Regulation and liability

Reporting obligations

Are there any reporting obligations that are imposed after offering of debt securities? What information would be included in such reporting?

Yes, issuers must publish and make available to the public an annual report and audited accounts within four months of the end of the financial period to which they relate. The annual report will be lodged with the Listing Authority at the earliest opportunity, but in any event within four months of the end of the financial period to which it relates. Annual financial statements may need to be consolidated. If the issuer is required to prepare consolidated financial statements, these should comprise:

  • consolidated accounts prepared according to international accounting standards as adopted by the European Union; and
  • annual accounts of the parent company prepared in accordance with the national law of the member state in which the parent company is registered or incorporated.

If an issuer is not required to prepare consolidated accounts, the annual financial statements will be made up of the annual accounts prepared in accordance with the national law of the member state in which the issuer is registered or incorporated. Failure to comply with the obligation to publish an annual report and audited accounts results in a suspension of the trading of bonds.

Further, issuers must publish and make available to the public their unaudited half-yearly report within two months of the end of the period to which it relates.

Such financial reports must remain publicly available for at least 10 years.

Liability regime

Describe the liability regime related to debt securities offerings. What transaction participants, in addition to the issuer, are subject to liability? Is the liability analysis different for debt securities compared with securities of other types?

The transaction participants subject to liability arising from debt security offerings are the issuer’s directors who assume direct responsibility for all information contained in the prospectus. Guarantors of debt securities will typically stand as surety jointly and severally with the issuer and irrevocably and unconditionally guarantee the due and punctual performance of all of the obligations undertaken by the issuer of the bonds. Accordingly, guarantors will typically undertake to pay all amounts of principal and interest which may become due and payable by the issuer to the bondholders under the bonds, within a fixed timeframe from the date such amount falls due and remains unpaid by the issuer.

Remedies

What types of remedies are available to the investors in debt securities?

In the case of unsecured bonds, the bonds, as and when issued and allotted, will constitute the general, direct, unsecured and unconditional obligations of the issuer and, where guaranteed, will be guaranteed in respect of both the interest due and the principal amount under said bonds by the guarantor jointly and severally. Such unsecured bonds must always rank equally without any priority or preference among themselves and must rank without priority or preference over all of the issuer’s unsecured indebtedness. Third-party security interests may be registered, which will rank in priority to the bonds against the assets of the issuer.

Enforcement

What sanctioning powers do the regulators have and on what grounds? What are the typical results of regulatory inquiry or investigation?

Sanctioning powers of the regulators comprise mainly suspension of trading or delisting.

In general, an issuer must give effect to, comply with and ensure the fulfilment of the terms of the prospectus as approved by the Listing Authority. Failure to strictly adhere to these obligations and to the continuing obligations set out in the Listing Rules is considered a serious breach and will result in administrative sanction, including but not limited to the imposition of a penalty, the publication at the issuer’s expense of a public statement relating to the breach, or to both, or to other sanctions allowed by the Listing Rules or by the Financial Markets Act commensurate to the seriousness of such breaches.

In terms of Section 1.14 of the Listing Rules, if the Listing Authority establishes that the Listing Rules have been infringed or has reasonable grounds to suspect that the Listing Rules have been infringed, it may:

  • suspend an admission to trading for a maximum of 10 working days (renewable until the relative breach is resolved);
  • prohibit or suspend advertisements for a maximum of 10 working days;
  • suspend or ask the relevant regulated markets to suspend trading on a regulated market for a maximum of 10 working days;
  • prohibit trading on a regulated market; or
  • make public the fact that an issuer or any other person subject to the Listing Rules is failing to comply with its obligations.

There may also be cases where listing should be cancelled without suspension intervening. In such cases, the Listing Authority may discontinue the listing of any security, if, among other things, it is satisfied that, owing to special circumstances, normal regular dealings in any security are no longer possible.

Tax liability

What are the main tax issues for issuers and bondholders?

Malta taxes on interest. Since interest is payable in respect of a bond – which is the subject of a public issue – unless the issuer is otherwise instructed by a bondholder that is entitled to receive the interest gross of any withholding tax, or if the bondholder does not fall within the definition of a ‘recipient’ in terms of the Income Tax Act, interest will be paid to such person net of a final withholding tax, which is currently at the rate of 15% (10% in the case of certain types of collective investment scheme) of the gross amount of the interest.

On the assumption that the bonds would not fall within the definition of “shares and stocks and such like instrument that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return”, to the extent that the bonds are held as capital assets by the bondholder, no tax on capital gains should be chargeable in respect of a transfer of the bonds.

In terms of the Duty on Documents and Transfers Act, duty is chargeable, among other things, on the transfer or transmission causa mortis of marketable securities. A marketable security is defined in the said legislation as “a holding of share capital in any company and any document representing the same”. Consequently, bonds should not be treated as constituting marketable securities within the meaning of the legislation and, therefore, the transfer or transmission thereof should not be chargeable to duty. Further, even if the bonds constitute financial instruments of a company quoted on a regulated market, redemptions and transfers of the bonds should, in any case, be exempt from Maltese duty.