The role of directors and insolvency Practitioners in balancing stakeholder interests under the Pre-Insolvency Act

Abstract

The principle that directors’ duties are to be exercised in the best interests of the company which shifts with the company's financial health is well-recognised. Generally, in a solvent company, it is the shareholders’ interests that steer the direction of directors’ decisions, mirroring their stakes and expectations as investors. This alignment changes drastically when the tide turns towards financial distress. In such scenarios, the interests of creditors gain prominence, reflecting their financial exposure and the inherent risks they face as the company edges to insolvency. Navigating through these established norms, this study introduces a more complex and less defined territory: the pre-insolvency phase. Introduced by the Pre-Insolvency Act this intermediary stage represents a critical juncture that exists in the grey area between solvency and insolvency. It is during this phase that the conventional hierarchy of stakeholder interests—once clear and unambiguous—begins to blur. This study analysed the role of directors and Insolvency Practitioners particularly on how their collaborative roles support the paramount objective of upholding the ‘best-interests-of the company’ during this phase. Additionally, by examining the legal framework, the study assessed whether the Pre-Insolvency Act implicitly leans towards creditor protection or if it maintains an equitable balance among all parties involved, ensuring a fair and just approach to navigating the complexities of this delicate phase. To conduct this the dissertation is divided into three distinct chapters. The first chapter lays the groundwork by situating the Act within the broader context of Maltese debt restructuring procedures which will help the reader understand the rationale behind the Act's specific approach. Chapter two shifts the focus to the interaction between directors and IPs by examining their collaborative efforts in considering stakeholder interests. In the third chapter, the author proposes four recommendations derived from a comparative study of similar laws in various countries.