Its a Family Affair!

Malta is the first European jurisdiction to enact a specific Family Business Legislation. The new Family Business Act has come into force on 1st of January 2017. This piece of legislation is acknowledged as being a pioneer in the area of Family Business because of a number of reasons.

Primarily, this new law recognises a ‘family business’ in a new legal form. Malta is the first jurisdiction to specifically legislate for family business and define this business model for identification and regulation purposes. The definition is listed in Article 3 of the Act, consisting of both direct and indirect modes of ownership. Direct ownership of the family business can take the form of a listed company, a limited liability company, a registered partnership, a business set up as a trust, an unregistered partnership and any other business as the Minister may prescribe. Indirect ownership of the family business is identified in holding companies, those held in a trust and private foundations. In view of the fact that prior to this legislation, there has never been an EU harmonised, legally-binding definition of what constitutes a family business, this addition is somewhat significant.

The Family Business Act also establishes and introduces a Regulator who shall be a person appointed for a period of three years to manage, supervise and administer the Register of Family Businesses. The Regulator’s role is to assess all applicants seeking to register as a family business under the Act and ensure on-going compliance with the legislation. The spirit of the Act ensures that a regulatory framework encourages family members within the same family to transfer their family business inter vivos, as opposed to transfer causa mortis. In doing so, this mode would far likely result in the success of the continuity of the business and the law also introduces a number of benefits and assistance which help family businesses facilitate the transfer.

The benefits currently applicable for businesses upon registration as a family business are listed in Article 41(C) of the Duty on Documents and Transfers Act and in 2 measures provided by Malta Enterprises with regards to transfer of ownership and support services.

Block Chain Chapter at Malta Stock Exchange

The Malta Stock Exchange (MSE) has set up a Blockchain ThinkTank consisting of members of the Exchange’s Board, its Chairman and Chief Executive and outside experts. The latter will assist in the formulation of a strategy geared towards addressing blockchain as an emerging technology. Chairing the committee will be Dr. Abdalla Kablan, an MSE Director, entrepreneur and academic specializing in machine intelligence, big data, analytics and computational finance.

MSE's Chairman Mr. Joseph Portelli said “Malta and the MSE are quite fortunate to have at our disposal our country’s preeminent technologist and a globally recognized expert on blockchain technology. Dr. Kablan has a proven track record within the technology space, evidenced by his latest start-up Hippo Data, the first Maltese company to ever be selected into the London Microsoft Accelerator Program.” This program is an initiative that helps entrepreneurs grow their companies.

Malta Stock Exchange

Originally starting off as the platform on which the ‘much-debated’ currency of bitcoin was based, put simply, blockchain is merely a distributed ledger. It encompasses a method in which information is recorded and shared by an accepting community. Each member in the so called ‘chain’ maintains his or her own copy of the information and all members must validate any updates collectively. Each update is a new “block” added to the end of the “chain.” In other words, it can be summed up as a potentially very secure ledger of digital events, shared between all parties that choose to participate in the events. Parties’ identities and data are protected by cryptography and recordal of new ‘blocks’ or changes in events can only be updated after there is at least 51% or more participant consensus. With such entry of such information, erasing thereof is not possible, hence disintermediating the concept and doing away with a central, monitoring and certification authority.

The platform / protocol manages the manner in which new edits or entries are initiated, validated, recorded, and distributed. Blockchain is the ‘tech-charged’ equivalent of the public ledgers of the past, with the added value of permanence, transparency, searchability and the elimination of third party intermediaries. The inception of blockchain saw the replacement of the intermediary (the keepers of trust) with complex algorithms and technological verification methods. Blockchain can be used in all types of transactions, including those related to contracts, assets, liabilities, identities, or practically anything else that is usually publicly available but can be described in digital form. Entries are permanent, transparent, and searchable, which makes it possible for community members to view transaction histories in their entirety.

In the world of capital markets blockchain is now being used by the Scottish stock exchange and the Australian Stock Exchange. Reasons for its popularity include advantages of speed (allowing investors and brokers to receive their money only 15 minutes after a trade is executed) and reduced costs (blockchain could save the financial industry over 41 billion annually in back office costs).

The Malta Stock Exchange's creation of a specialised committee to assess this is definitely a positive move in the right direction and tallies perfectly with the Exchange's recent 23 point Strategic Plan that will focus on internationalisation and modernisation of the Exchange.

Foreign Direct Investment into Malta

Shanghai Electric Power advances €250 million Investment

Chetcuti Cauchi, advisor to Shanghai Electric Power (SEP), is pleased to announce that today the transaction for the acquisition of 33% shareholding in Enemalta and a majority stake in the BWSC plant has been concluded. Today SEP has advanced €250 million to Enemalta as part of the deal. Through this transaction, SEP shares have also been assigned.

Malta Largest Single Foreign Direct Investment

The transaction between the Chinese state-owned corporation Shanghai Electric Power, the Maltese government and Enemalta has constituted the Malta's largest single foreign investment that Malta has ever experienced. SEP will also invest €70 million in converting the BWSC plant from Heavy Fuel Oil to gas and gasoil on June 2016.

Shanghai Electric Power concludes Enemalta Transaction

A government spokesman confirmed that “This means that the contractual obligations and responsibilities under the energy sector and investment cooperation agreement, signed on December 12, will come into force”.

This agreement will bring forth the establishment of two joint venture companies that will focus on renewable energy and on the maintenance of SEP's energy plants in the region. The Government said, “Enemalta will thus be writing a new chapter in its history and will open new horizons for our country”.

Chetcuti Cauchi Advocates is a full service commercial law firm with a focus on corporate, administrative, tax, financial services, banking, i-gaming and intellectual property law. The firm brings a multi-disciplinary approach to problem solving and regularly advises businesses looking to set up their operations in Malta or otherwise invest in the jurisdiction. The firm acts as legal advisors to Shanghai Electric Power and its Chinese legal counsel on various contractual and structural aspects of the deal. The project gave rise to a number of complex legal challenges and required a co-ordinated effort in bringing together the firm’s various strands of expertise in corporate, administrative, property and contract law. The deal represents an important milestone for the Maltese economy, and the Chetcuti Cauchi team is very pleased to be part of this landmark foreign direct investment into the Maltese economy.

The Firm's Energy & Resources Industry Group assists major entities as well as start up companies in the gas, oil, utilities and power industries in identifying opportunities in this ever-evolving industry. Our professionals follow industry developments in the sector very closely, thus they are strategically positioned to advise on international developments, and opportunities as well as business issues. Drawing upon insight from our legal, tax and corporate practices, we are able to assist investors from the very inception of projects up till their completion, offering unrivalled level of expertise all throughout. Whether it is applying for funding or securing trading and planning permissions, our team offers holistic solutions enabling clients to succeed in their endeavours. Whilst being a Malta Cyprus based firm, we serve clients from all around the globe, and thanks to our international connections in various jurisdictions, we have successfully engaged with corresponding firms located in the client’s target jurisdiction.

References:

• Shanghai Power acquires 33% of Maltese utility Enemalta
• Shanghai Electric invests 320 million USD in Maltan power company, Enemalta
• 14 March 2014 - Shanghai Power to acquire 33% of Maltese utility Enemalta

An Update on Malta's Fund Industry

Mr Nicholas Warren, from Chetcuti Cauchi Advocates talks about the fund industry in Malta in the LATEST VIDEO in Finance Malta’s series of podcasts.  As a prime advisor who has been providing council to international clients with regards to the Fund Industry in Malta for the last 10 years, Mr Warren gives an excellent overview of Malta as a fund jurisdiction, going into the reasons why Malta has matured into such a favourable jurisdiction for funds, what it can offer to promoters of funds and what type of fund structures can be offered in Malta.

The Fund industry in Malta – how has Malta evolved into a fund jurisdiction? 

Mr. Warren starts off by outlining Malta’s EU accession back in 2004 as the launch pad which truly allowed the fund industry in Malta to take off and start thriving. He also credits the Malta Financial Services Authority (MFSA) for Malta’s success in the funds industry and for fostering an excellent regulatory environment which gives scope for larger funds and fund managers to thrive, but concurrently provides a good platform for starting managers. MFSA’s approachable and flexible attitude and its adoption of an 'open door' policy has encouraged many to set up their fund or licensable activity within Malta's shores. Unlike other regulators around the world, the MFSA distinguishes itself by giving potential fund managers the chance to meet the regulator before sending an application for submittal in order to carry out an open and frank discussion and receive informal guidance on what one should do and how one should approach the application process.

What does the Fund Industry in Malta offer to promoters of funds?

Mr Warren outlines a number of reasons why promoters of funds are continually choosing Malta as their jurisdiction of choice to set up a fund or licensable activity. Apart from an accessible regulator, Malta offers a safe haven, peace of mind and political and regulatory stability, and thus promoting continuity within the industry. The facts speak for themselves; the funds industry has recorded a rapid growth, with over 550 funds, including sub-funds amounting to an asset value of over EUR 10 billion. The Maltese financial sector has continued to prove its stability through the resilience it showed during times of financial crisis, registering growth year on year when other jurisdictions around the world struggled. Fund promoters can rest assured, knowing they are investing within a stable industry where business is done in a sound manner which safeguards everybody’s interests. In addition, Mr Warren points out how Malta’s double taxation treaties with different jurisdictions, which now add up to over 70 treaties, including a treaty with the US, can be used by promoters of funds and fund managers in order to have tax efficient structures. Moreover, Malta has fostered excellent relations with its European, Middle Eastern and North African neighbours thus allowing Malta to serve as a gateway to these markets. Investors may tap into newer markets which remain widely unexplored and which could provide a multitude of opportunities waiting to be ventured.

The Fund industry in Malta - What type of fund structures can be offered in Malta? 

Mr Warren explains what kind of funds can be set up which are various and include investment companies with variable share capital, investment companies with fixed share capital, trusts, partnerships and as of 2012 we have seen the introduction of the Recognised Incorporated Cell Company structure. The Professional Investor Fund (PIF) remains the most popular Maltese hedge fund to date, but with the introduction of the Alternative Investment Fund Managers Directive (AIFMD), Alternative Investment Funds may be attained as well. Funds can be managed by a third party or be self-managed, allowing for a degree of flexibility.

Malta's legislation and regulation - is it onerous? 

With regards to legislation and regulation in Malta, the fact that all legislation is in English helps foreign investors to better understand the requirements. The Fund Industry in Malta thrives thanks to Malta's flexible, non-draconian legislative framework and its approachable legislator who is always willing to listen and understand queries or concerns about potential investors coming to Malta to set up their structures and see whether potential exemptions may apply. 

MFSA launches rulebook for collective investment schemes investing through loans

Malta's flexibility as a domicile for funds has recently been enhanced through the introduction of a rulebook addressing the needs of collective investment schemes investing through loans. The introduction of the rulebook answers in the affirmative a question that has long pre-occupied financial services professionals in the jurisdiction i.e. can a fund issue loans? The Maltese legal environment for money lending companies remains imperfect, with the rules governing money lending under the financial institutions act being particularly unwieldy, but there can be no doubt that this is a step in the right direction for Malta.

The positive development does not however come without some caveats.  In particular the rulebook is very particular about the borrowers that may borrow from an MFSA authorised loan issuing fund i.e 'unlisted companies and SMEs'. Some other noteworthy features of the rulebook are the following:

• The fund must be of a closed-ended nature (although there are certain limited flexibilities)
• The fund can only be sold to professional investors as defined under MiFID, or investors who elect to be treated as professional investors and invest a minimum of EUR 100,000
• The fund must implement a credit risk strategy
• The fund must maintain a liquidity management policy
• The fund must adhere to a number of investment restrictions

You can read our full report on the rules here: http://www.ccmalta.com/publications/malta-loan-funds

Dr Charles Cassar

Chetcuti Cauchi Advocates

Malta establishes itself as a hub for E-money issuers

Over the past twelve months we have seen increased interest in e-money operators looking to domicile and operate their businesses in Malta. In response to this growth we have published E-money institutions: licensing and regulation in Malta on our website www.ccmalta.com. This publication provides what we hope will be a useful introduction to the topic, and covers the following:

• The definition of e-money under Maltese law

• The distinction between server based and card based e-money

• Distinctions between payment service providers and e-money issuers

• The activities that EMIs authorised in Malta are permitted to undertake

• Key regulatory requirements

• The licensing process

• Why e-money institutions have started to choose Malta as their domicile in Europe

The payments ecosystem as a whole has also registered encouraging growth. You can read about the growth in the related sector of payment services by clicking on the below link:

• Payment services in Malta

Malta also continues to attract interest from operators in the virtual currency sphere (non-fiat money such as Bitcoin and Linden dollar). Local authorities remain understandably cautious about the sector, but we believe that it is only a matter of time until these new technologies and systems achieve more widespread acceptance and legitimacy. You can read more about the topic here:

• Virtual currencies in Malta

If you are interested in any of these sectors, contact us on info@ccmalta.com

Dr Charles Cassar

Chetcuti Cauchi Advocates

MFSA Issues Consultation Document on Malta Company Services Providers Rules

Further to the recent introduction of the Company Service Providers Act, the MFSA has issued a consultation document proposing detailed rules which clarify and implement the provisions of the Act. This is a useful and welcome step, and one which will lend further clarity to an Act which has already been broadly welcome by service providers in Malta. We have uploaded a more detailed overview of the proposed rules on our website here: Malta Company Service Providers Consultation Overview

The proposed rules should not contain too many surprises for established and complaint service providers, and well established providers are not expected to experience major difficulties in complying. While the rules do introduce introduce an additional layer of documentation and reporting which will be novel to service providers, this is counterbalanced by the benefit resulting from the introduction of a level playing field in the sector.

The application process is premised on common regulatory procedures centered around fitness and properness, capital adequacy and proper documentation. Our financial services regulatory team has handled various such processes in the context of other regulated areas (such as investment services, funds and financial institutions) and is currently advising a number of CSPs with respect to their prospective applications.

We are also currently preparing a detailed brief providing a summary and analysis of the Act and the rules, which we will be uploading shortly on ccmalta.com 

Dr Charles Cassar

Chetcuti Cauchi Advocates

Malta Financial Services Lawyer