Credit & Financial Institutions

Lexology Navigator: Secured Lending

09 Oct 2017

33 min read

Trends and regulatory climate


What is the current state of the lending market in your jurisdiction and have any new trends emerged over the last 12 months?

The lending market in Malta has traditionally been a conservative one. This factor contributed significantly towards the stability of Maltese credit institutions and debt security issuers during and after the 2008 credit crisis.

The main Maltese retail banks allocate much of their lending to home ownership loans and real estate transactions. While banks were typically looked on as the default lender by both large and small businesses, in recent years there is a clear trend for larger businesses to turn to the capital markets to address their borrowing requirements through the issue of debt securities (secured and unsecured bonds). There has been a marked increase in the number of bond issues over the past five years. The issue of such bond instruments is generally subject to prospectus formalities in accordance with the EU Prospectus Regulation (809/2004, implementing EU Directive 2003/71/EC, as amended) and the approval of the listing authority which operates within the Malta Financial Services Authority (MFSA), before being listed on the Malta Stock Exchange.

This trend has largely been fuelled by the exponential increase in demand by Maltese investors (both institutional and individual) for fixed-income securities in the low-interest environment that has prevailed for much of the past 10 years, and many issues by reputable local business tend to be significantly oversubscribed.

In 2016 the Malta Stock Exchange introduced an alternative means for small and medium-sized enterprises (SMEs) in Malta to access the capital markets through the Prospects Market. This market of the Malta Stock Exchange is designed for SMEs and is intended to facilitate access to the raising of funds by offering a more cost-effective and simplified listing process.

Regulatory activity

Is secured lending a regulated activity in your jurisdiction?

Yes, secured lending is generally regulated. The nature and extent of regulation depends on:

  • the form of such lending;
  • the nature of security granted to the lender; and
  • whether the transaction involves the issue, distribution and sale of financial instruments.

Relevant laws for the regulation of secured lending include:

  • the Civil Code (Chapter 16 of the Laws of Malta);
  • the Banking Act (Chapter 371 of the Laws of Malta);
  • the Financial Institutions Act (Chapter 376 of the Laws of Malta);
  • the Companies Act (Chapter 386 of the Laws of Malta);
  • the Investment Services Act (Chapter 370 of the Laws of Malta);
  • the Netting and Setting-Off on Insolvency Act (Chapter 459 of the Laws of Malta);
  • the Merchant Shipping Act (Chapter 234 of the Laws of Malta); the
  • Aircraft Registration Act (Chapter 503 of the Laws of Malta);
  • the Listing Rules issued by the Malta Financial Services Authority; and
  • several instruments of subsidiary legislation issued under such laws.

Are there any specific regulatory issues which a prospective borrower should consider when arranging or entering into a secured loan facility?

A prospective corporate borrower should maintain a prudent debt-to-equity ratio. Although Malta has no thin capitalisation rules with respect to unlisted companies, the overarching responsibility of company directors to act in the best interests of the company applies.

When issuing financial instruments, borrowers should also be prepared for the additional scrutiny brought about by a public offer and subsequent listing of the debt instruments, and should seek professional advice on the increased disclosure requirements, importance of regular and detailed financial reporting and the bolstering of corporate governance.

Are there any specific regulatory issues which a prospective lender should consider when arranging or entering into a secured loan facility?

Legal considerations

Lenders should take account of Article 303 of the Companies Act, which deals with fraudulent preference granted by a Maltese company within six months before being placed into dissolution and consequential winding up. This is commonly referred to as the six-month ‘hardening period’, and poses a risk to lenders in that any security granted by a company which falls into insolvency proceedings within a six-month period after granting such security is voidable by the creditors.

This consideration could also have a bearing on the mechanism contemplated in security agreements for the release of security on repayment of the loan, owing to the risk that payments made in settlement of that facility are open to challenge by creditors.

Perfection and enforcement of security

The EU Financial Collateral Arrangements Directive (2002/47/EC) has been fully transposed into Maltese law through the Financial Collateral Arrangements Regulations, which is subsidiary legislation enacted under the Set-Off and Netting on Insolvency Act . The Directive is relevant to lenders as it serves to facilitate financial collateral arrangements entered into between eligible parties through the removal of formalities for the creation, perfection or enforcement of certain types of security.

Ability to lend in Malta

Lenders may grant loans to Maltese borrowers provided that such lenders are regulated banking or financial institutions (or equivalent qualifying lenders). Foreign lenders within the European Economic Area (EEA) may grant loans to Maltese borrowers provided that they are regulated and have passported their services to Malta or, in the case of unregulated foreign lenders, provided that the lending is not undertaken on a regular basis.

However, where the foreign lender is not regulated as a bank or financial institution within an EEA jurisdiction, but can provide a loan in terms of the laws of its home state, regular or habitual lending by that lender to Malta-based borrowers triggers regulatory restrictions requiring the foreign lender to be duly licensed in Malta (by the MFSA).

Are there plans or proposals for reform or significant changes to the regulatory landscape in this area?

The Maltese Parliament has proposed to amend the Banking Act in order to crystallise the ranking of creditors’ rights in the context of the insolvency of a Maltese credit institution. This amendment is intended to implement the EU Banking Recovery and Resolution Directive (2014/59/EU).

The Malta Stock Exchange and the MFSA are also undertaking several initiatives intended to facilitate the raising of finance by SMEs; these are expected to be published during 2018.

The initiatives include an agreement reached during the Maltese presidency of the European Union which covers:

  • a review of the European Venture Capital Funds Regulation (345/2013) and the European Social Entrepreneurship Funds Regulation (346/2013); and
  • a new framework for securitisation.

Both European venture capital funds and European social entrepreneurship funds invest by providing loans to certain qualifying portfolio undertakings such as SMEs. While the existing regulations limits the benefit of the ‘light touch’ passporting regime to sub-threshold managers, it is proposed that this threshold be removed, therefore extends the range of managers eligible to market and manage European venture capital funds and European social entrepreneurship funds to larger fund managers.

During the Maltese presidency of the European Union, an agreement was also reached between the Maltese presidency of the Council of the European Union and the European Parliament on the development of a securitisation market in Europe. The agreement provides clear and transparent rules which minimise risks, thus allowing EU citizens and entrepreneurs to benefit from secure and accessible loans.

Structuring a lending transaction


Who are the active providers of secured finance in your jurisdiction (eg, international banks, local banks or non-bank financial institutions)?

Maltese banks play a large role in financing home ownership and businesses. However, Malta’s position as an international shipping, aviation and financial centre ,and as a burgeoning economy attracting significant foreign direct investment, has led to a number of international banks providing secured financing facilities to Maltese borrowers or taking security over Malta-based assets for borrowers within a wider multinational group.

Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?

Yes. Local banking institutions have standard forms and documentation. In addition, notarial deeds published in connection with the granting of a loan or security typically contain largely standardised clauses required by the financing bank.

When international banking institutions are involved, the documentation used largely depends on the domicile of the financing bank. Such transactions tend to be largely governed by English law, with London Market Association documentation being used.

When the issue of financial instruments is involved, the prospectus tends to be moderately standard in format, but security arrangements and structures can vary depending on the nature and structure of the security provided by the borrower or the guarantors.


Are syndicated secured loan facilities typical in your jurisdiction?

Syndicated facilities are rare for local banks unless the facility creates a significant balance sheet exposure for the bank, which is uncommon. Such syndicated secured loan facilities are more typical in cross-border lending.

How are syndicated facilities normally structured? Does the law in your jurisdiction allow a facility agent to be appointed to act on behalf of other banking syndicate members?

Syndicated facilities are normally governed by English law, while the security documentation relating to Malta-based assets is governed by Maltese law.

Facility agents can be appointed to act on behalf of other syndicate members in accordance with Article 1856 of the Civil Code. Parallel debt structure arrangements with a foreign governing law have also been used in cross-border transactions, with the Malta-facing security matters being governed by Maltese law for validity and enforcement considerations.

Does the law in your jurisdiction allow security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate?

Yes. Article 2095E of the Civil Code and the Trust and Trustees Act provide a clear and comprehensive framework for the settlement and operation of security trust arrangements.

Special purpose vehicle financing

Is it common in secured finance transactions for special purpose vehicles (SPVs) to be used to hold the assets being financed? Would security generally be given over the shares in the SPV or would lenders require direct asset security?

The establishment of SPVs in secured lending transactions is uncommon in Malta. However, the regulation of securitisation vehicles by the Malta Financial Services Authority has led to an increase in the establishment of SPVs in the contest of such structures.

In most cases where SPVs are used, the lender typically requires security over the shares in the SPV and, by binding the SPV as a guarantor for the loan, it also seeks direct asset security. Lenders would also typically require appropriate covenants to be provided by the SPV in the sense that the lender’s consent would be required before the SPV undertaking any further material borrowings.


Is interest most commonly calculated by reference to a bank base rate or a market standard variable reference rate (eg, Libor, Euribor or Hibor)? If the latter, which is the most commonly used reference rate in your jurisdiction?

Local banks apply their own base rate which are used to calculate all lending rates are calculated. Such rates are established in accordance with the Interest Rate (Exemption) Regulations and routinely revised by each respective bank. The bank base rate is communicated to the market through public announcements and publication on the bank’s website.

In cross-border transactions, the reference rate would typically be Libor or Euribor, with the choice between the two driven by the domicile of the lender or the leading arranger of the facility.

Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?

Although the Civil Code lays down a general rule that interest rates cannot exceed 8% a year, the Interest Rate (Exemption) Regulations provide specific exceptions to that general rule, placing banking institutions and other specific financing vehicles and defined transactions outside the scope of the restriction, and thus allowing interest rates of more than 8% a year.

The restrictions referred to above apply only if the loan agreement entered between the borrower and the lender is governed by Maltese law.

Use and creation of guarantees

Are guarantees used in your jurisdiction?

Yes, guarantees are commonly used in Malta – primarily to bolster security in secured lending transactions. A guarantee would be classified under the heading of ‘suretyship’ under the Maltese Civil Code, which is the nomenclature used in formal legal documents.

What is the procedure for their creation?

The creation of a guarantee does not involve a high degree of formality under Maltese law. A guarantee is usually created by way of a private written agreement executed between the guarantor and the lender, which establishes the specific obligations undertaken by the guarantor in regard to the lender. Unless the guarantee is secured, a guarantee need not be registered in order to become legally valid or enforceable.

The granting of upstream guarantees is subject to certain restrictions and formalities (see below). Also, in the case of married individuals whose estate is subject to the community of acquests, spousal consent may be required in order to create a valid and enforceable guarantee.

Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)?

Article 110 of the Companies Act lays down a general rule prohibiting the grant of upstream guarantees by Maltese companies. However, this prohibition would not apply to private companies (as opposed to public companies), subject to the satisfaction of specific formalities by such companies. These formalities essentially involve:

  • the approval of the company’s board of directors after having assessed the financial position of the company by means of a board resolution;
  • affirmation of the board resolution by the company’s shareholders by means of a shareholders’ resolution; and
  • a filing with the Registry of Companies recording the satisfaction of these requirements.

It is important that all formalities are undertaken and the relevant form filed with the Registry of Companies before financial assistance is granted.

The provisions relating to fraudulent preference under Article 303 of the Companies Act, as referred to above, are also pertinent for a lender to consider in the context of receiving a corporate guarantee.

Subordination and priority

Describe the most common methods of structuring the priority of debts and security.

Structured finance transactions involving multiple layers of debt such as senior debt, mezzanine debt, hedging debt and bond holder debt typically adopt an inter-creditor agreement addressing the priority and subordination arrangements between the financing parties. Such inter-creditor agreements are largely governed by English law.

Documentary taxes and stamp duty

Are any taxes, stamp duty or other fees payable on the granting of a loan, guarantee or security interest, or on its enforcement?

The granting or enforcement of a loan, guarantee or security interest do not, of themselves, trigger the payment of any taxes, stamp duty or other fees. However, the granting of specific security interests will require filings with various entities, which could include:

  • the Public Registry (eg, rights over real estate assets and also general hypothecs or floating charges);
  • the Registry of Companies (eg, pledges over securities);
  • the Merchant Shipping Directorate (eg, mortgages over Malta-flagged vessels);
  • the Civil Aviation Directorate at Transport Malta (eg, mortgages over aircraft fuselage or engines); and
  • the European Intellectual Property Office (eg, a European trademark or patent).

The required filings may attract certain disbursements based on publicly available tariffs issued by the authority concerned.

The tariff adopted by the Public Registry, which receives notes of enrolment relating to special hypothecs (security over real estate assets) and general hypothecs (akin to a floating charge), is an ad valorem tariff, and therefore proves to be costly in secured financing transactions.

Cross-border lending

Governing law

Is it more common for local law to govern the terms of the facility documentation or is the law of another jurisdiction often elected by the parties (eg, English law or New York law)?

In local lending transactions, Maltese law is invariably the governing law chosen by the financing bank or financial institution.

In cross-border transactions or syndicated lending arrangements, the predominant choice of law for the lending facility is English law, while the security documentation in relation to assets located in Malta is invariably governed by Maltese law for validity and enforcement purposes.


Are there any restrictions on the making of loans by foreign lenders or the granting of security or guarantees to foreign lenders?

No. EU foreign lenders that are credit institutions or financial institutions permitted to lend by their home state may grant loans to persons resident in Malta, provided that:

  • such lenders have passported their services to Malta; or
  • the lending is not undertaken on a regular basis in Malta (eg, a one-off loan granted by a group finance company to a Malta-based borrower).

Security or guarantees may be granted freely by Maltese persons or entities to foreign lenders.

However, where the foreign lender is not regulated as a bank or financial institution within a European Economic Area jurisdiction, but can provide loans in terms of the laws of its home state, the regularity of such lending by that lender to borrowers resident in Malta would trigger regulatory restrictions requiring the foreign lender to be duly licensed to undertake its regular lending activities. A proper assessment of lending activities must be made on a case-by-case basis to ensure that no such restrictions apply to the foreign lender.

Are there any exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?

As a full EU member state, Malta applies the principle of free movement of capital. Consequently, no exchange controls restrict payments to a foreign lender under a security document, guarantee or loan agreement.

Security – general

Security agreements

Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?

Yes, it is possible to create a security interest over all assets of an entity in the form of a general hypothec. In terms of Maltese law, a general hypothec attaches to all of the present and future property of the person granting such security, provided that such property does not pass into the hands of third parties. A general hypothec is registered with the Public Registry subject to the payment of an ad valorem fee payable on registration.

In circumstances where the lender or security holder seeks to have security registered over a specific asset or a specific class of assets, it is advisable – and usually the case – that separate agreements regulate the different assets or classes of asset in order to address validity and enforceability considerations that are pertinent to each such asset or class.

Release of security

What are the formalities for releasing security over the most common forms of assets?

The procedure involved to release security will depend on the nature of the asset. The most common forms of security are:

  • guarantees (no registration formalities);
  • privileges and hypothecs such as those over real estate (the Public Registry);
  • pledges of shares (the Registry of Companies); and
  • mortgages over vessels (Transport Malta).

The release of a guarantee is effected by:

  • an agreement between the parties; or
  • a judgment ordering the debt extinguished, and therefore that all accessory obligations to that debt would also extinguished.

The release of security given by way of a privilege or hypothec may be effected through the reduction or cancellation of the registration. The reduction of a registration is a partial cancellation of the security in relation to the value of the security coverage that it provides. This usually takes place where part of the debt is extinguished or if the right of the creditor, which previously affected the whole of an immovable, or several immovables, is restricted to a part of the immovable that is conveniently separable from the rest.

A registration may be reduced or cancelled either:

  • with the creditor’s consent, given in a public deed; or
  • through a judgment.

However, the creditor’s consent is not required if the total or partial extinguishment of a registered debt results from a judgment which has become res judicata, or from any other public deed.

For the purpose of effecting the reduction or cancellation of a registration of a hypothec or privilege, a note containing the following information must be presented to the director of the Public Registry:

  • the progressive number and the year of the registration;
  • whether reduction or cancellation of the registration is sought;
  • details of the judgment or deed, if any, under which reduction or cancellation is sought; and
  • where reduction is demanded, the sum or property in respect of which the registration will continue to be operative.

The release of security by way of a privilege or hypothec may also take effect in the case of non-renewal of such registrations. The registration of a privilege or hypothec ceases to have effect 30 years after registration, and must therefore be renewed for continued effect. The renewal is effected by presentation of a note to the director of the Public Registry

In order to release a pledge of shares in a Maltese company, a notice of termination of the pledge (statutory Form T(3)) must be delivered by the pledgee (security holder) to the Registry of Companies for registration within 14 days of termination of the pledge. The company in which the shares have been pledged will also be notified, in writing, of the termination of the pledge within 14 days of termination, and the company will record that fact in the register of members.

The Merchant Shipping Act provides that in order to discharge a registered mortgage over a vessel, the relative discharge declaration on the reverse side of the original mortgage deed form and the deed form must be filed with the registrar. On the basis of such discharge declaration, the registrar records the date and time of the discharge, rendering the vessel free from encumbrances and restrictions and enabling the owner to sell or delete the vessel from the Maltese register freely.

Asset classes used as collateral for security

Real estate

Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?

Yes. Under the Civil Code, there are two types of security which may be created over immovable property: hypothecs and privileges. A common feature between both forms of security is that they both give a creditor preference over the property encumbered and priority over other creditors of the same debtor. However, a privilege confers on a creditor a right of preference over hypothecary creditors in virtue of a specific legal provision. In contrast, a hypothec arises through contractual agreement between the lender on the one hand and the borrower or guarantor on the other.

Both privileges and hypothecs can be either general or special. A general hypothec or privilege is a floating type of security, which attaches to no specific asset of the security grantor, but instead attaches to a fluctuating pool of assets comprising all of a debtor’s present and future property.

On the other hand, a special hypothec or special privilege is directly registered over and connected to one or more specific immovables. A special hypothec or a special privilege grants a droit de suite to the lender or security holder, meaning that such security will continue to affect the immovable property to which it is subject even if the immovable property passes into the hands of a third party.

A hypothec can be one of three types:

  • a legal hypothec, arising by operation of the law;
  • a judicial hypothec, originating from a judgment; and
  • a conventional hypothec, created by a public deed.

Each type of hypothec is not valid unless it is registered in the Public Registry. There is no time limit for registration of a hypothec, but its ranking is taken from the date of its registration under the prior in tempore potior in iure principle (‘earlier in time, stronger in law’).

Special privileges over immovables and certain specified movables are ineffectual unless they are registered in the Public Registry within two months.

Machinery and equipment

Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over machinery and equipment. The common forms of security granted over machinery and equipment are general hypothecs, pledges and security by title transfer. Pledges and security by title transfer are possible insofar as the machinery and the equipment do not become part of the immovable property to which they are attached by operation of the law.

A general hypothec is a floating type of security which attaches to the fluctuating pool of assets comprising the debtor’s present and future property. A hypothec must be registered in the Public Registry and must be created by public deed.

A pledge, on the other hand, is constituted by delivery to the creditor of the thing pledged or of the document conferring the exclusive right to the disposal of the thing. A pledge of movables confers on the creditor the right to obtain payment from the thing pledged over other creditors (including other privileged and hypothecary creditors), since the law grants the pledgee a special privilege over the pledged assets. This special privilege exists over the thing pledged once the thing has been delivered.

Security by title transfer is a contract under which a debtor, or a third party for the debtor, agrees to transfer or assign one or more specified movable things to an existing or future creditor or creditors to secure the debtor’s existing or future obligation. The security taker (the lender) will be deemed to be the owner of the movable until the secured obligations are discharged at which time the lender will return the asset to the debtor.


Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over receivables. The most common types of receivable are trade and loan receivables, and the most common forms of security granted over such receivables is a pledge.

Security over receivables by way of a pledge is created by way of a pledge agreement. Pledge agreements are enforceable against third-party debtors when the debtors are notified of the pledge or the debtors acknowledge the pledge in writing.

Financial instruments and cash

Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

The most common financial instruments over which security is granted in Malta are company shares or debentures. Security over such financial instruments is most commonly taken in the form of a pledge.

A pledge of financial instruments is created by way of a private written agreement between the pledgor and the pledgee, and is generally governed by the Companies Act. In the case of pledging of shares in a private company, the company’s memorandum and articles of association must explicitly permit the granting of such pledge.

The company whose securities have been pledged must be notified of such pledge within 14 days of the granting of the pledge. Notice of the pledge must also be delivered to the Registry of Companies for registration within the same period and the company will record the pledge in its register of members. The pledge of shares will be effective in relation to third parties after the registrar registers the notice of the pledge.

Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Yes, security can be granted over cash deposits. A pledge is the most common form of security taken over cash deposits, and this takes the form of pledging bank accounts where cash deposits are held.

The procedure governing the pledging of bank accounts is invariably by way of a private written agreement and, in most cases, this agreement is in the house format of each individual banking institution with which the debtor or guarantor holds the accounts that are so pledged. The relevant bank must be notified of the pledge of the bank account.

Intellectual property

Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?

Security can be granted over intellectual property. The most common forms of security granted over intellectual property is also by way of pledge. A pledge over intellectual property is validly constituted by means of a private writing; in the case of intellectual property that is formally registered or pending registration, such pledge should be inscribed and annotated in the relevant register to safeguard the lender’s interest erga omnes.


Criteria for enforcement

What are the common enforcement triggers for loans, guarantees and security documents?

The enforcement triggers by which a lender can enforce its loan, guarantee or security interest are contractual, and therefore depend on what is agreed by the parties in the relevant agreement. However, all enforcement proceedings in relation to security are subject to a formal court judgement unless, the relevant security is regulated in terms of the Financial Collateral Arrangements Regulations (Subsidiary Legislation 459.01).

Common enforcement triggers include the following:

  • Non-payment – where the borrower does not pay on the due date any amount payable pursuant to a security document at the place and in the currency in which it is expressed to be payable.
  • Misrepresentation – any representation or statement made or deemed to be made by a borrower in a security document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made.
  • Insolvency – a borrower is unable to pay its debts, suspends or threatens in writing to suspend making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more groups of its creditors with a view to rescheduling any of its indebtedness.
  • Creditors’ process – any expropriation, attachment, sequestration, distress or execution or any analogous process in any jurisdiction affects any asset or assets of the borrower.
  • Unlawfulness and invalidity – where it becomes unlawful for a borrower to perform any of its material obligations under the security document, any obligations of a borrower pursuant to a security document are not or cease to be legal, valid, binding or enforceable or any security document ceases to be in full force and effect.
  • Cessation of business – the borrower suspends or ceases to carry on all or a material part of its business.
  • Litigation – any litigation, arbitration, administrative, governmental, regulatory or other proceedings or investigations or disputes are commenced which are reasonably likely to be adversely determined and, if so, have or would reasonably be expected to have a material adverse effect.

Process for enforcement

What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?

The enforcement of any loan, security or guarantees granted to the lender in relation to such loan first requires the creditor to obtain an executive title. Article 253 of the Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta) provides a list of the principal executive titles under Maltese law:

  • judgments and decrees of the courts of justice of Malta – it is not only judgments and arbitration awards awarded in Malta that constitute an enforceable executive title for the purposes of Maltese law; judgments and awards constituting res judicata in other jurisdictions are also enforceable in Malta, although the procedure varies depending on whether the Brussels Regulation (1215/2012) applies. In cases where the Brussels Regulation applies, enforcement is significantly more efficient;
  • public deeds relating to debts certain, liquidated and due, and not consisting of the performance of an act;
  • taxed bills of judicial fees and disbursements, issued in favour of any advocate, legal procurator, notary public, architect, judicial referee or witness, unless such taxed bills are impugned according to law;
  • awards of arbitrators registered with the Malta Arbitration Centre; and
  • bills of exchange and promissory notes issued in terms of the Commercial Code.

The list of executive titles found in the Code of Organisation and Civil Procedure is not exhaustive, since apart from the code itself providing for further executive titles, various other special laws provide for additional executive titles, including:

  • the Merchant Shipping Act (Chapter 234 of the laws of Malta);
  • the Value Added Tax Act (Chapter 406 of the laws of Malta);
  • the Income Tax Management Act (Chapter 372 of the laws of Malta); and
  • the Malta Communications Authority Act (Chapter 418 of the laws of Malta).

On the basis of such executive title, the lender may request the Maltese courts to issue executive warrants as necessary for the monetary claim to be enforced against the assets in question.

Set out below are the enforcement mechanisms for each type of security.

Hypothecs and privileges

Hypothecs and privileges may be enforced only through judicial enforcement proceedings. However, if such hypothecs and privileges constitute an executive title, a prior judgment may not be necessary for enforcement. Once an executive title is obtained, the lenders may apply for the sale by judicial auction of the assets securing the debt and subject to the registered hypothec. This process is regulated by intricate procedural rules and the creditor can bid for the assets out of the recovery value being sought through the same judicial sale.


The general provisions relating to pledges under the Civil Code provide that the creditor cannot dispose of the thing pledged in case of non-payment, but it may cause that thing to be sold by auction under the authority of the court. A demand for the sale of the thing pledged may be made by the creditor by means of the filing of an application in court.

If the thing pledged has a stock exchange or market price, the court may order the sale to be carried out by means of a public broker, bank or other banking institution to be appointed by the court instead of judicial sale by auction.

The pledging of shares is further regulated by the Companies Act. If a debtor defaults under a pledge of shares agreement, the pledgee can enforce the pledge by either:

  • applying to the court for the judicial sale of the shares; or
  • giving notice by judicial act to the pledgor and the company that it wishes to dispose of the shares pledged or appropriate and acquire the shares for itself in settlement of the debt due.

If the pledgee opts to dispose of or appropriate the shares, once the pledgee gives notice by judicial act to the pledgor the value of the shares can be agreed between the pledgor and the pledgee. The value can only be agreed at this point; any prior agreement determining the value of the shares is prohibited.

If the pledgor and the pledgee do not agree on the fair value of the shares, the fair value for the sale or appropriation of the shares will be determined by a certified public accountant appointed by the court on application by the pledgee.

In selling the shares the pledgee must seek the best price, which must be no less than the fair value as determined above. In the event that a buyer cannot be found for the securities at their fair value, the pledgee will apply to the court for the securities to be sold at less than fair value subject to any conditions imposed by the court.

In the case of pledged shares in a private company, before disposing of the shares or appropriating and acquiring the shares itself in settlement of the debt due the pledgee must offer the shares to the other shareholders in accordance with their pre-emption rights in the transfer of shares as set out in the memorandum and articles of association. If the memorandum and articles of association do not provide for pre-emption rights, the shares must be offered to the other shareholders in proportion to their holdings. The shareholders have the right to purchase the shares at the established fair value within 10 working days.

The pledging of shares may also be regulated under the Financial Collateral Arrangements Regulations provided that such pledge falls within the regulations’ remit. The regulations, in line with EU legislation, provide a more creditor-friendly approach to the enforcement of share pledges and pledges on receivables by limiting perfecting requirements and enforcement formalities in respect of financial collateral.

The regulations apply solely and exclusively to:

  • financial collateral consisting of cash, instruments or credit claims;
  • financial collateral which has been provided and can be evidenced in writing; and
  • financial collateral arrangements which can be evidenced in writing or a legally equivalent manner.

In order for the regulations to apply, both the collateral taker and the collateral provider must both be an entity listed in Regulation 4 of the regulations.

The regulations provide that the financial collateral arrangement – in this case, the pledge agreement – is valid and enforceable within its terms and within the regulations. Enforcement may be by sale or appropriation of the shares and by offsetting their value against the debt due or applying their value in discharge of the secured obligations.

Realisation of the pledge does not require:

  • prior notice of the intention to realise to be given;
  • the terms of the realisation to be approved by any court, public officer or other person;
  • the realisation be conducted by sale by auction or in any other prescribed manner; or
  • any additional time periods to elapse.

The collateral taker must ensure that any action taken under the regulations – including any realisation or valuation of the financial collateral – is conducted in accordance with the terms of the arrangement, and in any event in a commercially reasonable manner and in good faith to ensure fair treatment to the collateral provider. The regulations also exclude the applicability of Articles 122(6) to 122(9) of the Companies Act, which provide for the offering of shares on a pre-emptive basis before appropriation or disposal of the shares.

Security by title transfer

Security by title transfer is enforced in terms of the agreement between the debtor, the transferor and the creditor (if different to the transferor). Subject to the terms of the agreement, in the event of default the creditor, on giving notice in writing to the debtor and the transferor of property, is entitled to realise the property transferred:

  • by sale; or
  • by offsetting or netting their value and applying the value in discharge of the secured obligations.

Set-off or netting is possible only if it has been expressly agreed in the agreement between the parties.

The regulations may also apply to security by title transfer arrangements

Ranking in insolvency

In what order do creditors rank in case of the insolvency of a borrower?

Malta has no specific insolvency legislation which comprehensively lists preferential debts in priority. While general civil law principles require that the property of a debtor is the common guarantee of its creditors, all of whom have an equal right over the property unless there is a lawful cause of preference, the reality is far more complex due to the various privileged and preferential debts scattered across various pieces of legislation. This system creates a complex web of preferences which must be carefully considered in each case by the liquidator.

Law stated date

Correct as of

Please state the date as of which the law stated here is accurate.

September 15 2017.

The above interview with Dr. Kurt Hyzler appears on Lexology Navigator under the Malta section.