the creditor given in a public deed, or by virtue of a judgment of the competent court.

Subsequently, a note must be filed with the Director of the Public Registry containing certain particulars, such as the progressive number and the year of the registration and an indication of the judgment, or deed, if any, under which the cancellation is demanded. In the case of a public deed, that note must be signed by the relevant notary and, in the case of a judgment, the note must be signed by the registrar of the court by which the judgment was delivered.


With regard to a pledge governed by the provisions of the Civil Code, no specific formalities as to its release are specified. Thus, the pledge would be released with the restitution by the creditor to the debtor of the thing pledged or of the document conferring the exclusive right to the disposal of the thing.

However, where the thing pledged is a debt or other right in respect of which there is no such document, the pledge is released with the same formalities by which it was created, which is either by public deed or private writing, and notice of that release is given to the debtor of the debt or right by means of a judicial act or that debtor acknowledges the release in writing.

With regard to a pledge of shares in a company, that pledge is released when a notice of termination of the pledge is delivered by the pledgee to the Registrar of Companies for registration, within 14 days of the termination of the pledge. The company whose shares have been pledged, must also be notified in writing of the termination of the pledge within the aforementioned period, which will thereafter record that fact in the register of holders of the respective shares.

Security by Title Transfer

The release of this type of security takes place when the creditor returns the property to the transferor by carrying out any such formal and other acts as may be required. The terms of any agreement between the parties relating to the return of the property is enforceable in accordance with its terms.

Registered Mortgages

When a registered mortgage in relation to an aircraft or a ship is discharged, an entry to this effect in the relevant register will be made upon the production of the mortgage deed with a receipt for the secured money endorsed thereon, duly signed by the creditor and attested by a witness.   

The priority of competing security interests is regulated by the laws governing the security interests themselves, ie, the Civil Code with regard to privileges, hypothecs, pledge and security by title transfer, and the MSA or the ARA with regard to mortgages and other security interests available against ships or aircraft, respectively.

Generally, privileges rank in priority over any other security and, among themselves, rank according to the particular nature of the debt as established by law. However, mortgages rank in priority over hypothecs and, among themselves, rank according to their date of registration in the respective public register. 

Under Maltese Law, a creditor may subordinate, postpone, waive or modify its existing or future rights of payment, enforcement, ranking or other similar existing or future rights in favour of another person. This may be made by agreement with or by a unilateral declaration to any person (or class of persons), including another creditor (or class of creditors), whether determined or yet to be determined at the time of the agreement or the declaration.

The agreement or declaration is valid and enforceable between the relevant parties in accordance with its own terms if made in writing, without the need of any other formality or registration. However, to have effect in relation to third parties, that agreement or declaration will need to be registered in the relevant public registry in which the above-mentioned existing or future rights are registered.

The agreement or declaration will not be affected by the insolvency of any person that is bound by or entitled under that agreement or declaration or of the relevant debtor.

The Circumstances under which Collateral Can Be Enforced

These are largely determined by the terms of the relevant loan agreement and/or security document, but would usually occur upon an event of default (as defined by the agreement) committed by the borrower or upon the latter’s insolvency.

Overview of Methods, Procedures, Restrictions and Concerns

Enforcement of loans

The Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta) (the COCP) contains special procedures that allow lenders to retrieve the debt due to them in an expedited manner.

The first of these procedures is that found in Article 166A of the COCP, which applies in the context of the recovery of a debt which is certain, liquidated, and due, and where the amount thereof does not exceed EUR25,000. The debtor, who cannot be a minor or incapacitated, must also be present in Malta.

The procedure consists in filing a judicial letter which must be in the prescribed form and content and confirmed on oath by the creditor. The judicial letter is then served upon the debtor. If the debtor does not oppose the claim within 30 days from the notification, the judicial letter will, after it is registered as prescribed by the COCP, constitute an executive title and can be enforced by the creditor as though it were a final judgment of a competent court.

The second procedure is located in Article 167 of the COCP. It is reserved for the recovery of a debt, certain, liquidated and due, that falls within the jurisdiction of the superior courts which, if certain conditions are met, may deliver judgment without proceeding to trial.

For instance, if the borrower fails to appear in court on the appointed date or appears and does not impugn the proceedings on the ground of irregularity or inapplicability or does not satisfy the court that he or she has a prima facie defence to the action, the court will give judgment allowing the creditor’s claim.

However, if the requirements for this special summary procedure are not met, the lender would have to go to trial to enforce the loan. The court in which the action is filed generally depends on the amount of the debt that is due.

Aside from the foregoing scenarios, contracts received before a notary public in Malta in respect of a debt which is certain, liquidated and due constitute an executive title in and of themselves and can be enforced outside of the judicial framework.

After obtaining an executive title as aforementioned, the lender may apply for the issue of one or more executive warrants available at law to enforce the title. If the lender has, prior to obtaining an executive title, obtained a precautionary warrant, they may convert that precautionary warrant into an executive one upon obtaining judgment in their favour.

Enforcement of collateral

A hypothecary creditor may demand the judicial sale of the asset charged with the hypothec not less than 30 days after calling upon the debtor or third-party possessor to discharge the debt or to surrender the asset.

In the case of a pledge governed by the Civil Code, the pledgee cannot dispose of the thing pledged in the case of non-payment. Generally, however, the pledgee will cause the thing to be sold by auction under the authority of the court. To this end, the creditor may file an application and the court can order the sale of the thing pledged upon receiving the application if the debtor fails to file an answer to the application within the time required by law or makes no opposition to the demand.

In the case of a pledge of shares in a company, generally, the pledgee is also entitled to dispose of the shares which are pledged in his or her favour or appropriate and acquire them himself or herself in settlement of the debt due to him or her upon giving notice by judicial act to the pledgor and the company. In executing this, the pledgee must adhere to several conditions prescribed by the CA, such as conditions in relation to the value of the shares and pre-emption rights, among others.

With regard to security by title transfer under the Civil Code, the terms of the agreement relating to the transfer of property by way of security regulates all matters between the debtor and the creditor, including the rights of the creditor to enforce the security in the case of default.

Unless the terms of the agreement between the parties states otherwise, the creditor, upon giving notice in writing to the debtor and the transferor of property by way of security (if different), will be entitled to realise the property transferred in the event of a default in one of the following ways:

  • by sale, including sale by judicial auction; or
  • by setting off or netting their value and applying their value in discharge of the secured obligations. However, this is only possible if it has been expressly agreed to in the agreement between the parties.

A creditor must exercise their rights as previously described in a commercially reasonable manner, shall be bound by fiduciary obligations and shall be bound to account to the debtor as to the value used for such enforcement.

When the collateral consists of a registered mortgage over an aircraft or ship, the mortgagee is, in the event of default of any term or condition of the mortgage and after giving written notice to the debtor, entitled to, inter alia:

  • take possession of the asset; and
  • sell the asset with the concurrence of every prior mortgagee (if any).

In the case of a mortgage over an aircraft, the mortgagee must exercise the aforesaid rights in accordance with the terms of any agreement governing the mortgage and without the need for court approval. However, to the extent that any mortgagee seeks the support of the court due to any hindrance to the exercise of their rights, the court must render full support to the mortgagee as expeditiously as possible.

The enforcement terms of financial collateral arrangements are specified in the FCAR, which transposes the provisions of Directive 2002/47/EC on financial collateral arrangements and Directive 2009/44/ EC of the European Parliament and of the Council of 6 May 2009 amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC.

By way of example, unless the parties to a security financial collateral arrangement otherwise agree, the manner of realising the financial collateral shall not require prior notice of the intention to realise or that the terms of the realisation be approved by any court, public officer or other person or that the realisation be conducted by sale, auction or in any other prescribed manner or that any additional time-period must have elapsed.

In civil and commercial matters, Maltese courts will be expected to uphold:

  • a foreign law as the governing law of the contract subject and pursuant to Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I Regulation);
  • the submission to a foreign jurisdiction with regard to the contract subject to and pursuant to Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Recast Regulation); and
  • a waiver of immunity by the parties to the contract.

Judgment of a Foreign Court

In civil and commercial matters, domestic courts will recognise and enforce a final judgment of an EU member state court without re-examination of the matter, pursuant to and subject to the Brussels Recast Regulation.

In the case of a final judgment delivered by a court of a non-EU member state, the domestic courts will recognise and enforce such a judgment without re-examination of the matter in accordance with and subject to any relevant multi-lateral or bilateral arrangement between Malta and the respective country in which the foreign court is located or, failing this, in accordance with and subject to national law, which is the Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta).

Arbitral Award

Foreign arbitration awards to which the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 apply, will be enforced by domestic courts upon their registration with the Malta Arbitration Centre (MAC).

The Arbitration Act (Chapter 387 of the Laws of Malta) lays down that these awards shall be treated as executive titles and enforceable in Malta in the same manner as if such awards were domestic arbitration awards. Recognition and enforcement of the award may be refused in the instances stipulated by the Arbitration Act.

Under Maltese law, there are no other matters that might impact a foreign lender’s ability to enforce its rights under a loan or security agreement, provided the loan or security agreement does not contain provisions that infringe any laws considered to be of a public policy nature.

If a company is viable, the following procedures are contemplated by the CA:

  • a compromise or arrangement between a company and its creditors – this involves a procedure whereby the court orders a meeting between the debtor company and its creditor(s) for the negotiation of a compromise. If that compromise meets the approval of creditors and the debtor company, it will be binding thereon;
  • an out-of-court voluntary mediation – this involves an out-of-court compromise or arrangement between the debtor company and its creditors by unanimous agreement and through the intervention of a mediator chosen by the parties themselves; and 
  • a company recovery procedure: this involves giving a company in financial difficulty the opportunity to recover by means of a moratorium on court actions against it.

As a general rule, creditors cannot take legal action on commencement of insolvency proceedings unless authorised to do so by the competent court.

However, some exceptions exist.

For instance, all registered mortgages, any special privileges and all actions and claims to which an aircraft or ship may be subject shall not be affected by the bankruptcy and, or insolvency of the mortgagor or owner, happening after the date on which the mortgage was created, or after the special privilege, action or claim arose.

Accordingly, any judicial sale proceedings instituted, and any other enforcement actions initiated by any registered mortgagee or privileged creditor, shall not be interrupted or in any way hindered by any curator in bankruptcy and, or insolvency, or any liquidator, receiver or trustee of the owner of the asset for any cause other than a cause that could be set up by the owner.

Another exception lies with financial collateral arrangements. Among other things, these are valid and enforceable in accordance with the terms of the relative agreement, notwithstanding the commencement or continuation of winding-up proceedings or reorganisation measures in respect of the collateral-provider or collateral-taker.

See also 7.5 Risk Areas for Lenders.

With respect to secured creditors, see 5.7 Rules Governing the Priority of Competing Security Interests. Unsecured creditors rank pari passu unless varied by agreement (also as indicated in 5.7 Rules Governing the Priority of Competing Security Interests). Ranking is always subject to creditors which are preferred by law, such as the Government in the case of unpaid taxes or employees’ wages.

The Maltese legal system does not generally recognise the concept of equity, other than in very limited specific cases. According to the CA, a sum due to a shareholder of a company, as a shareholder, by way of dividends, profits or otherwise will not be deemed to be a debt of the company in the case of competition between that shareholder and any other creditor who is not a shareholder of the company, but any such sum may be taken into account for the purpose of the final adjustment of the rights of the shareholders among themselves.

Without prejudice to some exceptions relating to financial collateral arrangements provided for in the FCAR, if the borrower is a limited-liability company, any obligation incurred by the company, within six months before the dissolution of the company, is be deemed to be a fraudulent preference against its creditors if it constitutes a transaction at an undervalue or if a preference is given (as defined in the CA). This is the case unless the lender proves that it did not know and did not have reason to believe that the company was likely to be dissolved by reason of insolvency. In the event of the company being so dissolved, every such fraudulent preference will be void.

When the borrower is a natural person (trader) or a commercial partnership (excluding a limited-liability company) that has become bankrupt, any obligation incurred by it, including any loan taken out and any corresponding security provided, under a gratuitous title for the purpose of defrauding creditors, shall be null and void even though the lender be in good faith.

If incurred under an onerous title, the obligation can be annulled if there is fraud also on the part of the lender.

When it comes to project finance in Malta, the MDB is, by far, one of the most noteworthy developments in recent years. It was established in 2017 when the Malta Development Bank Act (Chapter 574 of the Laws of Malta) came into force with the approval of the EU Commission from a State Aid perspective.

The MDB contributes towards sustainable economic development in Malta by, inter alia, supporting private sector development (particularly SMEs), skills and technology and infrastructure development of regional or national importance. It does this by offering financing facilities (loans, investments and/or guarantees) that support operations where the market is unable or unwilling to finance them on its own in whole or part.

Aside from the foregoing, project financing in Malta is also facilitated through various government financing schemes, such as those administered by Malta Enterprise established under the Malta Enterprise Act (Chapter 463 of the Laws of Malta). The latter is the nation's economic development agency that has essentially been in operation since the 1950s and is in charge of attracting foreign direct investment and facilitating the growth of national entrepreneurial initiatives.

Since Malta is a member of the EU, both public and private organisations can also apply for EU funds to finance a variety of projects by tapping into the appropriate EU funding programme accordingly.

Government entities set up to administer and manage EU funds include the Planning and Priorities Co-ordination Division (PPCD) which falls under the responsibilities of the Parliamentary Secretariat for European Funds and Social Dialogue and deals with the European Regional Development Fund, the European Social Fund and the Cohesion Fund.

One of the first public-private partnerships (PPPs) implemented in Malta was for urban and rural landscaping by the Ministry of Finance in 2002. Since then, PPPs have been widely relied on as a means of executing several national-interest projects with private-sector investment, from residential homes for the elderly to healthcare and promoting Malta’s yachting industry, among others.

Various areas of laws impact PPPs in Malta, including corporate law, civil law, public procurement law (based on the EU’s public procurement legislative regime) and administrative law, among others. Nevertheless, Malta seems to lack a specific one-stop shop PPP regulatory and institutional framework.

The procedures leading up to a PPP in Malta normally involve the preparation of a specific case study, involving a cost-benefit analysis, to justify the PPP, followed by a risk assessment to determine feasibility, financial and technical risks, potential delays and public-interest considerations.

Complex projects usually necessitate Pre-Qualification Questionnaires (PPQs) to exclude ineligible bidders at an early stage of the process. The remaining bidders are then invited to submit a more detailed proposal, before final bids and selection take place by a committee composed of different professionals.

The most economically advantageous tender (MEAT) system is normally used to select the winning bidder, which translates into the cheapest technically compliant bid, or the bid with the best price-quality ratio.

PPPs that involve the surrender and/or exploitation of public land tend to elicit a negative response from society at large. Such a response may stand in the way of such PPPs and the projects in question in terms of possible delays or scaling down if enough civil pressure is mounted against them.

Approval for project finance transactions is normally required of the minister under whose portfolio the project falls, as well as the minister responsible for finance. Approval from a planning and environmental perspective would also be required if the project involves a development aspect, as is normally the case. Projects of national importance should also undergo parliamentary scrutiny.

Any requirement for taxes, fees or other charges will depend on the specific nature of the project. It is unlikely that any relevant transaction documents would need to be registered or filed with any government body, unless those documents create security and/or real rights over immovable property which require registration.

With regard to the governing law for project finance transaction documents, the governing law should, in most cases, be the laws of Malta. The reason for this is that the location of implementation is, generally, Malta and/or most parties to the project transaction are Maltese.

Malta currently has no known deposits of fossil fuels that would enable it to produce oil or gas. It thus relies heavily on imports to cover its energy requirements. In this respect, the Ministry for Energy, Enterprise and Sustainable Development is currently the responsible government body under which several utility organisations, set up by law, operate. One of the most important is Enemalta plc (Chapter 536 of the Laws of Malta) which is the leading energy service-provider in the country.

Recently, the Exclusive Economic Zone Act, 2021 (Act No. XLVII of 2021) was enacted, which gives the Minister responsible the power to establish an exclusive economic zone wherein Malta has, inter alia, sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources of the sea bed and its subsoil.

The issues that need to be considered when structuring deals, in addition to the legal form of the project company and the relevant laws to which they are subject, depends on the type of deal in question.

For instance, with regard to PPPs, while there are already some pre-defined models thereof, such as the design-build-finance-maintain-operate (DBFMO) model or the concession model, the nature of a PPP is ultimately determined by the relevant contractual agreement between the parties, wherein the terms can be tailored to the specific situation at hand.

Therefore, PPPs may take different forms and transfer risks to the private sector in varying degrees. Nevertheless, almost all PPP contracts have a long duration (usually ranging from ten to 25 years) and feature several important provisions establishing the responsibilities of the parties, compensation and penalties, and procedures to handle disputes and termination, amongst others.

Aside from project specifications, the project company must be in a form recognised by law and will be required to adhere to both local and EU laws that are applicable to the sector in which the project falls. For large projects, it is normal for different private bidders to leverage their resources and expertise by forming and bidding as a consortium or joint venture.

Aside from restrictions arising from domestic, EU or UN sanctions, there are no notable restrictions on foreign investment. In particular, as an EU member state and subject to the Treaty on the Functioning of the EU, Malta is bound to guarantee the four freedoms of the internal market, which includes the free movement of capital across the EU.

For typical project financing sources, see 8.1 Introduction to Project Finance. These, together with financing by banks and financial institutions, constitute the bulk of project financing in Malta.

With regard to export credit agency financings, there is currently no known government support in this respect, while, with regard to project bonds, although this form of financing is rare in Malta, there have been some developments in this respect in recent years. See 1.7 Developments in Environmental, Social and Governance (ESG) or Sustainability Lending in relation to Malta Stock Exchange framework for green bonds.

There are no issues and considerations in this regard, since Malta has few to no natural resources.

There are several laws regulating environment and health and safety issues in the context of projects. These include:

  • the Development Planning Act (Chapter 552 of the Laws of Malta) that provides for sustainable planning and management of development as well as for the establishment of an authority - the Planning Authority - with powers to that effect and for matters connected therewith;
  • the Environment Protection Act (Chapter 549 of the Laws of Malta) that provides for the protection of the environment and for the establishment of an authority - the Environment and Resources Authority - with powers to that effect and for matters connected therewith; and
  • the Occupational Health and Safety Authority Act (Chapter 424 of the Laws of Malta) that provides, as the name implies, for the establishment of an authority - the Occupational Health and Safety Authority - and for the exercise, by or on behalf of that Authority, of regulatory functions regarding resources relating to occupational health and safety and to make provision with respect to matters connected therewith.

Several regulations have been enacted under each of these Acts, the applicability of which depends on the type of project in question.        

Fenech & Fenech Advocates

198, Old Bakery Street
VLT 1455

+356 2124 1232
Author Business Card

Law and Practice in Malta


Fenech & Fenech Advocates was established in 1891 and is today one of the largest top-tier multidisciplinary law firms in Malta, recognised as a leader in practice areas including corporate/commercial, banking, financial services, taxation, litigation, mergers and acquisitions (M&A), aviation, shipping and maritime law, telecoms, media and technology (TMT) law, international trade and employment. The firm has a long-standing banking and finance practice, which advises on both the borrower and the lender side. Legal services are complemented by a full-service licensed corporate services-provider, Fenlex, offering company incorporation, trust, directorship, accounting and compliance services, amongst others.