The Ministry of the Economy, Investment and Small Business of the Government of Malta has launched a project for new legislation addressing small and medium sized family businesses. The Family Business Act will introduce very specific provisions catering for the sensitivities and vulnerabilities of these kind of businesses which show a marked trend of unwinding by the third generation in the family. The law will attempt to address issue of governance and transfers within the family so as to ensure these businesses continue to survive given how important they are for the local economy. The law proposes to cater for a series of incentives of a finance and fiscal nature but also go into some detail on ensuring education and advisory support as well as dispute resolution mechanisms to support transfers of interests in these kind of structures.

Dr. Max Ganado, Dr. Anthony Cremona and Dr. Liana Micallef of GANADO Advocates have been tracking this project and gave their suggestions and comments to the Steering Committee as the project evolved.

Of great interest is the fact that it will be possible for family businesses based even outside Malta to register under the Act which means that they will qualify for the incentives as well. This has the potential of making Malta a very attractive jurisdiction for the restructuring of Family Businesses wherever the operations may be taking place. Interestingly this legislation is not limited to limited liability structures but encompasses unincorporated firms, holding structures like trusts and foundations and informal partnerships often found in families. Maltese law caters for the redomicilaition of legal organisations and this may be a very useful tool for relocating foreign family companies to Malta to enjoy the benefits emerging from this law.

In a contribution from the floor Dr. Max Ganado expressed support for this initiative, particularly supporting the fact that the law is seeking to encourage the consolidation of assets into smaller number of owners, at the right time, rather that allowing the distributive effects of the law of succession to operate in an unmanaged manner. Succession results in many owners – the opposite of consolidation – all with different skills and agendas, and that often is the cause of early break up of these family businesses. Taxation and other civil law rules on legitim (reserved portions)  and community of acquests often confuse and disincentivise the managed succession of businesses even further. These tend to be public policy matters and solutions are difficult to implement without clear legislative support to alternative systems which are equally just and equally meet the public policy consideration of the civil law. Dr. Ganado said he looked forward to this legislation being adopted as it will avoid the exceedingly complex structuring which is sometimes taking place to avoid the negative effects of fiscal and civil law at the critical moment when succession of a family business needs to be planned and needs to take place.

Various interesting presentations were made including one by Mr Marko Curavic, DG for Internal Market, Industry, Entrepreneurship and SMEs of the European Commission who highlighted the fact that this legislation appears to be the first of its type in the EU. As the EU does not have competence to regulate such matters this remains very much a domestic law issue within national competence. He however looked forward to progress in this project as it would dovetail with various important initiatives being taken at EU level relating to SMEs, education and training and generally economic growth.

The project is now to be presented to Cabinet of the Government of Malta for consideration of the various proposals.

 

Click here to read copy the article published on the Times of Malta (24 March 2015).

 

For further details on this matter please contact:

Dr Max Ganado
Dr Anthony Cremona
Dr Liana Micallef