Securitisation 2017 - Securitization & Structured Finance

1 Receivables Contracts

1.1 Formalities. In order to create an enforceable debt obligation of the obligor to the seller: (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a binding contract arise as a result of the behaviour of the parties?

(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.

1.2 Consumer Protections. Do your jurisdiction's laws: (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?

(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 abovementioned 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 limit 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.

1.3 Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?

The law does not distinguish between receivables owed by 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.

2 Choice of Law – Receivables Contracts

2.1 No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in your jurisdiction that will determine the governing law of the contract?

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.

The Securitisation Act further expressly provides that the parties to a securitisation transaction shall be free to choose any law to govern contracts relating or ancillary to a securitisation transaction.

In accordance with the Rome I Regulation, where the parties do not specify a law in terms of Article 3 of the Rome I Regulation, the applicable law will be determined in light of the nature of the relevant contract in terms of Article 4 of the Rome I Regulation. In the case of receivables contracts, the contract shall be governed by:

(a) the law where the party required to effect the characteristic performance of the contract has their habitual residence;

(b) the law of another jurisdiction, if it emerges from the circumstances of the case that the contract is manifestly more closely connected to that jurisdiction; or

(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.

2.2 Base Case. If the seller and the obligor are both resident in your jurisdiction, and the transactions giving rise to the receivables and the payment of the receivables take place in your jurisdiction, and the seller and the obligor choose the law of your jurisdiction to govern the receivables contract, is there any reason why a court in your jurisdiction would not give effect to their choice of law?

Maltese courts would apply Article 3 of Rome I which allows the contracting parties to freely choose their governing law. It should be noted, however, that:

(a) in terms of the Rome I Regulation, there are certain instances where other laws may prevail irrespective of the choice of governing law including: (i) in the case of overriding mandatory provisions or the public policy of the forum; (ii) where all other elements relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, the choice of the parties does not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement; and (iii) where all other elements relevant to the situation at the time of choice are located in one or more Member States of the European Communities, the parties' choice of applicable law other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum, which cannot be derogated from by agreement; and

(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.

2.3 Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in your jurisdiction but the obligor is not, or if the obligor is resident in your jurisdiction but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in your jurisdiction give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such as that between the seller and the obligor under the receivables contract?

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.

2.4 CISG. Is the United Nations Convention on the International Sale of Goods in effect in your jurisdiction?

No, it is not.

3 Choice of Law – Receivables Purchase Agreement

3.1 Base Case. Does your jurisdiction's law generally require the sale of receivables to be governed by the same law as the law governing the receivables themselves? If so, does that general rule apply irrespective of which law governs the receivables (i.e., your jurisdiction's laws or foreign laws)?

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.

Article 14 of the Rome I Regulation provides that the law governing the underlying receivables will determine the following matters:

whether it can be assigned;
the relationship between the assignee and the debtor;
the conditions under which the assignment or subrogation can be invoked against the debtor; and
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.

3.2 Example 1: If (a) the seller and the obligor are located in your jurisdiction, (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of your jurisdiction to govern the receivables purchase agreement, and (e) the sale complies with the requirements of your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller, the obligor and other third parties (such as creditors or insolvency administrators of the seller and the obligor)?

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.

3.3 Example 2: Assuming that the facts are the same as Example 1, but either the obligor or the purchaser or both are located outside your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller), or must the foreign law requirements of the obligor's country or the purchaser's country (or both) be taken into account?

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.

3.4 Example 3: If (a) the seller is located in your jurisdiction but the obligor is located in another country, (b) the receivable is governed by the law of the obligor's country, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the obligor's country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the obligor's country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller) without the need to comply with your jurisdiction's own sale requirements?

Yes. See question 3.1 above.

3.5 Example 4: If (a) the obligor is located in your jurisdiction but the seller is located in another country, (b) the receivable is governed by the law of the seller's country, (c) the seller and the purchaser choose the law of the seller's country to govern the receivables purchase agreement, and (d) the sale complies with the requirements of the seller's country, will a court in your jurisdiction recognise that sale as being effective against the obligor and other third parties (such as creditors or insolvency administrators of the obligor) without the need to comply with your jurisdiction's own sale requirements?

Yes. See question 3.1 above.

3.6 Example 5: If (a) the seller is located in your jurisdiction (irrespective of the obligor's location), (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the purchaser's country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the purchaser's country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller, any obligor located in your jurisdiction and any third party creditor or insolvency administrator of any such obligor)?

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.

4 Asset Sales

4.1 Sale Methods Generally. In your jurisdiction what are the customary methods for a seller to sell receivables to a purchaser? What is the customary terminology – is it called a sale, transfer, assignment or something else?

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 what 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.

4.2 Perfection Generally. What formalities are required generally for perfecting a sale of receivables? Are there any additional or other formalities required for the sale of receivables to be perfected against any subsequent good faith purchasers for value of the same receivables from the seller?

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 acknowledgement 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.

Article 1484A of the Civil Code, however, provides that notice of an assignment need not fulfil the aforementioned formalities and could instead be satisfied by simple notification in writing (by any means), where in the case of an assignment of one or more debts:

the assignor is a trader (i.e. a person that exercises acts of trade in his own name);
the debts being assigned arise out of or in connection with the trade or business being carried out by the trader; and
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.

4.3 Perfection for Promissory Notes, etc. What additional or different requirements for sale and perfection apply to sales of promissory notes, mortgage loans, consumer loans or marketable debt securities?

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 in 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.

4.4 Obligor Notification or Consent. Must the seller or the purchaser notify obligors of the sale of receivables in order for the sale to be effective against the obligors and/or creditors of the seller? Must the seller or the purchaser obtain the obligors' consent to the sale of receivables in order for the sale to be an effective sale against the obligors? Whether or not notice is required to perfect a sale, are there any benefits to giving notice – such as cutting off obligor set-off rights and other obligor defences?

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 as acknowledged the assignment.

The Civil Code provides that in default of notice being given to the Obligor:

the Obligor may not set up the assignment against the seller, and if he pays the debt to him he is thereby discharged;
if the seller, after having assigned the debt to a purchaser, makes a second assignment thereof to another person who is in good faith, such other person, if he has given notice of the assignment made in his favour, shall be preferred to the former purchaser;
if the creditors of the seller shall sue out a garnishee order attaching the sum due in the hands of the Obligor, they shall be preferred to the purchaser, even though they have become creditors only after the assignment; and
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.

The Securitisation Act importantly provides that when a securitisation asset is assigned to a Maltese securitisation vehicle in accordance with the Securitisation Act (including the relevant debtor notification formalities, although not as onerous as the general Civil Code requirements), the assignment will be treated as final, absolute and binding on the seller, the purchaser and on all third parties, and the assignment shall not be subject to:

annulment, rescission, revocation or termination, variation or abatement by any person and for any reason whatsoever;
any rights of the creditors of the seller for any reason whatsoever; or
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.

4.5 Notice Mechanics. If notice is to be delivered to obligors, whether at the time of sale or later, are there any requirements regarding the form the notice must take or how it must be delivered? Is there any time limit beyond which notice is ineffective – for example, can a notice of sale be delivered after the sale, and can notice be delivered after insolvency proceedings have commenced against the obligor or the seller? Does the notice apply only to specific receivables or can it apply to any and all (including future) receivables? Are there any other limitations or considerations?

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.

4.6 Restrictions on Assignment – General Interpretation. Will a restriction in a receivables contract to the effect that "None of the [seller's] rights or obligations under this Agreement may be transferred or assigned without the consent of the [obligor]" be interpreted as prohibiting a transfer of receivables by the seller to the purchaser? Is the result the same if the restriction says "This Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]" (i.e., the restriction does not refer to rights or obligations)? Is the result the same if the restriction says "The obligations of the [seller] under this Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]" (i.e., the restriction does not refer to rights)?

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.

4.7 Restrictions on Assignment; Liability to Obligor. If any of the restrictions in question 4.6 are binding, or if the receivables contract explicitly prohibits an assignment of receivables or "seller's rights" under the receivables contract, are such restrictions generally enforceable in your jurisdiction? Are there exceptions to this rule (e.g., for contracts between commercial entities)? If your jurisdiction recognises restrictions on sale or assignment of receivables and the seller nevertheless sells receivables to the purchaser, will either the seller or the purchaser be liable to the obligor for breach of contract or tort, or on any other basis?

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 beach 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.

4.8 Identification. Must the sale document specifically identify each of the receivables to be sold? If so, what specific information is required (e.g., obligor name, invoice number, invoice date, payment date, etc.)? Do the receivables being sold have to share objective characteristics? Alternatively, if the seller sells all of its receivables to the purchaser, is this sufficient identification of receivables? Finally, if the seller sells all of its receivables other than receivables owing by one or more specifically identified obligors, is this sufficient identification of receivables?

In the case of an assignment that falls within the parameters of 1484A of the Civil Code (see question 4.2):

classes of existing debts may be assigned provided the Obligor is identified in the contract of assignment; and
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.

Existing Assets. With regard to existing receivables, the Securitisation Act provides that an assignment of receivables from a seller to a Maltese securitisation vehicle shall be valid and effective if the assignment identifies at least two of the following features of the class of receivables being subject to the assignment (so as to enable any interested party to reasonably determine which receivables are included in the assignment):

the type of debt or asset or contract giving rise to the debt;
the class or type of Obligors; and/or
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.

Future receivables. With regard to future receivables the Securitisation Act provides that an assignment of future receivables shall be valid and effective provided that it identifies certain key features of the future receivables (as specified by the Securitisation Act) that will enable any interested party to reasonably determine which receivables are included in the assignment and it shall not be necessary to specify the name of the Obligor or debtors, the date or the amount of any particular debt. The features that must be identified are at least one of:

the type of debt or asset or contract giving rise to the debt;
the class or type of debtors; and/or
the assets (including future assets) which give rise to the receivables.

And at least one of:

the time period during which the debt may arise; and/or
the repayment period when the debts may fall due.

4.9 Recharacterisation Risk. If the parties describe their transaction in the relevant documents as an outright sale and explicitly state their intention that it be treated as an outright sale, will this description and statement of intent automatically be respected or is there a risk that the transaction could be characterised by a court as a loan with (or without) security? If recharacterisation risk exists, what characteristics of the transaction might prevent the transfer from being treated as an outright sale? Among other things, to what extent may the seller retain any of the following without jeopardising treatment as an outright sale: (a) credit risk; (b) interest rate risk; (c) control of collections of receivables; (d) a right of repurchase/redemption; (e) a right to the residual profits within the purchaser; or (f) any other term?

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 re-characterisation 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 re-characterised. 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.

4.10 Continuous Sales of Receivables. Can the seller agree in an enforceable manner to continuous sales of receivables (i.e., sales of receivables as and when they arise)? Would such an agreement survive and continue to transfer receivables to the purchaser following the seller's insolvency?

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.

4.11 Future Receivables. Can the seller commit in an enforceable manner to sell receivables to the purchaser that come into existence after the date of the receivables purchase agreement (e.g., "future flow" securitisation)? If so, how must the sale of future receivables be structured to be valid and enforceable? Is there a distinction between future receivables that arise prior to versus after the seller's insolvency?

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.

4.12 Related Security. Must any additional formalities be fulfilled in order for the related security to be transferred concurrently with the sale of receivables? If not all related security can be enforceably transferred, what methods are customarily adopted to provide the purchaser the benefits of such related security?

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).

The Securitisation Act further provides that:

unless the assignment agreement expressly provides otherwise, the assignment of a debt shall also include every suretyship, warranty or indemnity for the payment of the debt;
the assignment of a debt shall include every suretyship, warranty or indemnity accessory to the debt, and this notwithstanding any contractual prohibition or restriction against such assignment of the debt in the contract of suretyship, guarantee or indemnity; and
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.

4.13 Set-Off; Liability to Obligor. Assuming that a receivables contract does not contain a provision whereby the obligor waives its right to set-off against amounts it owes to the seller, do the obligor's set-off rights terminate upon its receipt of notice of a sale? At any other time? If a receivables contract does not waive set-off but the obligor's set-off rights are terminated due to notice or some other action, will either the seller or the purchaser be liable to the obligor for damages caused by such termination?

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.

4.14 Profit Extraction. What methods are typically used in your jurisdiction to extract residual profits from the purchaser?

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.

5 Security Issues

5.1 Back-up Security. Is it customary in your jurisdiction to take a "back-up" security interest over the seller's ownership interest in the receivables and the related security, in the event that an outright sale is deemed by a court (for whatever reason) not to have occurred and have been perfected (see question 4.9 above)?

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.

5.2 Seller Security. If it is customary to take back-up security, what are the formalities for the seller granting a security interest in receivables and related security under the laws of your jurisdiction, and for such security interest to be perfected?

It is not customary to take 'back-up' security.

5.3 Purchaser Security. If the purchaser grants security over all of its assets (including purchased receivables) in favour of the providers of its funding, what formalities must the purchaser comply with in your jurisdiction to grant and perfect a security interest in purchased receivables governed by the laws of your jurisdiction and the related 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.

5.4 Recognition. If the purchaser grants a security interest in receivables governed by the laws of your jurisdiction, and that security interest is valid and perfected under the laws of the purchaser's jurisdiction, will the security be treated as valid and perfected in your jurisdiction or must additional steps be taken in your jurisdiction?

If the receivables are governed by Maltese law then it 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.

5.5 Additional Formalities. What additional or different requirements apply to security interests in or connected to insurance policies, promissory notes, mortgage loans, consumer loans or marketable debt securities?

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.

5.6 Trusts. Does your jurisdiction recognise trusts? If not, is there a mechanism whereby collections received by the seller in respect of sold receivables can be held or be deemed to be held separate and apart from the seller's own assets (so that they are not part of the seller's insolvency estate) until turned over to the purchaser?

Maltese law recognises trusts under the Trusts and Trustees Act (Chapter 331 Laws of Malta). The Securitisation Act expressly provides that where a Maltese securitisation vehicle has delegated the management responsibility of the assets, including the collection of any claims, to any third party (including the seller):

such third party (including the seller) shall be obliged to segregate such assets from his own assets (and those of other customers), which segregation shall clearly identify the receivables or securitisation assets which belong to the securitisation vehicle while keeping detailed records of all assets received and disposed of; and
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.

5.7 Bank Accounts. Does your jurisdiction recognise escrow accounts? Can security be taken over a bank account located in your jurisdiction? If so, what is the typical method? Would courts in your jurisdiction recognise a foreign law grant of security (for example, an English law debenture) taken over a bank account located in your jurisdiction?

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.

5.8 Enforcement over Bank Accounts. If security over a bank account is possible and the secured party enforces that security, does the secured party control all cash flowing into the bank account from enforcement forward until the secured party is repaid in full, or are there limitations? If there are limitations, what are they?

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.

5.9 Use of Cash Bank Accounts. If security over a bank account is possible, can the owner of the account have access to the funds in the account prior to enforcement without affecting the security?

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.

6 Insolvency Laws

6.1 Stay of Action. If, after a sale of receivables that is otherwise perfected, the seller becomes subject to an insolvency proceeding, will your jurisdiction's insolvency laws automatically prohibit the purchaser from collecting, transferring or otherwise exercising ownership rights over the purchased receivables (a "stay of action")? If so, what generally is the length of that stay of action? Does the insolvency official have the ability to stay collection and enforcement actions until he determines that the sale is perfected? Would the answer be different if the purchaser is deemed to only be a secured party rather than the owner of the receivables?

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, cash-flows 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 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.

6.2 Insolvency Official's Powers. If there is no stay of action, under what circumstances, if any, does the insolvency official have the power to prohibit the purchaser's exercise of its ownership rights over the receivables (by means of injunction, stay order or other action)?

See question 6.1 above.

6.3 Suspect Period (Clawback). Under what facts or circumstances could the insolvency official rescind or reverse transactions that took place during a "suspect" or "preference" period before the commencement of the seller's insolvency proceedings? What are the lengths of the "suspect" or "preference" periods in your jurisdiction for (a) transactions between unrelated parties, and (b) transactions between related parties? If the purchaser is majority owned or controlled by the seller or an affiliate of the seller, does that render sales by the seller to the purchaser "related party transactions" for purposes of determining the length of the suspect period? If a parent company of the seller guarantee's the performance by the seller of its obligations under contracts with the purchaser, does that render sales by the seller to the purchaser "related party transactions" for purposes of determining the length of the suspect period?

The Securitisation Act provides that an assignment to a Maltese securitisation vehicle will be treated as final, absolute and binding on the seller, the purchaser and on all third parties, and the assignment shall not be subject to:

annulment, rescission, revocation or termination, variation or abatement by any person and for any reason whatsoever;
any rights of the creditors of the seller for any reason whatsoever; or
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.

The Securitisation Act, however, provides, without specifying any particular suspect periods, that the only exception to 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.

6.4 Substantive Consolidation. Under what facts or circumstances, if any, could the insolvency official consolidate the assets and liabilities of the purchaser with those of the seller or its affiliates in the insolvency proceeding? If the purchaser is owned by the seller or by an affiliate of the seller, does that affect the consolidation analysis?

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.

6.5 Effect of Insolvency on Receivables Sales. If insolvency proceedings are commenced against the seller in your jurisdiction, what effect do those proceedings have on (a) sales of receivables that would otherwise occur after the commencement of such proceedings, or (b) on sales of receivables that only come into existence after the commencement of such proceedings?

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 incoming 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 Maltese securitisation vehicle of future receivables that arise 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).

6.6 Effect of Limited Recourse Provisions. If a debtor's contract contains a limited recourse provision (see question 7.3 below), can the debtor nevertheless be declared insolvent on the grounds that it cannot pay its debts as they become due?

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 judgement 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.

7 Special Rules

7.1 Securitisation Law. Is there a special securitisation law (and/or special provisions in other laws) in your jurisdiction establishing a legal framework for securitisation transactions? If so, what are the basics?

The legal framework for securitisation in Malta is set out in the:

Securitisation Act, which provides for the establishment of securitisation vehicles for the purpose of undertaking securitisation transactions. The Securitisation Act is broad in scope and allows for asset (true sale) securitisation, synthetic securitisation (including the securitisation of insurance risk) and whole business securitisation structures (through the granting of a secured loan or other secured facility from the securitisation vehicle to the seller);

Securitisation Transactions (Deductions) Rules, Subsidiary Legislation 123.128 of the Laws of Malta (the "Securitisation Tax Rules"), which set out the special tax regime for Maltese securitisation vehicles;
Securitisation Cell Companies Regulations, Subsidiary Legislation 386.16 of the Laws of Malta (the "SCC Regulations"), which provide for the establishment of securitisation cell companies ("SCCs") that can undertake securitisation transactions through segregated cells within an SCC; and
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 therefore subject to both the SCC Regulations and the RSPV Regulations.

7.2 Securitisation Entities. Does your jurisdiction have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: (a) requirements for establishment and management of such an entity; (b) legal attributes and benefits of the entity; and (c) any specific requirements as to the status of directors or shareholders?

(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 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.

7.3 Limited-Recourse Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) limiting the recourse of parties to that agreement to the available assets of the relevant debtor, and providing that to the extent of any shortfall the debt of the relevant debtor is extinguished?

7.4 Non-Petition Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) prohibiting the parties from: (a) taking legal action against the purchaser or another person; or (b) commencing an insolvency proceeding against the purchaser or another person?

The Securitisation Act provides that:

securitisation vehicles can enter into agreements with provisions whereby securitisation creditors or shareholders accept to restrict or waive their rights to commence any form of any dissolution and winding-up proceedings, company recovery procedure, company reconstruction or any proceedings affecting creditors' rights generally in respect of the securitisation vehicle;
the constitutive documents of the securitisation vehicle can give any securitisation creditor or class of them (including, for example, the trustee on behalf of investors), to the exclusion of all other persons, the right to demand or place the securitisation vehicle under any dissolution and winding-up proceedings, company recovery procedure, company reconstruction or any proceedings affecting creditors' rights generally; and
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 judgement 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.

7.5 Priority of Payments "Waterfall". Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) distributing payments to parties in a certain order specified in the contract?

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.

7.6 Independent Director. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement's governing law is the law of another country) or a provision in a party's organisational documents prohibiting the directors from taking specified actions (including commencing an insolvency proceeding) without the affirmative vote of an independent director?

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.

7.7 Location of Purchaser. Is it typical to establish the purchaser in your jurisdiction or offshore? If in your jurisdiction, what are the advantages to locating the purchaser in your jurisdiction? If offshore, where are purchasers typically located for securitisations in your jurisdiction?

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.

8 Regulatory Issues

8.1 Required Authorisations, etc. Assuming that the purchaser does no other business in your jurisdiction, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in your jurisdiction? Does the answer to the preceding question change if the purchaser does business with more than one seller in your jurisdiction?

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.

8.2 Servicing. Does the seller require any licences, etc., in order to continue to enforce and collect receivables following their sale to the purchaser, including to appear before a court? Does a third party replacement servicer require any licences, etc., in order to enforce and collect sold receivables?

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.

8.3 Data Protection. Does your jurisdiction have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?

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 if personal data.

8.4 Consumer Protection. If the obligors are consumers, will the purchaser (including a bank acting as purchaser) be required to comply with any consumer protection law of your jurisdiction? Briefly, what is required?

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.

8.5 Currency Restrictions. Does your jurisdiction have laws restricting the exchange of your jurisdiction's currency for other currencies or the making of payments in your jurisdiction's currency to persons outside the country?

There are no currency restrictions in Malta.

9 Taxation

9.1 Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in your jurisdiction? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located? In the case of a sale of trade receivables at a discount, is there a risk that the discount will be recharacterised in whole or in part as interest? In the case of a sale of trade receivables where a portion of the purchase price is payable upon collection of the receivable, is there a risk that the deferred purchase price will be recharacterised in whole or in part as interest? If withholding taxes might apply, what are the typical methods for eliminating or reducing withholding taxes?

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.

The Securitisation Tax Rules provide specifically for certain income to be taxable at the level of the seller (the originator), mainly:

sums payable to the seller (originator) for the transfer of securitisation assets to the securitisation vehicle; and
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 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.

A specific exemption applies in terms of Maltese income tax laws in respect of interest paid to non-residents provided that a number of straight-forward conditions are satisfied mainly that:

the person is not carrying on any trade or business in Malta through a permanent establishment herein; and
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.

9.2 Seller Tax Accounting. Does your jurisdiction require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?

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.

Purchaser (securitisation vehicle)

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 to have 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.

Seller (originator of receivables)

The Securitisation Tax Rules allow the securitisation vehicle inter alia the right to deduct:

sums payable to the seller (originator) for the transfer of securitisation assets to the securitisation vehicle; and
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 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.

9.3 Stamp Duty, etc. Does your jurisdiction impose stamp duty or other transfer or documentary taxes on sales of receivables?

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.

9.4 Value Added Taxes. Does your jurisdiction impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?

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%.

In terms of Value Added Tax Act (Chapter 406 of the Laws of Malta), the following services are exempt without credit services:

the granting and the negotiation of credit and the management of credit by the person granting it;
the negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit; and
transactions, including negotiation, 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.

9.5 Purchaser Liability. If the seller is required to pay value added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?

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.

9.6 Doing Business. Assuming that the purchaser conducts no other business in your jurisdiction, would the purchaser's purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in your jurisdiction?

A non-Maltese purchaser's purchase of receivables or enforcement of the receivables against obligors will generally not make the purchaser liable to tax in Malta provided that:

the purchaser is not resident in Malta;
the income it is deriving is of a trading nature;
all trade-earning activities are carried out outside of Malta; and
it has no permanent establishment in Malta (whether through a physical branch or dependent agent).

9.7 Taxable Income. If a purchaser located in your jurisdiction receives debt relief as the result of a limited recourse clause (see question 7.3 above), is that debt relief liable to tax in your jurisdiction?

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.

Previously published in ICLG.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Malta: Securitisation 2017