I OVERVIEW OF M&A ACTIVITY

In comparison with its size (316 km2 with a population of 425,384), M&A activity involving Maltese assets, buyers and sellers is by no means insignificant. Apart from an increasingly healthy M&A market, the trend continues in the listing of shares of Maltese public companies on exchanges outside of Malta. 2016 saw the launch by the Malta Stock Exchange of a multilateral trading facility called ‘Prospects’, which is intended to appeal to small and medium-sized enterprises (SMEs) seeking alternative sources to finance. The Prospects market targets SMEs incorporated as public companies, which employ fewer than 250 persons, and which have an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million.

Malta continues to gain momentum as a centre for doing business for persons seeking an efficient entry point into Europe, for holding structures to hold assets globally, and for businesses engaged in activities such as payment processing, electronic money issuing, gaming, gambling, insurance, aviation and yachting. Sensible regulators with in-depth knowledge of the industries they are responsible for and a willingness to engage with the businesses they regulate, sound regulation and a reasonable fiscal environment have significantly contributed to Malta showing remarkable resilience in the face of the global financial crisis. As at June 2015, foreign direct investment in Malta was estimated by Malta’s National Statistics Office at €148.2 billion, with 98.1 per cent being attributable to financial and insurance activities. In May 2016, the European Commission (Commission) reported that Malta’s real gross domestic product growth exceeded expectations in 2015, coming in at 6.3 per cent as a result of large-scale investment projects, which is forecast to moderate to 3.5 per cent in 2017.2 The Commission has also commented that in the post-crisis period, ‘economic growth has been underpinned by the improved competitiveness of some traditional sectors as well as the emergence of new labour-intensive, export-oriented activities’. It is in this context that M&A activity has significantly picked up over less than a decade, progressing from a situation where M&A activity was minimal to one that reflects the buoyant state of the Maltese economy, in particular that of the services sector.

Most M&A activity goes unreported where it relates to private companies, but an insight to the extent of M&A activity may be gained through the Malta Financial Services Authority’s (MFSA) annual figures, which report that 299 company mergers were carried out in 2015, an increase of 56 per cent from the previous year.3 By comparison, the MFSA reported 210 mergers in 2013 and 191 mergers in 2014 respectively.

The transactions involving Maltese companies, buyers or sellers that receive the highest press coverage relate to the remote gaming and banking industries. The recent acquisition of an 80 per cent stake in Malta-based Tipico Group companies by private equity firm CVC Capital Partners for a valuation of Tipico of €1.3 billion is of particular note.

II THE LEGAL FRAMEWORK FOR M&A

There is an important interplay between a number of key pieces of local legislation that an M&A practitioner must keep in mind when advising on a transaction under Maltese law, some of which have been shaped by European Union law, others that are centuries old. Many laws are shaped by traditional civil law principles, others borrow heavily from statutes of common law jurisdictions, primarily those of England and Wales, and other statutes are the result of the local transposition of European Union law.

The Civil Code4 governs the law of obligations, including the rules for the validity of contracts, rules on suspensive and resolutive conditions and joint and several liability, as well as specific contracts such as contracts of sale and deposit. Most rules set out in the Civil Code have their origin in Roman law as developed locally, in France and Italy over the centuries, and are often still very much in line with the Napoleonic Code.

The Companies Act5 is the lex specialis that, inter alia, governs the formation and functioning of companies, their merger, dissolution and winding up, and the taking of security over their shares. Together with the subsidiary legislation made under it, it is the piece of legislation most frequently referred to by Maltese M&A practitioners. When it comes to subsidiary legislation made under the Companies Act, the Companies Act (The Prospectus) Regulations6 and the Cross-Border Mergers of Limited Liability Companies Regulations7 are probably the regulations most often referred to in a transactional context. The latter transposes Directive 2005/56/EC8 almost word for word.

The Commercial Code9 governs several basic acts of trade such as agency and brokerage, and is often indispensable when considering the business of the target asset and, at times, deal-specific terms. Most importantly, it also contains rules on the perfection of commercial contracts.

Transactions involving public companies whose shares are traded on the Malta Stock Exchange are subject, apart from the Companies Act (The Prospectus) Regulations, to the Listing Rules published by the MFSA in its capacity as the Maltese listing authority.

Several other pieces of subsidiary legislation made under the Companies Act deal with specific types of companies and, depending on the area being dealt with, may need to be referred to by an M&A practitioner; for example, the Companies Act (SICAV Incorporated Cell Companies) Regulations10 and the Companies Act (Recognised Incorporated Cell Companies) Regulations11 contain the rules governing, respectively, the formation of, continuation as or transformation of an investment company with variable share capital (SICAV) or limited liability company into an incorporated cell company.

M&A activity in particular industries such as gaming and gambling and financial services is also in large part dependent on regulatory clearance required to be obtained under other statutes or regulations. This is the case with the transfer of entities licensed under the Lotteries and Other Games Act,12 the Investment Services Act,13 the Banking Act14 and the Insurance Business Act.15

The merger of undertakings for collective investment in transferable securities (UCITS) is harmonised under the EU’s UCITS Directive16 and transposed into Maltese legislation via the Investment Services Act (UCITS Merger) Regulations,17 so when dealing with the merger of UCITS, it is these regulations that set out the specific and more cumbersome rules to be followed.

Other statutes and regulations that play a key role in the structuring and progress of a transaction are the Competition Act18 and the Control of Concentrations Regulations,19 the Employment and Industrial Relations Act (EIRA),20 the Transfer of Business (Protection of Employment) Regulations21 and the Employee Involvement (Cross-Border Mergers of Limited Liability Companies) Regulations,22 the Prevention of Financial Markets Abuse Act23 and, last but not least, tax legislation, most notably the Income Tax Act24 and the Mergers, Divisions, Transfer of Assets and Exchange of Shares Regulations made under it, as well as the Duty on Documents and Transfers Act.25 Some of these are dealt with in more detail below.

Malta’s double tax treaties, all 70 plus of them currently in force, also very often play an important part in the structuring of an M&A transaction.

III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT

There have been a number of recent changes to Maltese company law that are intended to make Malta more attractive as a financial centre in Europe, some of which are the result of the transposition of EU law. Below we give only a high level overview of some of the principal changes. Other than the UCITS Merger Regulations, there have been no recent changes to the law governing M&A.

i UCITS Merger Regulations

There have been no significant changes over the past few years to the law on the merger or amalgamation of companies other than the better transposition of the UCITS Directive. The UCITS Directive was amended by Directive 2014/91/EU,26 and amendments to the Investment Services Act (UCITS Merger) Regulations were published in the Government Gazette on 19 September 201427 and immediately came into force with a view to the better transposition of the amended UCITS Directive on the coordination of laws, regulations and administrative provisions relating to UCITS in relation to cross-border mergers of UCITS. UCITS involved in a merger are required to adhere to specific standards of disclosure and notification rather than the ‘standard’ procedure provided for under the Companies Act or under the Cross-Border Mergers of Limited Liability Companies Regulations. This is a process that the UCITS Directive has harmonised across the EU with the intention of facilitating, if not simplifying, the organisation or reorganisation of UCITS in Europe.

ii Limited liability partnership (LLP) – with or without shares

An important change to company law was made through the adoption of Legal Notice 478 of 2014 (LN 478/2014) relating to LLPs. The basic provisions regulating LLPs have not significantly changed over the years, but just over a decade ago specific regulations were adopted allowing the use of this type of partnership for collective investment schemes. As the LLP structure grew in popularity with fund managers, further changes to the law were made, first through Act XX of 2013 and more recently through LN 478/2014. A key feature introduced through this regulation is the ability for an LLP’s capital to be divided into shares, or not. In this type of structure, a general partner is responsible for the management of the LLP, while a limited partner contributes to its capital but is not involved in management, with the former being jointly and severally unlimitedly liable between them for the LLP’s debts and the latter being liable only to the extent of the unpaid contribution to the LLP of each of them.

iii Protected and incorporated cell companies

Malta regulates and offers the possibility to incorporate protected and incorporated cell companies. This type of entity is often used in the insurance business, investment fund and securitisation sector. The first Maltese legislation to provide for such structures was enacted to allow the incorporation of such structures created for the purpose of assuming risks and issuing insurance-linked securities as a reinsurance special purpose vehicle.28 Legal Notice 411 of 2014 extended this concept to allow the incorporation of securitisation cell companies. Such companies allow for multiple series of debt issues to be issued by the same company, but through individual cells constituted through resolutions of the company’s board of directors, while the entire patrimony of each cell within the company remains separate from that of the other cells and of the company itself as a whole.29

iv Listing Rules

The Listing Rules were last amended in November 2015, but the changes had no effect on the rules governing takeovers.

IV FOREIGN INVOLVEMENT IN M&A & SIGNIFICANT M&A TRANSACTIONS

The majority of deals by volume and value see foreign involvement in some way, whether on the buy or sell side. Often the target business has been structured through Maltese entities due to the favourable local business environment. At other times, Maltese structures are used as acquisition special purpose vehicles, and in this sense, several acquisitions have been made by Maltese companies over the past few years. There remains healthy local M&A activity in the area of corporate services and software development, but more often than not these deals are not publicised.

The most significant deal by value during the past year was probably the acquisition of a majority stake in the Tipico Group. The increased interest of private equity firms in the gambling industry is very noticeable, and due to Malta being a centre of excellence for remote gambling, it is inevitable that it would see a fair share of private equity deals relating to the gambling industry. In fact, another recent acquisition of a Malta-licensed online gaming and gambling operation came through an announcement of a confirmed deal to acquire a 49 per cent stake in ComeOn Malta Limited, an online betting operator, with a further option to acquire the remaining 51 per cent, for a total consideration of €280 million based on a multiple figure of the company’s estimated operating profits for 2016. A further stimulus to M&A activity concerning Malta-based remote gaming operations can be seen in the completion of the sale by Frankfurt Xetra-listed mybet Holdings SE, a German gaming operator, of its most profitable asset, pferdewetten.de AG, a Malta-licensed horseracing betting business.

The dynamism driving the information and communications technology forming the foundations of the online gambling industry has also prompted investment activity in Maltese technology-focused companies. Although the terms of the deal were not disclosed, Bit8 Ltd, a developer and provider of an intelligent online casino and sportsbook platform, announced earlier in 2016 the completion of a strategic partnership and minority stake acquisition deal. Increasing market demand for acquisitions of companies developing innovative technologies is further evidenced by the acquisition by Norway’s biggest traffic technology supplier, Q-Free ASA, of Malta-based Traffiko, a traffic management solutions company. In this same vein, 2016 brought notable investment activity in Minely Ltd, a Big Data business analytics provider.

On the local merger front, two major Maltese car dealerships announced plans in June 2016 to merge their operations in a joint venture deal that is expected to strengthen the local car industry.

It is probably fair to say that the principal sources of M&A activity are Europe, North America and Asia. Some of the more significant recent transactions have been Betsson AB’s acquisition of the Malta-based Oranje and Kroon business through a combined share and assets deal for an initial purchase price of €100 million, of which €40 million payable in cash; and the acquisition of the entire issued share capital of Dumarca Holdings Limited, the Malta-based parent company of the Vera&John group, by Intertain Group Limited (TSX: IT) for an initial payment of €44.5 million in cash and €36.5 million in shares. Both deals are good examples of the trend for the consolidation of the remote gambling business in Europe, a process in which Malta is a major player given the presence on the island of some of the world’s leading remote gambling operators.

Turning to the corporate services and advisory sector, KPMG’s acquisition and de-listing of Maltese company Crimsonwing resulted in the consolidation of KPMG’s Microsoft Dynamics teams in the UK and the Netherlands, with Crimsonwing in Malta to create an overall team of approximately 350 people, allegedly making KPMG the largest ‘Big 4’ provider of Microsoft Dynamics consulting and implementation services in Europe, and making KPMG the largest professional services firm in Malta. KPMG’s UK, Netherlands and Malta partnerships reportedly acquired Crimsonwing for €26 million. Other notable local transactions in the corporate and professional services space were, respectively, the merger of Grant Thornton Malta with EMCS, an independent advisory and tax services firm, and the merger of GVTH Advocates, a Maltese legacy law firm, and CSB Advocates, to form the new GVZH Advocates.

There were at least three notable transactions in the local banking sector. One of these was the sale of the Maltese subsidiary of Reiffeisen Bank to Banasino Investments Limited and Hillwood Insurance Co Ltd, part of Kronospan, a global player in the manufacture and distribution of wood-based panels. The second was the acquisition by Mediterranean Bank plc, a Malta grown and licensed credit institution, of 100 per cent of the issued share capital of Volksbank Malta for a cash price of €35.3 million. More recently, MFC Industrial Ltd, a Canadian company listed on the New York Stock Exchange successfully concluded its acquisition of Maltese bank Bawag Malta Bank Ltd for a sum of €91 million.

In the insurance industry, Argus Insurance Agencies Limited announced the acquisition of the client portfolio of Millennium Insurance Agency Ltd as of November 2014. The thriving Maltese insurance sector also prompted a sale of business agreement in July 2015, through which MAPFRE Middlesea plc acquired the entire economic activity of Allcare Insurance Ltd.

The hotel industry also saw notable M&A activity in 2015 with International Hotel Investments plc (IHI), the largest Maltese hotel group announcing in January 2016 the acquisition of Island Hotels Group Holdings plc (IHGH), which brought with it a number of hotels in Malta, as well the target’s catering business and a 50 per cent shareholding in the company that runs the Costa Coffee franchise in Malta and Spain. M&A activity with a Malta connection in the hotel and catering sector remains primarily driven by IHI, which, after acquiring a landmark property in London and developing it into a luxury hotel launched in 2013, has shown that it has more appetite for growth through acquisitions when it announced in May 2016 that it had completed the acquisition of a prominent hotel on Rue Royale in Brussels.

The trend in the corporate services area of global providers of corporate services seeking entry to the Maltese market by acquiring local firms continues. At the same time, increased consolidation is happening locally. The other clearly continuing trend is consolidation in the remote gambling industry, a trend that continues to accelerate, driven by the tightening of regulations in several European jurisdictions, and the need for larger resources and compliance capabilities.

V FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS

The principal source of funding for M&A transactions with a Malta connection is private equity. Local banks typically impose strict requirements when it comes to financing M&A activity, and interest rates are not all that favourable. In general, local banks tend to seek to limit their exposure to sectors that they know well, primarily local real estate.

A favoured method of raising liquidity by Maltese businesses, including for M&A transactions, is through debt securities. A notable local corporate bond issue in 2015 was IHI’s €45 million issue redeemable in 2025 with a coupon of 5.75, which was heavily oversubscribed on opening and closed on the same day. The bond served in large part to redeem a pre-existing €35 million 6.25 per cent bond, with preference given on the new bond to pre-existing bondholders wishing to surrender their bonds for new bonds. The bond issue was announced at the beginning of April 2015, three months after IHI’s announcement of its intended acquisition of IHGH, and opened and closed at the beginning of May with IHI’s general meeting voting in favour of the completion of the acquisition on 20 May 2015.

The Maltese market for securitisation transactions, an alternative and viable source of M&A financing, has been earmarked for considerable growth in the near future. This funding mechanism allows businesses to efficiently raise funds through the issue of debt securities on the capital markets by exploiting illiquid but income-producing assets that are pooled and removed from the business balance sheet through a transfer to a specially incorporated independent entity, which will then act as the issuer. The Commission is probably the most high-profile promoter of this structured financing technique, having published a proposal for a unified Securitisation Regulation at the end of 2015 with the aim of increasing availability of funding opportunities for businesses seeking opportunities for growth.

In February 2015, the government announced that it was launching an initiative called Venture Capital Malta, the aim of which is to stimulate venture capital funding. If a proper stimulus package is put together for venture capital, it is likely that the consequence will be increased M&A activity down the line, particularly in the information technology sector.

VI EMPLOYMENT LAW

The basic principle involved in the acquisition of a going concern is embedded in the generic legislation on employment law, the EIRA,30 which regulates conditions of employment.

The EIRA stipulates that when the transferee (the person who takes over the business) acquires ‘a business or other undertaking’ from the transferor (the person who sells the business), the former takes on full responsibility for the employees who, at that particular moment, are deemed to be in the employment of the transferor. Broadly speaking, the relevant employees would be those persons who are registered as employees of the transferor with the Employment and Training Corporation (ETC), which is the government agency overseeing the engagement and termination of employment of all persons working in Malta. Thus, it is incumbent on the transferee during the due diligence process to ascertain that the employment list on the books of the transferor is identical to the undertaking’s employment list with the ETC prior to the actual purchase being concluded.

The transferee is also bound by law to take on all the officially registered employees on the same terms and conditions either ‘agreed in any collective agreement […] until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement’ or, in the absence of a collective agreement, with ‘all the rights and obligations which the transferor had towards the employee’.

The EIRA also stipulates that both transferor and transferee shall inform the representatives of the employees affected by the transfer of the date of transfer, the reasons of the transfer, the implications of the transfer for the employees (namely, any legal, economic and social implications), and of any measures that may affect the employees in future.

The above obligations do not apply to any business that is being transferred as a result of bankruptcy or insolvency proceedings, which latter process may be under the supervision of a court-appointed liquidator, and to seamen employed on ships, who are regulated under the Merchant Shipping Act.31

Further details about the transfer of business are found in the Transfer of Business (Protection of Employment) (TUPE) Regulations32 (TUPE Regulations). An important clarification in the TUPE Regulations is the definition of ‘service provision change’, which incorporates a function that had first been carried out by the employer and that was subsequently outsourced to a contractor. This also includes a function transferred from one contractor to another, or from a contractor back to the employer him or herself. The function transferred must retain ‘its identity as an organised group of resources’ carrying out the same economic activity. Good examples of such functions are, inter alia, cleaning and security of premises, reception duties and payroll processes.

The TUPE Regulations make reference to the EIRA, and open the parameters to include mergers and service-provision changes, in addition to an outright acquisition of a business. The TUPE Regulations also govern transfers of economic activities that are not ‘operating for gain’, thereby including voluntary organisations and non-government organisations. The Regulations are applicable to transfers taking place in Malta.

The TUPE Regulations go into such detail as reimbursement for the balance of vacation leave: the transferor is obliged to pay the transferee any balance of vacation leave that should have been taken by the employees prior to the sale or transfer of an undertaking, and vice versa if more vacation leave (than the number of days awarded by law) had been taken prior to the sale or transfer. This principle also applies to any wages, pro rata bonus (including government bonus) and weekly allowances due to employees registered in the company at the time of transfer or merger.

Furthermore, the TUPE Regulations stipulate that the transferee is obliged to re-engage any employees who had been made redundant prior to the official sale or transfer, and whose role becomes available once more within one year of the date of redundancy. In practical terms, this means that making employees redundant prior to the sale (so as not to have such employees on the official ETC list at the actual time of transfer or merger) will only oblige the transferee to take on these employees, under the same terms and conditions that they had enjoyed at the time of redundancy, once more if the company places adverts for these roles within one year of their redundancy.

The TUPE Regulations refer to the obligation of both transferor and transferee stipulated in the EIRA to inform employees’ representatives of the date and reason of transfer, and any implications thereto, at least 15 days before the transfer is carried out. Both transferor and transferee are obliged to send a copy of the written statement given to the employees’ representatives to the Director of Industrial Relations on the same day that it is issued. If the transfer includes changes to the conditions of employment of the employees, consultations shall be held between the employees’ representatives, the transferor and the transferee within seven days of the representatives being informed of the intended transfer. This means that consultations, and thus negotiations with the union, if applicable, are required to take place prior to the actual transfer. Unions having ongoing employee representation are recognised as such after the transfer is affected.

However, this formal information process is restricted to undertakings that have more than 20 employees, irrespective of whether they are full-time or part-time. In the absence of such a headcount, the transferor still has the obligation of giving the employees themselves all the information passed on to the transferee (namely, contract of employment or written statement in terms of the Information to Employees Regulations) by the date of transfer of the business.

The Regulations explain that the transfer itself, whether of the whole business or of part of the undertaking, shall not constitute ‘sufficient grounds for dismissal’ of existing employees either by the transferor or the transferee. On the other hand, this provision shall not stand in the way of re-organisational changes in the workforce, although the employer will be regarded as responsible if such changes will result in termination of employment.

The above obligations are valid even in cases when the transfer is undertaken by an entity controlling the undertaking to be transferred, as long as the undertaking is located in Malta, irrespective of whether the undertaking itself is in control of the transfer.

Contravening the provisions in the TUPE Regulations carries a fine of not less than €1,164.69 per person affected by the transfer.

VII TAX LAW

Malta’s corporate tax regime, which has been in place since 1948, was approved by the Commission on Malta’s joining the European Union in 2004. Malta also meets international tax standards and is also included on the ‘white list’ set out by the OECD. The country operates a full imputation system in terms of which companies are taxed at a rate of 35 per cent. However, the shareholders of companies are entitled to a refund of the tax paid of the company. The tax refund may be five-sevenths, six-sevenths, two-thirds or 100 per cent of the Malta tax paid depending on the source and nature of the income. Malta’s network of double tax treaties further strengthens the country’s position as a key corporate location.

Malta adopted Directive 2005/19/EC33 on the common system of taxation applicable to mergers, divisions, transfers or assets and exchanges of shares concerning companies of different Member States in the Mergers, Divisions, Transfer of Assets and Exchange of Shares Regulations.34 The aim of this Directive is to eliminate obstacles in cross-border mergers between eligible entities situated in different Member States.

The Income Tax Act35 exempts from tax a transfer involving the exchange of shares on restructuring of holding upon mergers, demergers, divisions, amalgamations and reorganisations. The Duty on Documents and Transfers Act36 also provides for an exemption from duty on restructuring of holdings through mergers, demergers, amalgamations and reorganisations within a group of companies as defined.

As from 2013, restructurings that qualify for tax relief in terms of the Income Tax Act and the Duty on Documents and Transfers Act are required to obtain a tax ruling and prior authorisation from the Commissioner for Revenue (Commissioner). Authorisation would generally be granted if the Commissioner is satisfied that the transaction or transactions are to be effected for bona fide reasons, and do not form part of a scheme or arrangement with the main purpose or one of the main purposes being avoidance of liability to duty or tax.

In terms of the Income Tax Act, merging companies may benefit from what is commonly referred to as the ‘step up clause’. A company resulting from a merger that is registered in Malta as per the Cross-Border Mergers of Limited Liability Regulations, and acquires assets that on the day of the merger are situated outside Malta and owned by a company that is not domiciled or resident in Malta, may opt to have the assets so acquired via the merger to be deemed acquired on the day of the merger at a cost that is proved to the satisfaction of the Commissioner to be the market value.

Tax on capital gains is levied on gains generated on the transfer of certain assets, including immoveable property situated in Malta, rights over securities, business, goodwill patents, trademarks, trade names and beneficial interest in trust. Tax on capital gains is also subject to some exemptions, such as an exemption on the transfer of assets between a group of companies or an exemption from capital gains on a transfer of shares if the transferor is a person not resident in Malta.

There are no exit taxes in Malta.

From a VAT perspective, the transfer of a going concern may be exempt from VAT if some conditions are satisfied on the part of the transferor and the transferee.

VIII COMPETITION LAW

The Control of Concentrations Regulations37 take an ex ante approach in aiming to avoid excessive market power being gained by undertakings through mergers, acquisitions or joint ventures that would lead to the substantial lessening of competition on any given market. Where significant market power is held by an undertaking (enough for it to be considered ‘dominant’) and this is abused, or where anticompetitive agreements are entered into between two or more undertakings, competition rules are in place to provide sanctions for such behaviour once it has taken place (ex post). Although merger control legislation attempts to prohibit mergers that would afford undertakings significant market power (enough to substantially lessen competition), it is not market power itself that is prohibited and sanctioned by competition law, but the anticompetitive behaviour of undertakings.

The Maltese Competition Act (Competition Act) provides the national legislative framework for competition regulation in Malta. Articles 5 and 9 of the Competition Act are the substantive provisions that stipulate the competition law prohibitions, and closely mirror Articles 101 TFEU and Article 102 TFEU under EU competition law. Article 5 prohibits anticompetitive agreements between two or more undertakings, while Article 9 prohibits the abuse of a dominant position by an undertaking.

Any agreement between undertakings, decisions by an association of undertakings or concerted practices between undertakings with the object or effect of hindering competition in line with the prohibition listed in Article 5(1) will be considered null and void in accordance with Article 5(2), unless one of the exceptions under Article 5(3) applies. Block exemption regulations are also in place (these may be referred to, although they are currently expired) that exempt certain types of agreements that are not considered to be anticompetitive. These broadly cover vertical agreements and concerted practices, horizontal agreements, technology transfer agreements, specialisation agreements, and research and development agreements.

Article 9 prohibits the abuse by an undertaking of a dominant position. Dominance is defined in the Competition Act as ‘a position of economic strength held by one or more undertakings which enables it or them the power to prevent effective competition being maintained on the relevant market by affording it or them the power to behave, to an appreciable extent, independently of its or their competitors, suppliers or customers’. Article 9(2) lists examples of types of behaviour that would be considered an abuse. These may be largely classified into exploitative (in relation to one’s customers) or exclusionary (in relation to one’s competitors) abuses.

The Malta Competition and Consumer Affairs Authority Act (MCCAA Act) provides for the set-up of the Malta Competition Affairs Authority, which includes the Office for Competition, the authority responsible for the regulation of competition law and merger control in Maltese markets. Together with the Competition Act, it also provides the Office with the necessary enforcement powers to investigate and sanction any potential breaches of competition law. The MCCAA Act brought with it major amendments to the Competition Act and, most significantly, decriminalised competition law breaches and introduced an administrative fining system based on that used by the Commission for EU competition law breaches.

Undertakings and consumers who have suffered damages as a result of behaviour by an undertaking in breach of Articles 5 or 9 of the Competition Act may seek to recover such damages. A legal basis for such actions was introduced into the Competition Act by the MCCAA Act in 2011.

The Collective Proceedings Act,38 which came into force in 2012, helps to create an incentive for consumers and undertakings to seek compensation, particularly where taking on an individual action would have been too burdensome and costly.

Draft leniency regulations were published by the Office for Competition in June 2013, and were followed by a consultation period. Such regulations aim to encourage undertakings involved in anticompetitive agreements to act as whistle-blowers in order for their fine to be reduced, or even waived, thereby allowing such agreements to be uncovered by the Office for Competition.

IX OUTLOOK

It is anticipated that the current level of transactional activity will continue, especially in the sectors referred to above. A lot of this activity is driven by the desire to consolidate and achieve economies of scale and a geographic reach that spans beyond Europe. Another factor is the restructuring of businesses with increased focus on regulatory and tax efficiency with respect to operations in Europe.

In the next 12 months, we are also likely to see a number of Maltese companies involved in the development of niche software products, as well as a handful of remote gambling business seeking admission to stock exchanges and multilateral trading facilities overseas, most likely outside the eurozone area.

Finally, if venture capital funding is properly stimulated as per the government’s stated intention, we are likely to see an increased number of businesses, particularly in the technology sector, developing faster and potentially becoming the targets of acquisition by larger local and international players.

Footnotes

1 James Scicluna is a partner, Ramona Azzopardi is a senior associate and Rachel Vella Baldacchino is a trainee lawyer at WH Partners.

2 European Commission, Country Report Malta 2016.

3 Malta Financial Services Authority, Annual Report, 2015.

4 Chapter 16, Laws of Malta.

5 Chapter 386, Laws of Malta.

6 SL 386.11.

7 SL 386.12.

8 Directive 2005/56/EC of the European Parliament and of the Council, 26 October 2005 on cross-border mergers of limited liability companies.

9 Chapter 13, Laws of Malta.

10 SL 386.14.

11 SL 386.15.

12 Chapter 438, Laws of Malta.

13 Chapter 370, Laws of Malta.

14 Chapter 371, Laws of Malta.

15 Chapter 403, Laws of Malta.

16 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009.

17 SL 370.19.

18 Chapter 379, Laws of Malta.

19 SL 379.08.

20 Chapter 452, Laws of Malta.

21 SL 452.85.

22 SL 452.103.

23 Chapter 476, Laws of Malta.

24 Chapter 123, Laws of Malta.

25 Chapter 364, Laws of Malta.

26 Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014.

27 Gazette No. 19.311 of 19 September 2014, LN 333 of 2014.

28 Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, SL 386.10.

29 SL 386.16.

30 Footnote 20.

31 Chapter 234, Laws of Malta.

32 SL 452.85.

33 Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.

34 SL 123.72.

35 Footnote 24.

36 Footnote 25.

37 SL 379.08.

38 Chapter 520, Laws of Malta.