(a) As a general principle of Maltese law, there are no specific formalities which are required to evidence a sale of goods or services. The Civil Code, Chapter 16 of the Laws of Malta (the "Civil Code"), however, establishes instances where the contract needs to be in the form of a public deed or a private writing. Notwithstanding the above, it is always good practice to evidence sales of goods and services through a contract.
For certain consumer credit agreements (entered into between a creditor or a credit intermediary, where applicable, and a consumer) additional rules apply in terms of Consumer Credit Regulations, Subsidiary Legislation 378.12 of the Laws of Malta (the "Consumer Credit Regulations") and the Credit Agreements for Consumers Relating to Residential Immovable Property Regulations, Subsidiary Legislation 378.10 (the "Consumer Residential Property Regulations") where the credit agreement shall be drawn up in writing or on a durable medium and must contain certain specified information.
(b) While a written agreement is not strictly required to create an enforceable debt obligation, invoices alone do not constitute an enforceable debt obligation unless countersigned by the buyer. An invoice is merely evidence of an obligation owed to the seller by the obligor to pay but must generally be accompanied by further circumstances that together demonstrate sufficient evidence of the debt obligation such as, for example, the express or tacit acknowledgment of the invoice of the debtor.
(c) Yes. Maltese Law recognises tacit/implied contracts that are not formalised in writing. The party alleging a binding contract, however, must be able to prove it. This does not apply where the law requires the contract to be in the written form.
(a) In terms of the Civil Code, the general limit on interest rates is set at 8% per annum. However, in terms of the Interest Rate (Exemptions) Regulations (Subsidiary Legislation 16.06 of the Laws of Malta), credit institutions (including banks) may charge higher interest rates (as they are exempt from the above-mentioned limitation) when providing loans, advances or other credit facilities. This notwithstanding, it should be noted that the Securitisation Act, Chapter 484 of the Laws of Malta (the "Securitisation Act") expressly provides that the provisions of the Civil Code or of any other law that limits or restrict the charging of interest and compound interest shall not apply to debts or any other obligations in the context of a securitisation transaction subject to the Securitisation Act, and it shall be lawful for the amount of interest due in respect of any such debt or other obligation to exceed the amount of capital due in respect of any such debt or obligation.
(b) In terms of the Consumer Residential Property Regulations and the Consumer Credit Regulations, the creditor may specify an interest rate applicable for late payments. In terms of the Civil Code of Malta, such interest must be capped at 8% and must be due for a period of not less than a year.
(c) For certain consumer credit arrangements (excluding those instances where the credit agreement must be entered into in front of a notary), in terms of the Consumer Credit Regulations, the consumer has a right to withdraw from a credit agreement without giving any reasons. This right to withdraw must be exercised within 14 running days calculated in terms of Consumer Credit Regulations.
d) In terms of both Consumer Credit Regulations and the Consumer Residential Property Regulations, the consumer is given various statutory rights including those which relate to the disclosures which must be made to the consumer and those which relate to information which must be included in the relevant credit agreement. Notably, this includes a statutory right given to the consumer to the full early repayment of the receivable subject to the payment of compensation to the creditor.
The law does not distinguish between receivables owed by the government, government agencies or otherwise. However, additional aspects including rules on sovereign immunity, state aid, public procurement and the capacity of the relevant entity to enter into such a contract should be considered. In terms of the Code of Organisation and Civil Procedure (Chapter 12 of the Laws of Malta), there are certain issues which would need to be considered in so far as the enforcement of warrants on government property.
Regulation (EC) No. 593/2008 of the European Parliament and of the Council on the law applicable to contractual obligations of 17 June 2008 (the "Rome I Regulation"), which is directly applicable in Malta, sets out the law applicable to contractual obligations on civil and commercial matters.
The choice of law to govern the transaction documents relating to a securitisation transaction would generally be recognised and given effect to as a valid choice of law in any action before the courts of Malta in accordance with the provisions of the Rome I Regulation, subject to the specific circumstances of each case as set out further below.
(c) where the applicable law cannot be determined in accordance with (a) and (b), the law of the country with which the contract is most closely connected.
For certain contracts, including contracts of carriage, insurance contracts and individual employment contracts, certain specific rules apply. These rules are subject to certain overriding mandatory provisions including public policy considerations and other instances for the safeguarding of a state's public interests, such as its political, social or economic organisation.
(b) in certain instances, the Rome I Regulation also imposes limits on the autonomy of the will of the parties to select the applicable law in contract, such as the law applicable to contracts of carriage, consumer contracts, insurance contract and individual employment contracts.
As stated in question 2.2 above, in terms of the Rome I Regulation, a Maltese court will give effect to the parties' choice of law, provided that where all other elements relevant to the particular situation are connected with Malta, the choice of law does not prejudice the application of public policy rules. Other considerations which should be considered on a case-specific basis include where the contract is one of insurance, individual employment contracts and where a contract is concluded with a consumer.
No, although in practice assignment of receivables agreements (as well as any security agreements) are almost always governed by the law of the jurisdiction of the receivables.
In terms of the Rome I Regulation, the parties are free to choose any law irrespective of the law governing the sale of receivables, subject to any restrictions indicated in questions 2.2 and 2.3 above. The choice of law governing the sale of receivables will govern the relationship between the assignor and assignee.
■ any question whether the debtors obligations have been discharged.
This takes into account the obligatory aspects of the assignment and not the proprietary aspects of the transfer.
Yes, as long as all the requisite formalities applicable to the assignment have been complied with in terms of Maltese law. See question 4.2 below.
Yes. See question 3.1 above.
Yes, see question 3.1 above. However, it would also be prudent to comply with all the requisite formalities applicable to the assignment under Maltese law (as the governing law of the receivable). See question 4.2 below.
Receivables are usually transferred by assignment, the governing law of which would be the same as the governing law of the receivables, which may, but would typically not, be Maltese law. However, the Securitisation Act provides that the seller and the purchaser have absolute discretion to choose which method is employed in transferring the securitisation assets to the purchaser, including, without limitation, by novation, sale, assignment, and declaration of trust. Receivables are usually transferred by assignment, the governing law of which would be the same as the governing law of the receivables, which in most cases would not be Maltese law.
The formalities required for perfection of a sale of receivables will depend on the governing law of the receivables and the governing law of the sale or assignment. While requirements vary from jurisdiction to jurisdiction, perfection typically takes place by notifying or obtaining acknowledgment of the assignment from the obligor. Even where Maltese law is not the governing law of the receivables and the assignment, it is prudent to ensure that perfection requirements of Maltese law are also satisfied.
The Civil Code regulates assignments of debts and other rights in general. The Civil Code generally provides that the assignment or sale of a debt is complete, and the ownership is automatically acquired by the assignee, as soon as the debt or the right and the price have been agreed upon, provided that an assignment must be in writing in order for it to be valid. Moreover, the obligor must be notified of the assignment by judicial act (which involves a court process) in order for it to be effective against third parties (i.e. for perfection of the assignment). Notification is not required where the obligor as acknowledged the assignment.
■ the assignee is a person licensed to carry out the business of banking or the business of factoring under the applicable laws of Malta, or the equivalent laws in a jurisdiction recognised by Malta Financial Service Authority (the "MFSA").
Moreover, certain provisions of the Securitisation Act were specifically introduced to disapply or modify various provisions of the Civil Code relating to assignment of rights in order to relax what are generally considered to be overly onerous procedures (stemming from Malta's civil law tradition) within a securitisation context. An assignment of assets to a Maltese securitisation vehicle is complete and the ownership of the assets is automatically acquired by the securitisation vehicle as soon as the assignment is reduced to writing. Obligors can be notified in writing by any means or by publication of a notice in a daily newspaper circulated wholly or mainly in the jurisdiction where the majority of the Obligors reside (as opposed to notification by judicial act).
The notification of assignment of existing receivables or future receivables must include the relevant features of the class of receivables being assigned. See question 4.8 for the relevant features that must be identified in relation to existing receivables and future receivables, respectively.
Promissory Notes. The transfer requirements for promissory notes (and other negotiable instruments) are governed by the Commercial Code of Malta (Chapter 13 of the Laws of Malta), which provides that they are transferable by the endorsement of the promissory note by the transferee.
Mortgage or Consumer Loans. There are generally no additional or specific requirements to those outlined in question 4.2 above.
Marketable Debt Securities. The transfer of bearer securities is perfected by delivery to the transferee. The transfer of registered securities is perfected by registration of the transferee in the relevant register. Transfers of non-dematerialised marketable securities in a Maltese company must be in writing and delivered to the company for registration. Dematerialised marketable securities (in a Maltese company) held through a central securities depository and represented by book-entries may be transferred by an entry on the register maintained by the central securities depository (and by debiting the central securities depository account of the relevant seller and crediting the central securities depository account of the purchaser) without the need for any instrument in writing.
The Obligor must be notified of the assignment (by judicial act, by simple notification or as otherwise permitted by the Securitisation Act, as applicable – see question 4.2 above) in order for the assignment to be effective against third parties, provided that notification is not required where the Obligor has acknowledged the assignment.
■ the Obligor is entitled to set off any sum which may become due to him by the seller; but the purchaser may not set off the debt assigned to the purchaser against any sum owing by the purchaser to the Obligor.
■ any rights of a liquidator, provisional administrator, receiver, curator, controller, special controller of the seller or other similar officer of the seller for any reason whatsoever.
See question 4.2 with regard to form and delivery requirements of the notice. Notice requirements apply to all types of receivables, including future receivables. The Securitisation Act provides that if the seller becomes insolvent following the date of the assignment to a Maltese securitisation vehicle but prior to the date of the notification, such insolvency shall not have any effect on the assignment and any notification of the assignment (made in accordance with the provisions of the Securitisation Act) shall still be valid and effective.
This would generally depend on the governing law of the receivables and the instrument of assignment. Such restrictions on assignment would generally be binding under Maltese law. The Securitisation Act, however, provides that an assignment of receivables to a Maltese securitisation vehicle will be final, absolute and binding on the seller, the securitisation vehicle and all third parties and this notwithstanding any underlying statutory or contractual prohibition or restriction (which might arise under the governing law of the receivables) on the seller to assign in whole or in part the securitisation asset to any third party.
This would generally depend on the governing law of the receivables and the instrument of assignment. Such restrictions on assignment would generally be enforceable under Maltese law and the seller may be liable to the Obligor for breach of contract. Notwithstanding any such liability, however, the Securitisation Act provides that an assignment of receivables to a Maltese securitisation vehicle will be final, absolute and binding on the seller, the securitisation vehicle and all third parties and this notwithstanding any underlying statutory or contractual prohibition or restriction (which might arise under the governing law of the receivables) on the seller to assign in whole or in part the securitisation asset to any third party.
■ future debts (or classes thereof) may also be assigned provided that the Obligor and the latest date by which the future debts shall come into existence are identified in the contract of assignment.
The Securitisation Act provides that all types of assets and receivables can be securitised whether existing or future, movable or immovable, tangible or intangible. In terms of identification of the receivables being assigned, the Securitisation Act distinguishes between the assignment to a Maltese securitisation vehicle of existing assets and future receivables.
■ the repayment period when the debts fall due. It shall not be necessary to specify the name of the Obligor or Obligors, the date or the amount of any particular debt.
■ the assets (including future assets) which give rise to the receivables.
■ the repayment period when the debts may fall due.
The Securitisation Act specifically addresses the requirement of 'true sale' in asset securitisation transactions by providing that a transfer or assignment to a securitisation vehicle will be treated as final, absolute and binding on the originator, the securitisation vehicle and all third parties and will not be subject to recharacterisation for any reason whatsoever, nor will it be subject to the claims of the originator's creditors in insolvency or otherwise. Therefore, there should not be any risk (in principle) of the transfer of title being recharacterised. This is subject only to the exceptions of fraud on the part of the securitisation vehicle or knowledge of pending insolvency proceedings of the originator. There are no specific provisions under Maltese law that prohibit the seller from retaining particular risks relating to the assets, particular rights in respect of the assets or control of collections in respect of the assets. Indeed, the Securitisation Act expressly provides that a Maltese securitisation vehicle may enter into an agreement with the seller to the effect that the seller is given rights by the securitisation vehicle over all or part of the securitisation assets of the securitisation vehicle that may be available after payment of the securitisation creditors (i.e. any repurchase rights or right to residual profits). The Securitisation Act also provides that a Maltese securitisation vehicle may delegate the management responsibility for the day-to-day administration of the vehicle of the assets, including the collection of any claims, to any third party including the seller.
Yes, the seller can agree in an enforceable manner to continuous sales of receivables, although any assignment of receivables concluded following the seller's insolvency would likely be subject to a 'claw-back' by the seller's liquidator in such a scenario.
The Securitisation Act provides that it shall be lawful for future receivables of a seller, including future claims against future Obligors, to be the subject matter of an assignment in favour of a securitisation vehicle. See question 4.8 above with regard to identification of the receivables being transferred.
An assignment of one or more future receivables is deemed to be effective at the time of the conclusion of the original contract of assignment between the assignor and the assignee, without a new act of transfer being required to assign each such receivable on coming into existence. Moreover, the original notice of assignment duly given in terms of the Securitisation Act (see question 4.2 above) shall be valid and effective in relation to all of the future receivables being assigned and need not be repeated once the receivable comes into existence.
The insolvency of the seller should not have any effect on the validity and effectiveness of a prior assignment (undertaken in accordance with the provisions of the Securitisation Act) to a Maltese securitisation vehicle of future receivables that arise after such insolvency.
In the case of an assignment that falls within the parameters of 1484A of the Civil Code (see question 4.2 above), the assignment of future debts which have not yet come into existence on the date a winding up or bankruptcy order of the seller is made by a Court, may be rescinded by the liquidator or the curator of the seller. The right of rescission of the assignment of future debts shall be conditional on the refund of any consideration paid by the purchaser to the seller for such future debts.
The Civil Code provides that the assignment of a debt includes every security, privilege or hypothec attached to the debt and every other thing accessory to it (but shall not include the fruits accrued due or any rescissory action, unless express mention thereof has been made in the assignment).
■ notices of assignment made to the Obligor or class of Obligors in accordance with the Securitisation Act, shall have effect in relation to all persons granting any suretyship, guarantee or indemnity without the need of further notice or other formalities in their regard.
The Obligor's set-off rights against the seller terminate upon the Obligor's receipt of notice of the assignment in accordance with the applicable notification requirements of the Civil Code or the Securitisation Act.
In terms of liability to the Obligor, the Securitisation Act provides that unless the terms of any transfer to a Maltese securitisation vehicle provide otherwise, the Obligor shall have no right or claim against the securitisation vehicle in connection with any obligation relating to the securitisation assets. The Obligor shall continue to enjoy all rights under the assigned contract against the seller who shall remain solely responsible for the performance of all obligations thereunder.
As a result of the 'statutory' bankruptcy remoteness of Maltese securitisation vehicles under the Securitisation Act, there is, strictly speaking, no need for the vehicle to be orphaned, which allows a seller to retain an equity interest in the vehicle and extract profits by simple dividend. Other typically used methods of profit extraction include extraction through servicer and other fees charged to the purchaser or through junior variable rate debt securities issued by the purchaser.
The Securitisation Act provides that it shall be lawful (without affecting the bankruptcy remoteness analysis) for a securitisation vehicle to enter into an agreement with the originator to the effect that the seller is given rights over all or part of the securitisation assets that may remain (as profit) after payment of the securitisation creditors.
It is not customary for the purchaser to take a 'back-up' security interest in addition to its acquisition of ownership in the receivables and the related security interests in respect of those receivables. The statutory true sale provisions of the Securitisation Act significantly reduce any recharacterisation risk as explained in question 4.9 above.
It is not customary to take 'back-up' security.
Perfection of a security interest would depend on the particular security interest involved and would need to take place in accordance with the governing law of that security interest. While requirements vary from jurisdiction to jurisdiction, perfection typically takes place by registering the security interest in a public register or by notifying or obtaining an acknowledgment of the security interest from the debtor.
A pledge is one of the most common forms of security interest used under Maltese law and is governed by the relevant provisions of the Civil Code. It has a high ranking and is available in relation to a number of movable assets whether tangible or intangible including shares, receivables, bank accounts and various other assets. If the asset being pledged is tangible, the pledge is constituted by the delivery to the creditor of the thing pledged or of the document conferring the exclusive right to the disposal of the thing. If the asset being pledged consists of an intangible asset in relation to which there is no such document conferring the exclusive right to its disposal, the privilege granted to the pledgee shall not arise unless the pledge results from a public deed or a private writing, and either notice of the pledge has been given by a judicial act served on the debtor of the debt or other right or such debtor has in writing acknowledged the pledge. It is market practice to document the pledge by means of a private writing and to obtain the debtor's acknowledgment in writing.
The Securitisation Act provides that under Maltese law, any notices of assignment made to the debtor (or class of debtors) in accordance with the provisions of the Securitisation Act will also be effective in relation to all persons granting any suretyship, guarantee or indemnity without the need for further notice or other specific formalities, thereby relaxing the more onerous notification procedures generally required outside of the securitisation context (as it has also done in relation to the assignment of receivables).
In addition to any security granted to them, the holders of securities issued by a securitisation vehicle are granted (pursuant to the Securitisation Act) a statutory special privilege over the securitisation assets. This privilege extends to the proceeds derived from the securitisation assets and to any other assets acquired with those proceeds, and ranks ahead of all other claims at law, except for securitisation creditors who enjoy a prior ranking granted to them with the consent or knowledge of the securities holders.
As transaction security documents are almost always governed by the law of the underlying assets (which is invariably not Maltese law), the intention behind this particular provision of the Securitisation Act was to ensure that all validly given security over securitisation assets would be enforced and given full effect as a first-ranking privilege of the investors under Maltese law, irrespective of the governing law of the security interests.
If the receivables are governed by Maltese law then it is always recommended that the security interest over those receivables also be governed by Maltese law, and that the security interest is perfected in accordance with the requirements of Maltese law for that particular security interest.
Notwithstanding the provisions of the Civil Code relating to pledge of rights, a pledge of a contract of life insurance and any designation or substitution in the beneficiary designated in such contract (or the assignment of such benefit) shall generally not be valid without the consent in writing of the third party whose life is insured. Moreover, where the policyholder has designated a named beneficiary under a life insurance contract and such beneficiary has accepted the designation, a pledge of the policy may be made only with the prior written consent of the beneficiary (provided that a pledge made without such consent shall be valid but shall be subject to the prior ranking rights of the designated beneficiary).
Pledges of debt securities issued by a Maltese company are subject to specific formalities set out in the Companies Act (Chapter 386 of the Laws of Malta) regarding pledging of securities, which generally requires notification of the company whose securities have been pledged as well as the registration of a notice of pledge delivered to the Registry of Companies, with the pledge to be effective in relation to third parties (i.e. perfected) only after such registration. The perfection requirements vary for listed securities, in respect of which the relevant market would need to be notified (together with a certified copy of the pledge agreement) of the pledge in order for it to be effective in relation to third parties.
■ any assets held by such third party (including the seller) shall be considered as being held on trust by such third party for the benefit of the securitisation vehicle.
Escrow accounts are used in Malta even though they are not expressly regulated under Maltese law. Security can be taken over bank accounts located in Malta, and this would typically be taken in the form of a pledge. Rights over a bank account may be pledged by means of a public deed or a private writing, and the privilege or preference granted to the pledge at law will arise upon notice by a judicial act served on the bank of the right pledged, or upon the bank acknowledging the pledge in writing. Maltese Courts would generally recognise a foreign security interest taken over a bank account in Malta provided that it is considered as a valid security interest under Maltese law and all of the relevant perfection requirements have complied with Maltese law as the lex rei sitae.
For this reason, it is always recommended that a security interest granted over a Maltese bank account is governed by Maltese law.
The terms of the relevant pledge agreement will regulate whether the secured party controls the cash in the bank account whether prior to or following enforcement. Upon enforcement, the secured party will be entitled to obtain full payment from the cash in the account until the secured debt is repaid in full.
See question 5.8 above. Access to funds in the account by either party to the pledge will be determined by the terms of the relevant pledge agreement.
One of the unique features of Maltese securitisation vehicles established in terms of the Securitisation Act is that they are bankruptcy remote from the seller by operation of law.
The Securitisation Act expressly provides that (a) no insolvency proceedings taken in relation to the seller under any law will have any effect on the securitisation vehicle, the securitisation assets acquired (or risks assumed) by the securitisation vehicle, or other assets of the securitisation vehicle, including payments due by the underlying debtors, cashflows or other proceeds owing to the vehicle in connection with the securitised assets, and (b) a transfer of assets to the securitisation vehicle shall be treated as final, absolute and binding on the seller, the securitisation vehicle and all third parties and shall not be subject to the rights of the creditors of the seller or any rights of a liquidator, provisional administrator or similar officer of the seller for any reason whatsoever.
Moreover, the Securitisation Act also provides that no court or arbitral tribunal may grant or sanction any moratorium or stay whatsoever in connection with a securitisation vehicle.
The Securitisation Act, however, provides, without specifying any particular suspect periods, that the only exception to the above rule is where there is fraud on the part of the securitisation vehicle or in respect of an assignment entered into at a time at which the securitisation vehicle knew, or ought to have known that an application for the dissolution and winding up of the seller by reason of insolvency was pending, or that the seller had taken formal steps under applicable law to bring about its dissolution and winding up by reason of insolvency.
This analysis does not differ in respect of related party transactions or unrelated party transactions.
See question 6.1 above. A Maltese securitisation vehicle is bankruptcy remote from a seller by operation of law. As a result of the 'statutory' bankruptcy remoteness of Maltese securitisation vehicles under the Securitisation Act, there is, strictly speaking, no need for the vehicle to be orphaned in order to avoid substantive consolidation concerns, and this even allows a seller to retain an equity interest in the vehicle.
Generally, the concept of substantive consolidation is not recognised under Maltese law. Maltese company law, based primarily on English company law (and with the Maltese courts looking to English law as a persuasive authority), respects the doctrine of separate legal personality. This will only be disregarded (and the corporate veil pierced) in very limited circumstances, which generally relate to the use of a structure for fraudulent or improper purposes.
Although from a purely Maltese perspective one need look no further than the Securitisation Act to determine the remoteness of the securitisation vehicle from the insolvency of the seller, additional steps are often taken to further alleviate investor concerns, and meet rating agencies' strict legal criteria for special purpose entities.
These include the orphaning of the securitisation vehicle and generally ensuring separateness and independence of the vehicle from the seller in its activities, processes and management.
The Securitisation Act provides that an assignment of one or more future receivables is deemed to be effective at the time of the conclusion of the original contract of assignment between the assignor and the assignee, without a new act of transfer being required to assign each such receivable on coming into existence. Accordingly (subject to the exceptions outlined in question 6.3 above), the subsequent insolvency of the seller should not have any effect on the validity and effectiveness of a prior assignment (undertaken in accordance with the provisions of the Securitisation Act) to a Maltese securitisation vehicle of future receivables that arises after such insolvency. If a sale of receivables does not relate to an already perfected assignment of future receivables, and such sale occurs after the commencement of insolvency proceedings, it would likely be treated as a separate assignment and possibly subject to a 'claw-back' by the seller's liquidator if the securitisation vehicle is found to have had actual or constructive knowledge of such insolvency proceedings at the time of the assignment (see question 6.3 above).
The Securitisation Act expressly provides that any contract entered into in connection with a securitisation transaction shall be valid and enforceable in accordance with its terms, and where the parties agree in writing as to the effects that will arise on the occurrence of a specified event, it shall not be necessary for either party to obtain any court judgment or declaration confirming that the specified event has occurred or otherwise. This provision of the Securitisation Act will be respected by the Maltese courts, thereby confirming that limited recourse clauses typically included in transaction documents entered into between securitisation vehicles and securitisation creditors will be given effect to and enforced. On this basis, provided the limited recourse clause contains appropriate wording limiting a creditor's claims (and thus the debtor's obligations) to the assets of the securitisation vehicle, the vehicle's debts should technically be reduced to the extent of those assets and the vehicle should therefore never be in a position where it cannot pay its debts as they become due.
■ Reinsurance Special Purpose Vehicle Regulations, Subsidiary Legislation 403.19 of the Laws of Malta (the "RSPV Regulations"), which allow securitisation vehicles to be established as reinsurance special purpose vehicles ("RSPVs") for the purpose of assuming insurance risk and issuing insurance-linked securities, subject to the prior authorisation of the MFSA. RSPVs can also be established as SCCs and are therefore subject to both the SCC Regulations and the RSPV Regulations.
The regulatory authority responsible for the regulation of securitisation in Malta is the MFSA, although it should be noted that a securitisation vehicle (or an SCC) requires authorisation by the MFSA only if it is established for the purpose of assuming insurance risk (i.e. RSPVs) or if it issues financial instruments to the public on a continuous basis.
(a) The Securitisation Act specifically provides for the establishment of special purpose entities for securitisation (see question 7.1 above).
Securitisation vehicles established in Malta under the Securitisation Act can be a company, partnership, trust or any other legal structure that the MFSA may expressly permit. Securitisation vehicles are typically established as limited liability companies and can be incorporated in Malta within a day or two of submission of its organisational documents to the Registry of Companies. The objects of a securitisation must be expressly limited to such matters that are necessary to carry out all or any transactions intended or required to implement or participate in a securitisation transaction and all related and ancillary acts.
The Securitisation Act does not set out any requirements for the management of securitisation vehicles (with the exception of certain requirements applicable to public securitisation vehicles – see question 8.1 below). From a corporate law perspective, a securitisation vehicle established as a private limited liability company must have at least one director, while a securitisation vehicle established as a public limited liability company must have at least two directors. A securitisation vehicle is expressly permitted by the Securitisation Act to delegate the management responsibility for the day-to-day administration of the vehicle of the assets, including the collection of any claims, to any third party including the seller.
(b) The Securitisation Act provides an attractive legal framework for securitisation transactions and the establishment of the special purpose entity (purchaser), offering a unique combination of benefits for investors and originators. As described throughout this questionnaire, the Act provides statutory solutions and greater certainty of outcomes for many of the legal challenges that investors and credit rating agencies are typically concerned with, including true sale, bankruptcy remoteness and the privileges of securitisation creditors over the vehicle's assets. These structural enhancements that are inherent to Maltese securitisation vehicles under the Act allow for competitive borrowing costs relative to any recognised issuer jurisdiction.
Moreover, the SCC option allows for a single legal entity that can create multiple segregated cells for the purpose of undertaking securitisation transactions (i.e. each cell acting as a distinct purchaser in the particular transaction for which it has been established). The SCC structure, which offers lower costs and quicker set-up time for each transaction, is ideal for asset-backed securities offering programmes or asset-based financing (or other) platforms, with many arrangers now offering these options to originators.
(c) There are no specific requirements as to the status of directors or shareholders.
Special purpose entities are typically established in Malta as securitisation vehicles subject to the provisions of the Securitisation Act. The Securitisation Act also contemplates the possibility of foreign legal structures being established as securitisation vehicles that are subject to the Securitisation Act, provided that these legal structures are established in a jurisdiction recognised by the MFSA.
To date all securitisation vehicles established under the Securitisation Act have been incorporated in Malta and the MFSA has not yet expressly recognised any particular jurisdictions in this regard. Also, the potential benefits of having a foreign vehicle established pursuant to the Securitisation Act have yet to be identified.
The main reason for selecting Malta as the jurisdiction for the establishment of the issuer SPV in securitisation transactions is the attractive legal framework and unique combination of benefits that Maltese securitisation vehicles provide to investors and originators looking to secure financing from those investors; benefits include statutory bankruptcy remoteness and true sale.
Securitisation vehicles established in Malta pursuant to the Securitisation Act can take the form of a company, partnership, trust or any other legal structure that the MFSA may expressly permit to be used for a securitisation transaction. However, securitisation vehicles are typically established as limited liability companies.
Maltese securitisation vehicles are typically 'orphaned' from the originator (for bankruptcy remoteness purposes) by establishing a Maltese purpose foundation (with no beneficiaries or owners) for the sole purpose of owning either all of the voting share capital of the vehicle or, alternatively, a 'golden' share with veto rights over key corporate actions (such as amendment of the organisational documents of the vehicle or the commencement of winding up or insolvency proceedings). However, Maltese securitisation vehicles do not, strictly speaking, need to be orphaned in this manner because the Securitisation Act provides a statutory confirmation that no insolvency proceedings relating to the originator will have any effect on a Maltese securitisation vehicle or its assets (once these have been transferred to the vehicle by the originator).
The Securitisation Act expressly provides that any contract entered into in connection with a securitisation transaction shall be valid and enforceable in accordance with its terms, and where the parties agree in writing as to the effects that will arise in the occurrence of a specified event, it shall not be necessary for either party to obtain any court judgment or declaration confirming that the specified event has occurred or otherwise. This provision of the Securitisation Act will be respected by the Maltese courts, thereby confirming that limited recourse clauses typically included in transaction documents entered into between securitisation vehicles and securitisation creditors will be given effect to and enforced.
■ any contract entered into in connection with a securitisation transaction shall be valid and enforceable in accordance with its terms, and where the parties agree in writing as to the effects that will arise on the occurrence of a specified event, it shall not be necessary for either party to obtain any court judgment or declaration confirming that the specified event has occurred or otherwise.
Accordingly, market standard non-petition clauses included in transaction documents should be given effect to and enforced by the Maltese courts in accordance with the Securitisation Act.
The Civil Code importantly provides that it shall be lawful for a creditor to subordinate, postpone, waive or otherwise modify his existing or future rights of payment, enforcement, ranking and other similar existing or future rights in favour of another person. This would generally be the case even if the relevant agreement is governed by foreign law. The Securitisation Act also recognises the right of various securitisation creditors to contractually regulate their ranking between themselves (including in the event of insolvency) in relation to the securitisation assets, ensuring that any subordination of claims between the various securitisation creditors will be respected.
Generally speaking, a Maltese court will give effect to a provision included in the transaction documents or in the company's organisational documents requiring the consent of an independent director for the taking of certain specified actions. See also question 7.4 above.
Securitisation transactions undertaken in Malta generally relate to the securitisation of foreign assets/receivables with all of the parties being located outside of Malta (and the majority of the transaction documents governed by foreign law) other than the purchaser, which would be invariably a Maltese securitisation vehicle subject to the provisions of the Securitisation Act. The advantages of establishing the purchaser as a Maltese securitisation vehicle are generally set out in question 7.2 above and elsewhere in this chapter.
The Securitisation Act distinguishes between public securitisation vehicles and those securitisation vehicles that are not public securitisation vehicles (generally referred to as private securitisation vehicles). A public securitisation vehicle is a securitisation vehicle that issues or intends to issue financial instruments to the public on a continuous basis. Public securitisation vehicles are required to be licensed by the MFSA prior to issuing financial instruments to the public. As indicated above, securitisation vehicles established as RSPVs are also subject to the prior authorisation of the MFSA.
A private securitisation vehicle is, by implication, a securitisation vehicle that does not issue or intend to issue financial instruments to the public on a continuous basis. Private securitisation vehicles are not required to be licensed by the MFSA but are required to notify the MFSA of their intention to enter into one or more securitisation transactions prior to commencing business, which notification must include certain basic corporate information of the securitisation vehicle and details of the securitisation transaction.
Other than the licensing requirement for public securitisation vehicles and RSPVs, Maltese securitisation vehicles are specifically exempt from licensing or authorisation requirements (in Malta) of any kind for the sort of activities in which they might engage – activities that would normally require licensing if undertaken by entities that are not established as securitisation vehicles (under the Investment Services Act, Banking Act or Financial Institutions Act, for example). Of particular relevance to transactions with a managed or dynamic portfolio of assets, the Securitisation Act provides that Maltese securitisation vehicles are not to be considered collective investment schemes (including in the form of an 'alternative investment fund' under the AIFMD), thereby exempting them from the local regulatory regime applicable to collective investment schemes (including the regime for alternative investment funds).
It should be noted that securitisation vehicles (whether subject to authorisation or mere notification requirements) qualify as 'financial vehicle corporations' under Regulation (EU) 1075/2013 of the European Central Bank and are accordingly required to inform the Central Bank of Malta of its existence within one week from the date on which it has taken up business. Thereafter, a securitisation vehicle is required to submit quarterly statistical reports on its assets and liabilities to the Central Bank of Malta.
Outside of any licensing requirements in its own jurisdiction, a seller of receivables to a Maltese securitisation vehicle is not required to be licensed in Malta to act as servicer and collection agent to the securitisation vehicle, nor is a third-party replacement servicer required to be licensed in Malta to provide such services.
The Securitisation Act provides that any data or information transferred within the context of a securitisation transaction shall be transferable without any restriction or limitation and that, for the purposes of the Data Protection Act (Chapter 440 of the Laws of Malta), any transfer of personal data shall be deemed to be for a purpose that concerns a legitimate interest of the transferor and transferee of such data and, accordingly, a permissible transfer of personal data.
The underlying receivables contract (if governed by Maltese law) would be subject to certain consumer protections. See question 1.2 above. However, the Securitisation Act provides that unless the terms of any transfer to a Maltese securitisation vehicle provide otherwise, the Obligor shall have no right or claim against the securitisation vehicle in connection with any obligation relating to the securitisation assets (which would include any consumer protection obligations arising under the receivables contract). The Obligor shall continue to enjoy all rights under the assigned contract against the seller who shall remain solely responsible for the performance of all obligations thereunder.
There are no currency restrictions in Malta.
The Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (in relation to securitisation positions) is applicable in Malta. In article 405 of the same Regulation, it is provided that a credit institution or investment firm can only be exposed to the credit risk of a securitisation position if originator, sponsor or original lender has explicitly disclosed that it will retain, on an ongoing basis, a material net economic interest in the securitisation position of at least 5%. Similar restrictions regarding exposure to securitisation positions also apply to alternative investment fund managers and insurers that are subject to the EU Alternative Investment Fund Managers Directive (Directive 2011/61/EU) or the EU Solvency II Directive (Directive 2009/138/EC), respectively. This has not really had an effect on the securitisation market in Malta.
See also question 8.7 below in relation to recent European regulatory developments, which do not affect the method or quantum of risk retention but which will, once they are applicable, create a direct obligation on originators to retain risk. This is currently (until 1 January 2019) an indirect requirement on EU institutional investors (pursuant to the aforementioned EU Regulation and Directives) to invest in transactions only where such risk is retained by the originator.
A fundamental part of the European Commission's Capital Markets Union initiative, Regulation (EU) 2017/2402 laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation (the Securitisation Regulation), and Regulation (EU) 2017/2401 amending Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (in relation to securitisation positions), were published in the Official Journal of the European Union on the 12 December 2017. The Regulations came into force on 1 January 2018, although the date of application of the new Regulations will be 1 January 2019, to allow European Supervisory Authorities EBA and ESMA the necessary time to develop the regulatory technical standards required to implement the Regulations. The new STR/CRR legislative package was agreed upon following lengthy negotiations by the Maltese EU Council presidency team (co-chaired by the author of this article) during the first half of 2017. These regulatory developments are not expected to have a material impact on securitisation transactions undertaken in Malta but can generally be viewed as complementary to Malta's special purpose vehicle regime – the Securitisation Act – and the various statutory enhancements that it provides to Maltese securitisation vehicles.
There are many variables that need to be taken into consideration for the purposes of assessing whether any Maltese withholding taxes should be applicable in respect of payments made by the Maltese securitisation vehicle.
In general, Maltese income tax laws impose an obligation to withhold tax in case of payments to non-residents where the said non-resident is liable to tax in Malta in respect of said income. A non-resident person would, in general, be subject to Maltese income tax if the income has a Maltese source and, either there is no specific exemption applicable in terms of Maltese domestic law, or Malta's taxing rights are not excluded in terms of any applicable double tax treaty.
■ income of the seller (the originator) arising as a result of a further deduction allowed to the securitisation vehicle to wipe out its profits.
However, the Securitisation Tax Rules provide that such income is not considered to arise in Malta (and hence taxable in Malta) if the control and management of the business of the seller (the originator) is not exercised in Malta.
■ the person as the beneficial owner of the interest is not owned and controlled by, directly or indirectly, nor acts on behalf of an individual or individuals who are ordinarily resident and domiciled in Malta.
From a timing perspective, the general principle under Maltese law is that receivability without receipt should not result in taxation. However, in case of persons engaged in trade or business the Inland Revenue allows the tax profits to be based on the accounting profits provided that this is adopted on a consistent basis.
However, the Securitisation Tax Rules specifically provide that for the purposes of determining the total income of a Maltese securitisation vehicle, income or gains shall be deemed to arise or become realised during the year in which such income or gains fall to be recognised for accounting purposes. Tax allowable deductions should also be taken in the year during which they are recognised for accounting purposes.
Thus, if the securitisation vehicle is accounting for its income on an accruals basis of accounting, the tax will be computed on such income and the same applies for deductions.
■ a further deduction to wipe out all the chargeable income of the securitisation vehicle. Such further deduction is only allowed provided the seller (originator) gives his irrevocable consent for such deduction.
These deductible expenses are deemed to be income for the seller (the originator).
The Securitisation Tax Rules provide that in case of sums payable to the seller for the transfer of a securitisation asset, such income shall be deemed to arise for the seller (originator) in the year in which the securitisation asset was transferred.
In respect of income of the seller (the originator) arising as a result of the further deduction allowed to the securitisation vehicle to wipe out its profits, the Securitisation Tax Rules provide that such income is deemed to arise for the seller (the originator) in the year in which the deduction is claimed by the securitisation vehicle.
Stamp duty is levied in Malta on documents evidencing transfers of immovable property, marketable securities (defined as holding of share capital in any company and any document representing the same) or an interest in a partnership as well as on certain specified documents such as policies of insurance. There should be no stamp duty in connection with the sale of the receivables.
VAT is payable on every supply of goods or of services where for Malta VAT purposes such supply is deemed to take place in Malta and an exemption from Malta VAT (either in terms of exempt without credit or exempt with credit) does not apply. The standard Malta VAT rate is 18%.
■ transactions, including negotiations, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring.
The supply of services consisting of the management of any investment scheme, provided that these services are limited to those activities that are specific to and essential for the core activity of the scheme. The term "investment scheme" is defined as including a securitisation vehicle as defined under the Securitisation Act.
See question 9.3 above with regard to stamp duty in respect of the sale of receivables.
With regard to VAT, if the liability to account for VAT rests with the seller, the Maltese tax authorities should not be able to enforce any claims for unpaid tax against the purchaser or sold receivables or collections.
■ it has no permanent establishment in Malta (whether through a physical branch or dependent agent).
The limited recourse clause should not be deemed to give rise to debt relief for the purchaser, as from a contractual perspective the liability of the purchaser should be always limited by such a clause. The obligations themselves would be reduced as a result of the limited recourse clause and there would therefore be no relief or forgiveness of any obligations owed.
However, it is worth pointing out that the Securitisation Tax Rules enable securitisation vehicles established in Malta to eliminate tax leakage and achieve tax neutrality in Malta in respect of the securitisation transactions for which they are established.
Indeed, if the securitisation vehicle has any remaining income after deducting all allowable expenses, it may opt to claim a further deduction of an amount which is equal to the said remaining income to wipe out its profits. In this manner, the securitisation vehicle will end up with no chargeable income.
The residual profit deduction can only be claimed by the securitisation vehicle if the seller (the originator) has given its irrevocable written consent to the vehicle to do so.
As explained above, consent of the originator is required as the amount of the residual profit deduction will be deemed to be income of the originator for the purposes of Maltese income tax. Nevertheless, this income shall only be deemed to arise in Malta (and therefore taxable in Malta) if the control and management of the originator's business is exercised in Malta. Therefore, even if an originator consents to a securitisation vehicle claiming the residual profit deduction, there should be no Maltese tax liability for originators that are not managed and controlled in Malta.