Inside Malta’s New Rescue Law: How a Restructuring Plan Becomes Reality

Imagine a business that is under pressure. Sales have dipped. A key contract is at risk. Cash is tight. The board meets and, after honest analysis, concludes the company faces a likelihood of insolvency — that is, a state of financial difficulty falling short of actual insolvency but sufficiently serious to warrant early intervention — unless decisive action is taken.

Under the Pre-Insolvency Act (hereinafter the “Act”), enacted by Act XXIV of 2022 to partially transpose Directive (EU) 2019/1023 on preventive restructuring frameworks, that company may apply to the Civil Court (Commercial Section) to open a preventive restructuring procedure. The application must be made or endorsed by a licensed insolvency practitioner — a professional regulated under the Insolvency Practitioners Act. This is deliberate: the process begins with a regulated professional acting as gatekeeper and, once the court admits the case, as steward.

Three routes in

There are three routes into the procedure, each reflecting a different stage of creditor engagement.

The standard procedure suits companies that need the full protective envelope, including a time-limited moratorium — a legally imposed stay on creditor enforcement actions — while a plan is developed. The pre-formulated procedure is for companies that already have a plan drafted but not yet voted on by the affected parties. The pre-approved procedure is for plans that have already been approved by creditors and that only require the court’s confirmation.

The court must hear the application within thirty days of filing. It decides whether the chosen route fits the circumstances, and must also be satisfied that the application is complete, that the type of procedure requested is suitable, and that opening the procedure would realistically facilitate the confirmation of a plan that meets the statute’s tests for fairness and viability. Critically, a debtor may only access these restructuring procedures if it has reasonable prospects of viability — meaning that the debtor’s economic viability is likely to be preserved or restored as a result of being placed under a preventive restructuring procedure. This viability threshold serves as a gateway condition: the court must be satisfied that the restructuring order would enable the debtor to restructure with a view to preventing insolvency and ensuring its economic viability, having regard to the interests of creditors, equity holders, employees, and other stakeholders. The Act further requires that the debtor has not become liable for a debt that remained unsatisfied for twenty-four weeks following enforcement of an executive title, has not otherwise been declared by a court to be unable to pay its debts, and has not been admitted to preventive restructuring procedures within the preceding three years. These eligibility bars ensure that the procedure is reserved for debtors with genuine rescue potential rather than those whose financial distress has progressed beyond the point where restructuring could realistically succeed.

Debtor stays in control — with guardrails

Once admitted, the company remains in control of its day-to-day operations on a debtor-in-possession basis (meaning the company’s directors continue to manage the business, rather than an outside administrator taking charge), subject to sensible guardrails. Without the insolvency practitioner’s prior approval, it cannot make redundancies on grounds of redundancy, dispose of or encumber assets, or enter into contractual commitments exceeding six months in duration. The point is to protect the estate and keep stakeholders informed while work on the restructuring proceeds.

The breathing space: the stay on enforcement

In the standard track, the filing of the application triggers a stay of individual enforcement actions under Article 25 of the Act — one of the most consequential features of the regime. The stay operates for an initial period of four months and covers five distinct limbs:

• the execution of monetary claims against the debtor is stayed, with the exclusion only of workers’ claims;
• in respect of essential executory contracts (contracts whose continued performance is necessary for the debtor’s day-to-day business), counterparties may not exercise rights of termination, acceleration, modification, suspension or repossession solely by reason of the debtor’s entry into restructuring;
• no precautionary or executive warrants may be made or continued against the debtor or its property;
• no arbitration proceedings may be commenced or continued; and
• no judicial proceedings may be commenced or continued against the debtor.

The standard procedure may be extended in four-month increments up to a maximum of twelve months, subject to court approval. The stay may be extended alongside each renewal, provided the court is satisfied the extension is reasonable, having regard to the debtor’s prospects of viability and the interests of the affected parties. While pre-formulated procedure also benefits from the stay the pre-approved procedure does not carry a stay since the plan would have already been voted on and only requires judicial confirmation.

Importantly, the Act also contains a broader ipso facto protection under Article 16(4): any contractual provision that purports to allow a counterparty to terminate, accelerate, modify, suspend or repossess solely by reason of the debtor’s commencement of preventive restructuring is declared null and void. This protection applies across all three tracks and reinforces the policy of giving the debtor a genuine chance to restructure without being undermined by opportunistic contract terminations.

The restructuring plan

The heart of the process is the restructuring plan. It is not just a high-level idea; it is a detailed document that must be prepared in accordance with the Second Schedule to the Act and identifies who is affected, explains what will change, sets out the new capital structure and operations, and models how the company will be turned around.

Affected parties are grouped into classes by common economic interest: holders of secured claims, holders of unsecured claims, wage claimants, holders of subordinated claims, and equity holders — with further subdivisions as necessary to distinguish between differing legal priorities. Within each class, those with the same economic position are treated equally and in proportion to their claims.

Voting and the cross-class cram-down

When the plan is ready, the insolvency practitioner convenes meetings and puts the plan to a vote. If at least two-thirds by value of the affected parties in each class approve, the plan is adopted.

But what if one or more classes oppose? The law provides for a cross-class cram-down — a mechanism allowing the court to confirm a restructuring plan even where one or more classes of creditors have voted against it, provided that statutory safeguards are satisfied. Under Article 42(1) of Cap. 631, the plan may nonetheless be deemed adopted if four cumulative conditions are met:

(a) the plan satisfies the best-interest-of-creditors test (that is, no dissenting creditor receives less under the plan than it would in a liquidation or the next-best alternative scenario);

(b) no class of affected parties will receive economic value exceeding the full amount of its claims;

(c) any dissenting class is treated at least as favourably as any equally ranking class and more favourably than any lower-ranking class; and

(d) the plan has been approved by at least one class that would, on normal liquidation priorities, receive payment of its claims in whole or in part.

This is not a device to railroad creditors; it is a way to deliver a fair, workable outcome where a minority objects, provided the legal standards are satisfied.

Court confirmation

The court is bound to decide on whether to approve or reject the restructuring plan within 30 days from the date of receipt. and in doing so, it will examine whether:

(a) the plan offers a realistic path to restored viability;

(b) it has been properly adopted (or qualifies for cross-class confirmation);

(c) classes and voting rights were formed correctly;

(d) treatment within classes is equal and proportionate;

(e) any new financing is necessary and does not unfairly prejudice the interests of affected parties; and

(f) all affected parties were properly notified.

Where a dissenting creditor challenges the plan on the best-interest-of-creditors test or the cross-class conditions, the court will appoint an insolvency practitioner as an independent expert to carry out valuations and report within thirty days.

If confirmed, the plan becomes immediately effective and binding on all affected parties — including those who voted against it. Appeals are possible within twenty days, but they do not suspend the plan’s effect; the Court of Appeal can instead grant remedies to protect the appellant’s minimum entitlements without unravelling the restructuring.

Rescue finance

Two other features are of significant practical relevance. First, as noted above, counterparties to essential executory contracts cannot use the company’s entry into restructuring as a reason to terminate or withhold performance of a contract — this protects continuity while the plan is negotiated.

Secondly, the Act provides robust protections for rescue finance to companies in a preventive recovery procedure such that any interim financing acquired during the restructuring  or any new financing forming part of a confirmed plan cannot, in any subsequent insolvency proceedings, be declared void, voidable or unenforceable. Nor can such financing form the basis for claims of wrongful trading or fraudulent preference, and the grantors of such financing are protected from liability on the grounds that the financing is detrimental to creditors. This encourages lenders and investors to back genuine rescues with confidence.

A framework for decisions, not delay

This is a framework designed for decisions, not delay. The court’s role is active but focused: it checks the gateway, polices standards, and confirms plans that meet the law’s tests. In 2025, it did exactly that in Skillpro — the first company to take the pre-formulated route from admission to approval. That real-world example is the subject of Article 3.

Article 3 — The Skillpro Case. Malta’s first preventive restructuring in court: what the judges decided and what we learnt.