Debt Collection Legal Strategies for Businesses in Malta

For any business, collecting outstanding payments is a priority. However, many businesses often find themselves unsure of where to start with debt recovery, leading them to abandon the process. Yet, in some cases, writing off bad debts is not an option, and so they must be effectively addressed.

A good starting point to successful debt recovery is often an out-of-court settlement. This typically involves sending a legal letter— a formal demand for payment on the law firm's letterhead demanding that the debtor pay the outstanding amount within a specified timeframe. This letter can be sent by the firm by regular mail, registered post, or even e-mail.

Although a legal letter can often resolve the matter, this is not always the case. When this happens, the business could proceed with a judicial letter which is a letter sent through court. In certain situations, it is recommended that the creditor immediately opts for this option particularly when the prescriptive period is about to lapse.

When the debt is liquid, certain and due, the business may choose to file a judicial letter under Article 166A of Chapter 12 of the Laws of Malta rather than a normal judicial letter, as this type of letter 166A can be particularly effective. When the debtor receives such a judicial letter and does not contest the claim within thirty (30) days of receipt, the judicial letter becomes an executive title. This means that the judicial letter would have obtained the force of a judgement and that the business can take judicial action to enforce the claim.

If the debt is uncertain, contested, or not liquid and due and the debtor remains in default, the business will need to open a court case to have the debt liquidated and determined by the court.

In addition to submitting a judicial letter or opening a court case, the business may also consider filing precautionary measures, such as a precautionary garnishee order (‘mandat ta' sekwestru kawtelatorju’). This precautionary warrant helps protect the creditor from the risk of the debtor disposing of all his assets. Once acceded to, the court orders the commercial banks along with any other garnishees named in the warrant, which hold assets in the debtor’s name, to freeze an amount equal to the debt due and deposit it under the court’s authority for safekeeping. This garnishee order can also be used as an executive measure, allowing the creditor to claim and withdraw the frozen amount once a judgement is given in the business’ favour or a 166A judicial letter becomes executive.

Other precautionary warrants include a warrant of seizure, which allows the court to seize the debtor’s assets and the warrant of prohibitory injunction, which prevents the debtor from transferring or disposing his assets. These provide an additional layer of protection for creditors seeking to secure the recovery of debts.

Businesses should also be aware of the prescriptive period of their claim. The prescriptive period is the deadline set out in the law within which judicial action must be taken. The period depends on the type of claim being made. Failure to take action within that deadline could mean that the business loses its right to claim the amount due. It is therefore important for businesses to be aware of the applicable prescriptive period and to take judicial action before expiry of that period.

In order to facilitate debt collection it is also important to have good client on-boarding procedures, such as gathering relevant data of the client and signing agreements if needed. Debt collection can be a complex and time-consuming process, but with the right legal strategy, businesses can protect their interests and recover owed debts efficiently. If your business is facing challenges with outstanding debts, our firm is here to assist you and help you find the best legal route for your situation.

Dr Samira Briffa

Inheritance: The Reserved Portion (‘sehem rizervat’) Due to Children and Other Descendants

In general, an individual is free to decide what to do with his property and who inherits his assets after death by drawing up a will. However, this is subject to a number of legal limitations and exceptions.

One such limitation is the reserved portion (‘sehem rizervat’) due to children and other descendants. This was previously known as the legitim (‘legittima’). This article explains the main principles regarding the reserved portion.

The reserved portion due to children is a part of the estate of a deceased person that is protected and reserved in favour of the children (and descendants). This amounts to one-third (1/3 or 33.3%) of the estate if there are up to four children, and half (1/2 or 50%) of the estate if there are five children or more.

The reserved portion is calculated on the whole estate, after deducting debts of the deceased and funeral expenses. Interests may be awarded to the children, on the reserved portion due to them.

Consider the following example-

Let us say that John has just passed away and has been survived by his two children named Mark and Lara. In his will, John did not leave anything to his children, and instead named his best friend Frank as his heir.

Although John did not leave anything to his children in his will, they are still entitled to claim the reserved portion due to them.

Let us say that John had property worth €100,000 and left €10,000 in debts and funeral expenses. The reserved portion is calculated on the estate of €90,000.

Since John has two children, the reserved portion is one-third (1/3) of €90,000, that is €30,000. This reserved portion of €30,000 is to be split between Mark and Lara, so they are each entitled to €15,000.

If John had five children, the reserved portion would be one-half (1/2) of €90,000, that is €45,000. This reserved portion of €45,000 would be split between the five children, so they are each entitled to €9,000.

If any of John’s children had died before John, they would not be included in the calculation of the reserved portion, unless they had children of their own.

Therefore, if Lara had passed away before her father and did not have children of her own, the reserved portion of €30,000 would be due in full to her brother Mark. But if Lara had two children of her own, then the reserved portion due to her would be split between her children. Mark would therefore be entitled to €15,000 whilst Lara’s children would be entitled to €7,500 each.

In calculating the estate of the deceased person, generally we must also include any assets that had been donated by the person during the lifetime.

Therefore, going back to John; say John had donated €20,000 to a friend of his before passing away, then his estate would be €100,000 (assets) + €20,000 (donations) - €10,000 (debts and funeral costs) = €110,000. The reserved portion would be calculated on this €110,000.

Furthermore, in general, the children must impute and deduct from their reserved portion anything that they were gifted from their deceased parent, whether as donations during their lifetime or as part of the will.

Therefore, if John had donated €10,000 to his daughter Lara during his lifetime, Lara must deduct this €10,000 from the reserved portion due to her.

Children have a time limit of ten years after the death of their parent, to claim the reserved portion due to them.

These are some of the general principles regarding the reserved portion. In practice, the situations vary and each case must be seen individually.

Dr Douglas Aquilina

Ground-rent ("cens"): When and How can it be Redeemed?

When a property is granted in emphyteusis, a legal relationship is formed between the property owner (known as the "dominus") and the person acquiring the property (the "emphyteuta"). One of the conditions in the relative deed of transfer is the obligation imposed on the emphyteuta to pay the dominus a ground-rent ("cens").

There are different types of ground-rents, with the most common being perpetual and non-revisable. This type of ground-rent is payable for an indefinite period but the obligation to pay can be redeemed ("jinfeda") at any time. Redemption can be done by depositing payment through a schedule of redemption (cedola) in court, or by doing a notarial contract with the dominus or his successor/s in title. If the ground-rent is perpetual and non-revisable, the redemption is calculated by capitalizing the ground rent at a 5% rate, unless the original contract of emphyteusis specifies otherwise. The capitalisation at 5% means that an annual ground-rent of €100 can be redeemed for €2,000.

In contrast, if the emphyteusis is granted in perpetuity but is revisable, the ground-rent can be increased periodically as agreed in the original contract. A revisable ground-rent can also be redeemed, but this redemption can only be done within one year following each revision. Furthermore, the capitalisation rate is variable and is calculated on the average rate of interests payable by a commercial bank on deposits of a fixed nature at the time of the redemption.

Another type of ground-rent is temporary ground-rent, as opposed to a perpetual ground-rent. Ground-rent is temporary when the emphyteusis is to last for a specific period. A temporary ground-rent cannot be redeemed. Generally, once the temporary period expires, the property reverts to the dominus or, in the case of his death, to his successor/s in title. However, this is subject to the exceptions emanating from Chapter 158 of the Laws of Malta which may allow the emphyteuta to continue occupying the property by converting the temporary emphyteusis into a perpetual emphyteusis or into a lease.

It should be also noted that if the ground-rent is payable to a government authority such as the Lands Authority, the redemption can still be carried out by means of a cedola or a contract. In order to proceed with a contract, an application would need to be made with the Lands Authority. Furthermore, the Lands Authority often issues schemes which allow the emphyteuta to redeem the ground-rent in circumstances that are not specifically covered by law. For example, the Lands Authority to date has a scheme allowing the emphyteuta to redeem a perpetual revisable ground-rent at any time (and not just within the first year of revision) subject to a number of conditions.

As part of any redemption or application with the Lands Authority, the Lands Authority requires that the emphyteuta is officially recognised by the Authority as the emphyteuta, before it processes a redemption application. If the emphytueta is not yet recognised, an application for recognition must be submitted according to the procedures set out by the Authority.

Dr Samira Briffa & Dr Douglas Aquilina