Authors: Dr Luca Vella & Dr Gianluca Falzon
The effects of the novel coronavirus, COVID-19, have so far proved to be far-reaching on multiple levels on a global scale and, accordingly, it comes as no surprise that the local capital markets have not been spared from the effects of the outbreak.
The novel coronavirus has exposed the vulnerabilities of certain issuers on the capital markets and, therefore, to an extent of the capital markets themselves, with the prospect of a possible default by any of said issuers carrying with it concerns of devastating effects on investors in Maltese listed securities. In an effort to counter this state of affairs, the Malta Financial Services Authority (“MFSA”) has been responsive in providing respite to local issuers, initially via a Circular issued on 21 March 2020 aimed at alleviating financial reporting requirements by granting extensions for the publication of the annual audited financial statements of guarantors of listed companies and the reporting requirements of the financial analysis summary. In terms of this circular, the MFSA stated, specifically with respect to guarantors of listed companies, that “the MFSA will consider granting an extension for next publications which are due four (4) months after the end of each financial year following an official request received by the MFSA explaining the exceptional circumstances and on a case-by-case basis”. Furthermore, in terms of the same Circular, the MFSA committed to grant an extension of two (2) months for the next publications of financial analysis summaries which are due by two months after the publication of the audited financial statements.
Following the issue of the aforementioned Circular, on 27 March 2020 the European Securities and Markets Authority (“ESMA”) issued a public statement to promote coordinated action by National Competent Authorities (“NCAs”), which therefore, includes the MFSA. This statement’s main focus relates to issuers’ obligations to publish periodic information for reporting periods ending on 31 December 2019, and naturally in the context of the COVID-19 outbreak.
In terms of the local Listing Rules issued by the MFSA, issuers whose securities are admitted to trading on a regulated market are required to publish an annual financial report at the latest 4 months after the end of each financial year in question.
In its aforesaid statement, ESMA highlighted that although issuers are still expected to prepare and publish their financial reports within the aforementioned time limits, it has been acknowledged that the current situation caused by the covid-19 outbreak may result in issuers encountering difficulties in meeting these deadlines. Accordingly, ESMA informed NCAs (including the MFSA) that during this specific period it expects them not to prioritise supervisory actions against issuers in respect of the upcoming deadlines set out in the Transparency Directive (and the Listing Rules) regarding:
- annual financial reports referring to a year-end occurring on or after 31 December 2019 but before 1 April 2020 for a period of 2 months following the deadline; and
- half-yearly financial reports referring to a reporting period ending on or after 31 December 2019 but before 1 April 2020 for a period of one month following the deadline.
Nevertheless, ESMA specified that in the event that issuers anticipate that publication of their financial reports will be delayed beyond the applicable statutory deadlines, said issuers are expected to inform the MFSA together with the market of the delay by virtue of a company announcement, both of which communications should include the reasons for such delay, and to the extent possible, the estimated publication date. The MFSA has, as expected, taken on board the foregoing recommendations put forward by ESMA.
While the measures set out above may provide relief to some issuers at a time when much focus is inevitably directed towards containment of unforeseeable loss of revenue and the preparation of revised financial forecasts with a view to ensuring long-term solvency, it is evident that further measures need to be thought up in direct and timely support to the local capital markets to avoid the unthinkable prospects of a default by any of the local issuers over the coming months.
Companies Act – liquidation and insolvency
As currently drafted, the Companies Act provides that in the event that an insolvent limited liability company is placed into liquidation, the appointed liquidator may institute an action for fraudulent or wrongful trading against a director who would have failed to act with the due care and skill required. A form of relief which may be considered to be granted to companies in response to the Covid-19 crises could take the form of a temporary suspension of the wrongful trading provisions set out in the Companies Act applicable to directors. Such a measure would allow directors some breathing space in the ordinary course of business which will, in turn, further allow inter alia, company directors to keep trading during the current emergency without the threat of personal liability if the company ultimately arrives at a point in which it can no longer cover its liabilities. Such proposed temporary suspension would notionally apply limitedly in respect of the provisions regulating wrongful trading to the specific exclusion of similar provisions relating to fraudulent trading.
In the context of insolvencies, a welcome development in the current economic environment would be enabling easier access to company recovery procedures, including via amendments to the Companies Act aimed at allowing directors to remain in office during the company recovery procedure, together with the special controller who would be appointed by the local courts, on a fast-track basis, to administer the company. One may also consider that the special controller be given a casting vote in the event of a decision-making deadlock.
Due to the fact that the COVID-19 outbreak also saw the temporary closure of the local courts, in an effort to facilitate the access to a company recovery procedure as aforesaid, consideration would also need to be had to a special temporary tribunal being established with a view to hearing and determining company recovery procedure applications and appointments of special controllers.
One of the pillars of Maltese society and a fundamental human right is the right to work. Based on this premise, employers and the Government are taking as many measures as possible to avert redundancy.
In terms of our employment laws, the current COVID-19 crisis does not give rise to an automatic suspension of the employment obligations and, therefore, the prevailing rights and obligations remain in force. The actuality of various containment and social distancing measures introduced by the Government, including the closure of establishments, has resulted in a situation where many businesses are not generating any revenues and struggling with liquidity. This notwithstanding, amidst the investment made over the years in training their staff and in hope of being in the position to resume their business activity once the effects of the pandemic are over, businesses wish to avoid the painful decision to lay off any employees.
An option in this respect is that of forced leave. In terms of law, it is possible for the employer to decide to resort to “forcing” the employees to utilise their leave entitlement as long as the employer furnishes the employee/s with a written justification explaining why such measure is being taken. The written statement has to be given to the employee before the forced leave starts to run. The utilisation of forced leave does not give rise to a civil debt in favour of an employer should the leave taken exceed the annual leave entitlement of the employee. Therefore, an employer cannot make any wage deductions in this regard.
In addition to the foregoing, Maltese law provides that in exceptional cases (the current crisis most definitely being one of them), an employer, in agreement with the employee or union representatives (where there is a recognised trade union for collective bargaining purposes), may agree on conditions of employment which differ from those in existence as long as such agreement is a temporary measure to avoid redundancies and as long as it is approved by the Director of Industrial and Employment Relations (DIER). However, the law is rather vague in this respect, in that it does not specify what measures may be agreed to and/or applied for. These may range from unpaid leave, working a reduced week, or possibly even a reduction in wages. These effectively shall be considered on a case by case basis and may even need to be reviewed in conjunction with any financial aid measures which the Government has introduced.
Due to the fact that the said measures are intended to be temporary, any approval by the DIER shall be limited for a period of 4 weeks, following which one is to apply for a renewal or possibly even request new measures to be considered.
Many local employers have put into action contingency plans to allow for remote working in an effort to abide by the recommendations of the public health authority aimed at safeguarding the health of employees. The Maltese government issued a scheme to assist employers who invested in technology to provide a teleworking arrangement for employees to be able to carry out work from home. In a nutshell, this scheme is open to all undertakings, irrespective of size and sector, which have employees who did not have an active teleworking agreement prior to 15 February 2020 and who are engaged in a role which may be carried out via telework.
Bearing in mind the unpredictability of the COVD-19 outbreak, Maltese law stipulates that in cases where there is no specific reference to teleworking within the employment contract and telework is undertaken during the course of the employment relationship, an agreement regulating the terms and conditions of teleworking must be entered into. The same law states that if an employer makes an offer of telework during the course of the employment relationship, the employee is free to accept or refuse.
In the event that both the employer and employee agree to enter into a teleworking arrangement, each party is granted the right to terminate the teleworking agreement by giving notice following which the employee will revert to the pre-teleworking post.
As is the case in the workplace, employees have a reasonable expectation to privacy even when working from home. The implementation of monitoring systems naturally involves the processing of personal data and, therefore, it is naturally recommended that employers ensure that caution in this respect is exercised. Accordingly, monitoring may only take place if it is truly necessary and should be carried out in a manner that is proportionate and transparent. Employers may only put in place a monitoring system if this is specifically mentioned in a teleworking agreement and the monitoring system is proportionate to the regulations on the safety and health requirements for work with display screen equipment
In conclusion, and in general terms beyond the considerations set out above, the unprecedented and extensive impact occasioned by the outbreak of the COVID-19 pandemic has exposed the need for the implementation of direct measures, many of which of a temporary nature, intended to introduce certain flexibilities across the local legal framework in support of the local business community, taken in its widest terms, at a time when priority has become survival beyond the crisis. It would be fitting in such dire circumstances if such measures to be suggested to the Government were to come across on the strength of a collective effort by the legal community as a whole, together with the contributions of all other professionals and stakeholders who in one form or another are habitually involved in supporting local enterprises.