The law of ranking : are all creditors on an equal footing?

Abstract

Where the law is uncertain there is no law. This maxim succinctly describes the issue that will be analysed in this thesis which relates to ambiguities in the law of ranking in Malta and its effect on the general body of creditors. The Civil Code prescribes that upon bankruptcy or liquidation, a debtor’s assets will be equally distributed amongst its creditors unless there exist between them lawful causes of preference. Creditors may acquire such preferences through the act of registration of a privilege or hypothec as required by law. In addition this general law, there are special laws which grant a priority ranking to a certain class of creditors, namely governmental departments. The issue lies in the fact that there is no direct or specific mention of the requirement of registration in order to obtain this priority. This therefore leaves room for interpretation in situations where there are competing claims to a debtor’s assets by private and public creditors, and is evidenced by conflicting judgments handed by the Maltese Courts. This seems to cause a split-level between different classes of creditors and casts a shadow of doubt on the principle of equality. As a result, this thesis will provide a critical examination of the system of ranking in Malta with a view to answer the question of whether creditors are being treated in an equal and fair manner, and to put forward possible solutions in this regard.