General framework

Legislation

What legislation governs securitisation in your jurisdiction? Has your jurisdiction enacted a specific securitisation law?

The Securitisation Act (Chapter 484 of the Laws of Malta) provides the legal framework for domestic and cross-border securitisation transactions which take place in and from within Malta. The act is supported by secondary legislation, including:

  • the Securitisation Cell Companies Regulations (Subsidiary Legislation 386.16 of the Laws of Malta),  which provide for the establishment of securitisation cell companies in Malta;
  • the Reinsurance Special Purpose Vehicle (RSPV) Regulations (Subsidiary Legislation 403.19 of the Laws of Malta), which provide for the establishment of securitisation vehicles as RSPVs in Malta; and
  • the Securitisation Transactions (Deductions) Rules (Subsidiary Legislation 123.128 of the Laws of Malta), which set out the Maltese tax regime relative to securitisation vehicles.

Following approval by the European Parliament and the EU Council, the following regulations aimed at facilitating the development of a securitisation market in Europe entered into force on 1 January 2018, having been finalised and agreed on during Malta’s Presidency of the Council of the European Union in 2017:

  • the EU Securitisation Regulation (2017/2402), the highlight of which is the introduction of the concept of simple, transparent and standardised (STS) securitisation; and
  • the EU Capital Requirements Amendment Regulation (2017/2401), amending the EU Capital Requirements Regulation (CRR) 575/2013 on prudential requirements for credit institutions and investment firms (in relation to securitisation positions).

Together, this legislative package became directly applicable across the European Union on 1 January 2019. The introduction of a new harmonised regime for EU securitisation was welcomed by the European Commission as an essential step towards a fully functioning Capital Markets Union, which is due to be completed by 2019.

Applicable transactions

Does your jurisdiction define which types of transactions constitute securitisations?

Three transaction types are contemplated under the Securitisation Act:

  • asset-backed securitisation;
  • synthetic securitisation; and
  • whole-business or loan securitisation.

The principal difference among the three is the manner in which the asset pool is made available to the securitisation vehicle.

In asset-backed securitisation, the securitisation vehicle acquires the asset pool from an originator. In synthetic securitisation, the vehicle assumes risk associated with the asset pool from an originator (typically through a credit-derivative contract (eg, a credit default swap)). In a whole-business or loan securitisation, the vehicle grants secured loans or other secured facilities to an originator.

Market climate

How large is the market for securitisations in your jurisdiction?

To date, 50 private securitisation vehicles have been established in Malta under the Securitisation Act, of which 22 were set up as securitisation cell companies. In addition, 51 cells have been created pursuant to the Securitisation Cell Companies Regulations. Although the Maltese securitisation market is considered to be in its infancy compared to well-developed securitisation markets, it has registered steady growth in recent years due to:

  • the country’s comprehensive and flexible regulatory framework;
  • its dynamic business infrastructure; and
  • the drive to provide an effective viable alternative to what are traditionally more influential jurisdictions in the market.

Regulation

Regulatory authorities

Which body has responsibility for the regulation of securitisation?

The Malta Financial Services Authority (MFSA) is the local authority responsible for the regulation of securitisation.

Licensing and authorisation requirements

Must originators, servicers or issuers be licensed?

Although entities serving as originators or servicers are typically licensed or authorised to carry out activities or services which would necessitate a licence or other form of appropriate authorisation by the relevant competent authority, originators and servicers need not be licensed or authorised to participate in securitisation transactions under Maltese law. However, the EU Securitisation Regulation provides that a servicer should be a regulated asset manager such as:

  • an undertakings for collective investments in transferable securities management company;
  • an alternative investment fund manager; or
  • an entity referred to in the EU Markets in Financial Instruments (MiFID) II Directive (2014/65/EU) (a MiFID entity).

 

With regard to issuers in the context of a securitisation transaction, the Securitisation Act distinguishes between public and private securitisation vehicles, which has a bearing on the applicable regulatory requirements. ‘Public’ securitisation vehicles are vehicles which issue or intend to issue financial instruments to the public on a continuous basis; therefore, they must be licensed by the MFSA before issuing any such financial instruments to the public. Securitisation vehicles established as RSPVs are also subject to prior authorisation by the MFSA pursuant to the Reinsurance Special Purpose Vehicle Regulations. ‘Private’ securitisation vehicles are exempt from the licensing requirement and need only notify the MFSA of the intent to enter into securitisation transactions by means of the appropriate notification form prescribed by the MFSA.

Maltese securitisation vehicles are otherwise exempt from the licensing requirements for any other activity in which they might engage that would normally require licensing under Maltese law, including under:

  • the Investment Services Act (Chapter 370 of the Laws of Malta);
  • the Banking Act (Chapter 371 of the Laws of Malta); and
  • the Financial Institutions Act (Chapter 376 of the Laws of Malta).

In addition, the Securitisation Act expressly provides that securitisation vehicles are not considered to be collective investment schemes; therefore, they are not subject to the regulatory regime applicable thereto.

What will the regulator consider before granting, refusing or withdrawing authorisation?

For a licence to be granted to a public securitisation vehicle, the MFSA must be satisfied that:

  • the vehicle has an adequate organisation and adequate resources to exercise its business;
  • all persons effectively directing the business of the vehicle are suitable to ensure its prudent management; and
  • the vehicle satisfies any other condition which may be imposed by the MFSA in the future.

Following receipt of an application, the MFSA may grant a licence conditionally or unconditionally, or refuse the application altogether. An application must be determined within two months of its receipt. The MFSA may impose restrictions on a licence or revoke a licence in any of the following circumstances:

  • Any document or information accompanying an application, or any information given in connection therewith, is false in any particular material or the holder of a licence has concealed from the MFSA, or failed to notify it of, any  document, information or change therein, which it was its duty to reveal or notify of under the Securitisation Act.
  • A licensed vehicle has failed to comply with any of the provisions of the Securitisation Act or any directives issued thereunder, or with any conditions under which the licence was granted.
  • A licensed vehicle is likely to become unable to meet its obligations.

As explained in response to question 5, these considerations would not extend to private securitisation vehicles.

Sanctions

What sanctions can the regulator impose?

In addition to restrictions that may be imposed on, or the revocation of, a public securitisation vehicle’s licence, the issuance of financial instruments to the public by an unauthorised securitisation vehicle is an offence under the Securitisation Act, the execution of which would render the transgressor liable to a fine not exceeding €116,468.67. The same fine applies in cases of failure to comply with other conditions, obligations, requirements, directives or orders made with respect to the licensing of public securitisation vehicles under the Securitisation Act. No such restrictions or sanctions may be enforced on private securitisation vehicles.

Public disclosure requirements

What are the public disclosure requirements for issuance of a securitisation?

Maltese securitisation legislation provides no public disclosure requirements for securitisation vehicles that do not have to be authorised by the MFSA.

 

With respect to licensed securitisation vehicles, there are no specific public disclosure requirements other than the obligation to draw up and publish a prospectus which presents sufficient information on the terms of the offer and the securities to be offered, so as to enable investors to decide to purchase or subscribe to these securities, where the offer of securities constitutes an ‘offer made to the public’ under Article 2(3) of the Companies Act (Chapter 386 of the Laws of Malta).

 

There are no further public disclosure requirements under the Securitisation Regulation. However, the originator, sponsor and securitisation vehicle must make the following information available to holders of a securitisation position, the national competent authority and, on request, potential investors:

  • information on the underlying exposures on a quarterly basis;
  • all underlying documentation that is essential for the understanding of the transaction;
  • a transaction summary or overview of the main features of the securitisation where a prospectus has not been drawn up in accordance with the EU Prospectus Regulation (2017/1129) on the prospectus to be published when securities are offered to the public;
  • the STS notification required under the Securitisation Regulation in the case of STS securitisations;
  • quarterly investor reports; and
  • any inside information relating to the securitisation that the originator, sponsor or securitisation special purpose entity is obliged to make public in accordance with the EU Market Abuse Regulation (596/2014) on insider dealing and market manipulation or, where such regulation is not applicable, any significant event (eg, a change in the structural features that can materially affect the performance of the securitisation) or, in the case of STS securitisations, where the securitisation ceases to meet the STS requirements or where the competent authorities have taken remedial or administrative actions.

Private and public securitisation vehicles constitute ‘financial vehicle corporations’ under EU Regulation 1075/2013 of the European Central Bank concerning statistics on the assets and liabilities of financial vehicle corporations engaged in securitisation transactions; therefore, they are obliged to inform the Central Bank of Malta within one week from the date of commencement of business.

What are the ongoing public disclosure requirements following a securitisation issuance?

As a result of their qualification as ‘financial vehicle corporations’, all securitisation vehicles are required to submit quarterly statistical reports to the Central Bank of Malta. There are no other public disclosure requirements following a securitisation issuance. However, securitisation vehicles are subject to the customary obligations applicable to all companies to file their annual accounts and annual returns with the Maltese Registry of Companies and their annual tax returns with the tax authorities.

Eligibility

Originators

Outside licensing considerations, are there any restrictions on which entities can be originators?

There are no restrictions on which entities can serve as originators.

Receivables

What types of receivables or other assets can be securitised?

The definition of ‘securitisation asset’ under the Securitisation Act is broad in scope and permits any asset – whether existing or future, movable or immovable, or tangible or intangible – to form part of a securitisation transaction, including risks.

While there are no restrictions on what can be securitised, assets that are typically securitised include:

  • residential loans;
  • consumer loans;
  • lease receivables; and
  • trade receivables.
Investors

Are there any limitations on the classes of investors that can participate in an offering in a securitisation transaction?

There are no limitations on the classes of investors that may participate in securitisation transactions under local legislation.

However, under the Securitisation Regulation, the selling of securitisation positions to ‘retail clients’ (as defined in the EU MiFID II Directive (2014/65/EU) is prohibited, except under the following strict conditions:

  • A suitability test is carried out to verify that the instrument is suitable to the client.
  • Where the suitability test is satisfied and the retail client has a financial instrument portfolio that does not exceed €500,000, the seller must ensure that the client does not invest an aggregate amount exceeding 10% of the client’s financial instrument portfolio in securitisation positions and that the initial minimum amount invested in one or more securitisation position does not exceed €10,000.

Institutional investors are required to carry out a due diligence assessment in order to properly assess the risks arising from a securitisation position and establish written procedures that are proportionate to the risk profile of the securitisation position in order to monitor such risks on an ongoing basis, to the benefit of end investors.

 

Custodians/servicers

Who may act as custodian, account bank and portfolio administrator or servicer for the securitised assets and the securities?

While there are no limitations on who may provide the services of a custodian, account bank, portfolio administrator or servicer, a service provider must be in possession of the appropriate licence or licences required in order for it to provide any of the aforementioned services, irrespective of the fact that the securitisation vehicle is at the receiving end of such services.

Public-sector involvement

Are there any special considerations for securitisations involving receivables with a public-sector element?

No special considerations exist where the receivables of a securitisation transaction have a public-sector element.

Transactional issues

SPV forms

Which forms can special purpose vehicles take in a securitisation transaction?

While the typical structure employed in the setting up of securitisation vehicles is the limited liability company, a Maltese securitisation vehicle may take various forms. The Securitisation Act allows a securitisation vehicle to be constituted as a company (including an investment company), a commercial partnership, a trust or any other legal structure which the MFSA may, by notice, permit to be used for a securitisation transaction.

In addition, the Civil Code (Chapter 16 of the Laws of Malta) specifically allows for the use of foundations as vehicles for securitisation transactions, with the purpose foundation being the most suitable for use by securitisation vehicles.

SPV formation process

What is involved in forming the different types of SPVs in your jurisdiction?

Irrespective of which form the securitisation vehicle takes, its constitutive document (whether the memorandum and articles of association for companies or the deed of trust or foundation for trusts or foundations) must expressly state that it is a vehicle established under the Securitisation Act and that the objects and purposes of the vehicle will be limited to matters which are necessary to carry out transactions intended or required to implement or participate in a securitisation transaction and all related and ancillary acts.

The timeframe required for registration of a company may be as little as 48 hours from the filing of the organisational documents and the payment of the necessary registration fee. For companies, the amount of the fee depends on the amount of the authorised share capital of the company and ranges from €245 to €2,250. For foundations, the registration fee is tied to the value of the initial assets of the foundation and ranges from €350 to €1,747. No registration fees apply to trusts.

Governing law

Is it possible to stipulate which jurisdiction’s law applies to the assignment of receivables to the SPV?

The Securitisation Act expressly allows the parties to a securitisation transaction to freely select any law to govern the contracts which relate or are ancillary to a securitisation transaction.  While it would be prudent to ensure that the requisite formalities under Maltese law are satisfied, in practice, the assignment of receivables agreements are typically governed by the law of the jurisdiction in which the receivables are situated, which is invariably not Maltese law.

Asset acquisition and transfer

May an SPV acquire new assets or transfer its assets after issuance of its securities? Under what conditions?

No restrictions or conditions apply to the acquisition or transfer of assets by a securitisation vehicle following the issuance of its securities.

Registration

What are the registration requirements for a securitisation?

A securitisation vehicle is not required to obtain a licence, permit or authorisation from the MFSA unless it is established as a public securitisation vehicle or as an RSPV. Private securitisation vehicles need not be licensed by the MFSA but must pre-notify the MFSA, on the appropriate form, of their intent to enter into one or more securitisation transactions.

Obligor notification

Must obligors be informed of the securitisation? How is notification effected?

Yes, an obligor must be informed of the securitisation. In effect, until due notice of an assignment of assets to a securitisation vehicle has been given to a debtor, an assignee may not exercise their rights towards third parties.

An assignment is not generally effective against third parties unless due notice has been given to the debtor by means of a judicial act. However, a debtor will be deemed to be notified of an assignment of assets to a securitisation vehicle if they are notified in writing by any means or through the publication of a notice in a daily newspaper circulated wholly or mainly in the jurisdiction in which the obligor or most of the obligors reside.

What confidentiality and data protection measures are required to protect obligors in a securitisation? Is waiver of confidentiality possible?

Under the Securitisation Act, any data or information transferred within the context of a securitisation transaction is transferable without restriction or limitation. However, such data or information will retain its secret and confidential status for other effects and purposes. With respect to obligations deriving from the Data Protection Act (Chapter 586 of the Laws of Malta), the subsidiary legislation issued thereunder and the EU General Data Protection Regulation (GDPR) (2016/679), any transfer of personal data must be deemed to be for a purpose that concerns a legitimate interest of the transferor and the transferee, excluding where such interests are overridden by the interest to protect the fundamental rights and freedoms of the data subject. Any other processing activity carried out in the context of the securitisation transaction must be undertaken in reliance on at least one of the lawful bases of processing under Article 6 of the GDPR.

Data subjects must be notified of:

  • the legal basis for processing their personal data;
  • the transfer of the personal data to a third country (if applicable); and
  • any other mandatory notice requirements as set out in Article 13 or 14 of the GDPR (as applicable) at the point of the data’s collection.

In addition, any entity which is involved in the processing of personal data must comply with the provisions set out in the Data Protection Act and the GDPR, including the general principles relating to the processing of personal data (eg, data minimisation, accountability and transparency).

Maltese securitisation law provides no instances in which the confidential status attached to such data or information may be waived. 

Credit rating agencies

Are there any rules regulating the relationship between credit rating agencies and issuers? What factors do ratings agencies focus on when rating securitised issuances?

The relationship between credit rating agencies and issuers is not subject to regulation or restriction under Maltese law.

When assessing an issuer’s creditworthiness and the viability of its securities, a credit rating agency will typically consider a variety of factors. An in-depth analysis of the credit risk associated with the underlying assets is generally undertaken in order to evaluate any potential risk to cash flow. Credit rating agencies analyse the legal integrity of the structure governing the transaction and the security over, and procedures and mechanism for administering the underlying assets and related cash flows. An assessment is also made with respect to the creditworthiness of the relevant parties to the transaction, such as those providing credit enhancement and liquidity support, as well as those involved in payments to or from the securitisation vehicle.

The loan-by-loan disclosure requirements under the EU Credit Rating Agency Regulation (462/2013) have been reproduced in the Securitisation Regulation.

Directors’ and officers’ duties

What are the chief duties of directors and officers of SPVs? Must they be independent of the originator and owner of the SPV?

Directors of securitisation vehicles are subject to the general fiduciary duties as stipulated in the Civil Code. Under the Companies Act, directors must act honestly and in good faith in the best interests of the company and are responsible for the general governance of the company and its proper administration and management, as well as the general supervision of its affairs. In particular, directors:

  • must exercise a degree of care, diligence and skill that would be exercised by a reasonably diligent person having:
    • the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by or entrusted to the director in relation to the company; and
    • the actual knowledge, skill and experience that the director has;
  • must not make secret or personal profits from their position without the consent of the company, nor make personal gain from confidential company information;
  • must ensure that their personal interests do not conflict with the interests of the company;
  • must not use any property, information or opportunity of the company for their own or anyone else's benefit, nor obtain benefit in any other way in connection with the exercise of their powers, except with the consent of the company in a general meeting or as permitted by the company’s constitutive document; and
  • must exercise their powers for the purposes for which they were conferred and must not misuse such powers.

 

Risk exposure

Are there regulations requiring originators and arrangers to retain some exposure to risk in a securitisation?

Securitisation transactions should not be structured in such a way as to avoid retention requirements. The Securitisation Regulation sets out risk-retention requirements which are intended to align the interests of the investors with those of the originator, sponsor or original lender. The regulation states that at least one of these parties must retain a material net economic interest in the securitisation transaction of at least 5% on an on-going basis, which will be measured at the origination and determined by the notional value for off-balance-sheet items. The material net economic interest must not be split among different types of retainer. In the absence of an agreement as to who will be the risk-retention holder, the originator will retain the material net economic interest.

The regulation identifies the following modes of risk retention:

  • the retention of no less than 5% of the nominal value of each of the tranches sold or transferred to investors;
  • the retention of the originator’s interest of no less than 5% of the nominal value of each of the securitised exposures in the case of revolving securitisations or securitisations of revolving exposures;
  • the retention of randomly selected exposures equivalent to no less than 5% of the nominal value of the securitised exposures, provided that selection is made from a pool comprising no less than 100 potentially securitised exposures;
  • the retention of the first loss tranche of no less than 5% of the nominal value of the securitised exposures; or
  • the retention of a first loss exposure of no less than 5% of every securitised exposure in the securitisation.

Notwithstanding the above, securitisation transactions in which the credit risk associated with an exposure (or pool of exposures) is not tranched fall outside the scope of the regulation. Therefore, the aforementioned risk-retention requirement would not apply to a transaction that does not involve tranching of exposures.

Security

Types

What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?

In a typical security package tied to a securitisation, investors are granted a range of security interests over the vehicle’s assets and rights, including its rights under:

  • the receivables;
  • bank accounts; and
  • various transaction documents.

Locally, the most common types of security that can be taken over the securitised assets are assignments and pledges.

The Securitisation Act provides that, in addition to any security granted to them, investors enjoy a special privilege over the securitisation assets. This privilege extends to:

  • the proceeds derived from such securitisation assets;
  • any funds received in payment; and
  • any other assets acquired with those proceeds.

Such privilege ranks before all other claims at law over the securitisation vehicle’s assets, except for other securitisation creditors which have been granted a prior ranking with the consent or knowledge of the investors.

As securitisation transactions and all related and ancillary acts are typically governed by the law of the underlying assets, this privilege aims to ensure that all valid security over securitisation assets is enforced and is the highest-ranking privilege of the investors under Maltese law, irrespective of the governing law of the security interests.

Perfection

How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?

Perfection of the security depends on the type of security interest and must adhere to the governing law of the security interest, which – as stated above – is generally not Maltese. While requirements vary between jurisdictions, the interest of an investor is generally perfected through the registration of the interest in a public register or by way of notification or acknowledgement of such interest, to or from the debtor, as applicable.

Enforcement

How do investors enforce their security interest?

Security interests are typically granted to a security trustee to hold for the benefit of the investors and are enforceable by the trustee on behalf of the investors only in the event of a default. Investors do not have the right to enforce their security interests directly; however, they can generally direct the security trustee to do so. The process of enforcement varies depending on the terms of the particular security interest.

Commingling risk

Is commingling risk relating to collections an issue in your jurisdiction?

In order to prevent or mitigate commingling risk relating to collections, the Securitisation Act provides that in the event of insolvency proceedings taken against the originator (including any dissolution and winding-up proceedings, company recovery procedure, company reconstruction or proceedings affecting creditor rights), the following should not be affected:

  • the securitisation vehicle;
  • any assets acquired or risks assumed by the vehicle;
  • any other assets of the vehicle, including any cash flows or other proceeds owing to the vehicle; or
  • any payments due by the underlying debtors in connection with the securitised assets.

Taxation

Originators

What are the primary tax considerations for originators in your jurisdiction?

The originator may be subject to tax considerations in connection with the securitisation transaction depending on:

  • the jurisdiction in which the originator is a tax resident; and
  • whether any assets are being transferred to the securitisation vehicle as part of the transaction.

Applicable tax laws provide that the amount claimed as a deduction by the securitisation vehicle should give rise to an amount of deemed income at the level of the originator. This income should be considered to have arisen in Malta in the hands of the originator, unless the control and management of the originator’s business take place elsewhere.

 

Issuers

What are the primary tax considerations for issuers in your jurisdiction? What structures are used to avoid entity-level taxation of issuers?

According to the Securitisation Transactions (Deductions) Rules, a securitisation vehicle is generally subject to income tax on its income and gains (after allowable deductions) arising in the year in which such income or gains are recognised for accounting purposes.

When determining the total chargeable income of a securitisation vehicle, as well as claiming any allowable expenses or outgoings under the Income Tax Act (Chapter 123 of the Laws of Malta), the following deductions may also be claimed:

  • any sum paid by the securitisation vehicle to the originator for the transfer of the securitisation asset or the transfer of any risks;
  • premiums, interest or discounts connected to the financial instruments issued to, or funds borrowed by, the securitisation vehicle when financing the acquisition of the securitisation asset or the assumption of risks; and
  • any expenditure incurred by the securitisation vehicle in respect of its day-to-day administration (or, if the administration is delegated, the fees paid for the administration services), including expenditure relating to statutory requirements and its assets and risks.

The relevant rules stipulate that any item of expenditure or outgoings considered tax deductible in terms of both the Securitisation Transactions (Deductions) Rules and the Income Tax Act may be deducted only once.

The rules also grant the securitisation vehicle the option of claiming, as a further deduction, an amount equal to any chargeable income remaining after deducting all allowable expenditure referred to above. This optional reduction effectively cancels out the chargeable income of a securitisation vehicle. In order for this option to be exercised, the Commissioner for Revenue must be satisfied that the originator has given its irrevocable written consent. If exercised, the amount of the optional deduction will be deemed to be chargeable income in the hands of the originator of the particular securitisation asset (see above).

Therefore, through the combined application of the allowable deductions under the Income Tax Act and the Securitisation Transactions (Deductions) Rules, as well as claiming a deduction on any remaining chargeable income, the securitisation vehicle can eliminate any tax leakage and achieve tax neutrality.

Investors

What are the primary tax considerations for investors?

The taxation of investors will depend on the jurisdiction in which they are tax resident. From a Maltese tax perspective, no withholding taxes apply to dividends, interest or other payments made to non-resident investors in a securitisation vehicle. Further, such payments are not subject to tax unless they are received by persons who are resident or domiciled in Malta.

 

Bankruptcy

Bankruptcy remoteness

How are SPVs made bankruptcy-remote?

Securitisation vehicles established under the Securitisation Act are bankruptcy-remote by operation of law. The act provides that no insolvency proceedings taken in relation to the originator under any law may affect:

  • the securitisation vehicle;
  • the assets acquired or risks assumed by such vehicle; or
  • any other assets of the securitisation vehicle, including any:
    • cash-flows;
    • payments due by the underlying debtors in connection with the securitised assets; or
    • other proceeds owing to the vehicle.

Further, bankruptcy-remoteness can be achieved under the Securitisation Act through:

  • placing restrictions on the securitisation vehicle to prevent it from incurring liabilities outside those contemplated by the securitisation by expressly limiting the objects and purposes of the vehicle to such matters which are necessary to carry out securitisation transactions and all related and ancillary acts;
  • prohibiting any person – with the exception of securitisation creditors – from demanding the issuance or enforcement of any precautionary act or warrant against the securitisation vehicle, except where the court is satisfied that there has been fraud on the part of the vehicle;
  • allowing any securitisation creditor, or class thereof, in the constitutive document of the securitisation vehicle, the power to demand or place the securitisation vehicle under any:
    • dissolution and consequential winding-up proceedings;
    • company recovery procedure;
    • company reconstruction; or
    • proceedings affecting creditor rights generally; or
  • allowing the securitisation vehicle to enter into any agreement through which its counterparties accept to restrict or waive their right to commence:
    • dissolution and winding-up proceedings;
    • company recovery procedures;
    • company reconstruction; or
    • any proceedings affecting the rights of creditors generally.
True sale

What factors would a court in your jurisdiction consider in making a determination of true sale of the underlying assets to the SPV (eg, absence of recourse for credit losses, arm’s length)?

Under the Securitisation Act, a transfer or assignment of assets 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 any form of recharacterisation or to claims of the creditors of an insolvent originator. However, the concept of ‘true sale’ will be disregarded by a Maltese court in the following circumstances:

 

  • There is fraud on the part of the securitisation vehicle.
  • The assignment was entered into at a time in which the securitisation vehicle knew (or should have known) that:
    • an application for the dissolution and winding up of the originator by reason of insolvency was pending; or
    • the originator had taken formal steps to effect its dissolution and winding up by reason of insolvency.
Consolidation of assets and liabilities

What are the factors that a bankruptcy court would consider in deciding to consolidate the assets and liabilities of the originator and the SPV in your jurisdiction?

A Maltese securitisation vehicle is statutorily bankruptcy-remote from the originator. The Securitisation Act provides that insolvency proceedings taken in relation to the originator have no effect on the securitisation vehicle or its assets. 

Moreover, there is no general principle in Maltese insolvency law to enable a Maltese court to consider the assets and liabilities of one company as though they were assets and liabilities of another company for the purposes of liquidation or administration. It is only in limited circumstances (eg, where the limited liability of a company is found to have been used for fraudulent or improper purposes) that the doctrine of separate legal personality is disregarded and the corporate veil pierced.

Updates and trends

Recent developments

Are there any rules governing securitisations pending in your jurisdiction or reforms under way, such as prohibitions on financial firms betting against the securities they package, improved disclosure and oversight of the asset-backed securities market, rules limiting bank compensation structures that incentivise risk, etc?

Following the coming into force of the Securitisation Regulation and the related EU CRR Amendment Regulation, a circular was issued by the MFSA on 7 February 2019 addressed to securitisation market participants, informing interested stakeholders of the new EU securitisation framework which took effect on 1 January 2019. No other rules governing securitisations or reforms are envisaged at present.

Law stated date

Correct on

Give the date on which the information above is accurate.

30 May 2019.