Relocation of companies to and from Malta : freedom of establishment and insolvency issues

Abstract

Purpose: This term paper discusses the degree of difficulty involved in the relocation of companies facing insolvency issues, to or from Malta as an EU member state. Methodology/approach: The key reference sources studied to answer the paper’s main question were the newly recast EU Insolvency Regulation, and freedom of establishment law. Although by design "freedom of establishment" is extensively anti restrictive to companies wishing to set up shop freely anywhere within the Union, it is interesting to see how insolvency regulation can hinder this privilege. Conclusions: There is a marked difference between a company’s shift of its centre of main interests before and after an insolvency petition. The newly imposed three-month period for migrations before the petition seems irrational. In addition, albeit that EIR seeks to prevent abusive forum shopping, companies not having the intention of maximizing net assets may still try to manipulate the COMI to evade their creditors. Therefore, it is questionable whether EIR’s impositions on forum shopping are forceful enough to completely stop this type of bankruptcy tourism. For companies having genuine intentions to migrate to regain their capital and make a fresh start, EIR provides for new proceedings such as "hybrid proceedings" and "pre-insolvency proceedings". Originality/value: Even though new provisions in EIR promote company restructuring, there are still some regulations which need to be ameliorated. Restructuring methods supported by Maltese law, such as company recovery procedure, can also be improved for better harmonization with EIR.