'Securitisation, It's Back'1 and the European Commission's endorsement of securitisation transactions is testament to this fact in Europe, promoting securitisation transactions as a catalyst to stimulate credit, investment and job creation in Europe.2
In Malta securitisation has enjoyed the support of successive Maltese governments and local authorities. Structuring Maltese securitisation transactions is regulated by the Securitisation Act.3 This Act andits related statutes were purposefully drafted to make Malta a jurisdiction of choice for securitisation transactions. Their impact cannot be ignored, Malta reportedly is the fastest growing securitisation jurisdiction within Europe.4
Types of Malta securitisation vehicles
The Securitisation Act provides that a Maltese securitisation vehicle may take any form, including a private or public limited liability company, a securitisation cell company, a partnership, a trust and others. As its very name suggests, Malta Securitisation Cell Companies6 ('SCCs') are tailor made for securitisation transactions and here below we highlight their main features.
Key features of Malta Securitisation Cell Companies
An SCC is a single legal person which is internally composed of a core and one or more cells. Its particular internal structure means that an SCC may be used for multiple securitisation transactions, even if the securitisation assets originate from different and unrelated originators, thereby providing for economies of scale.
Cellular segregation and insulation
An SCC would enter into securitisation transactions through its one or more cells. Each cell may be utilised for multiple securitisation transactions, on condition that the securitisation assets in relation to each transaction originate from the same originator.
By operation of Maltese law, the assets and liabilities which arise from a cell's activities form the sole patrimony of that cell. These assets and liabilities are ring-fenced from the cellular assets/liabilities of others cells and from the non-cellular assets/liabilities, belonging to the core7. In consequence, cellular assets are safeguarded from being used to satisfy liabilities that are not attributable to that particular cell. Moreover, assets attributable to a cell are protected from the creditors of the SCC who are not creditors in respect of such particular cell.
An SCC's directors must ensure that cellular assets are kept separate and are separately identifiable from non-cellular assets and from cellular assets attributable to other cells.
New cells can be created rapidly, requiring only the board of directors of the SCC to resolve to establish a cell, indicating its name and the purpose for which the cell would be used. A copy of this resolution must be delivered to the MFSA within 14 days from the date on which it has been passed. Prior to commencement of business, an SCC must notify the MFSA of its intention to enter into one or more securitisation transactions in respect of a newly created cell8.
An SCC may issue cellular shares in respect of each cell which it creates, however, no minimum share capital requirements apply in relation to the cells. The respective cell shares, if any, may be denominated in different currencies and may grant profit participating rights to their holders, with recourse to the respective cell profits.
The day-to-day management of a cell would vest in the board of directors of the core, which would be common to the SCC. Provisions would be made to ensure that the interests of each cell are safeguarded. Moreover, the terms of issue of respective cell shares typically grant their holders the right to nominate a member to the board of directors of the SCC.
For income tax purposes, each and every cell of a SCC is treated as a separate company. Annual audited accounts of the core must be prepared and lodged at the Registry of Companies. In addition, separate audited financial statements for each cell are to be kept in terms of the Maltese Income Tax Acts.
The Malta tax treatment of Maltese securitisation vehicles, including SCCs, is explained here below.
The activities of a Malta securitisation vehicle ('SV') can achieve tax neutrality through the application of the general rules on the deduction of allowable expenses in terms of the Maltese Income Tax Act and rules on the deduction of allowable expenses in terms of the Malta Securitisation Transactions (Deductions) Rules.9 In turn Non-Maltese resident originators and investors can typically also achieve tax neutrality under the general provisions of the Income Tax Act and Duty on Documents and Transfers Act.10
Additional benefits of securitisation vehicles in Malta
Additionally, securitisation transactions can be structured using Maltese securitisation vehicles to benefit from:
- no restrictions on the type of securitisation assets;
- securities issued by an SV may be listed on a regulated market, whether in Malta or outside;
- SVs are excluded from the scope of AIFMD by virtue of the Securitisation Act;
- SVs may issue securities backed by underlying alternative investments and target funds to purchase their securities;
- all forms of securitisation transactions are permitted, covering outright acquisition of the securitisation assets, assumption of risks and the taking control of whole businesses;
- non-EU licenced fund managers may use securities issued by SVs, backed by units in non-EU funds, asa route to accessing finance within the EU;
- transfers to SVs of securitisation assets are final, cannot be challenged / recharacterised;
- bankruptcy remoteness of the originator is provided for expressly by statute;
- the Securitisation Act restricts litigious recourse against an SV;
- legal formalities for transfer of securitisation assets to an SV are simplified;
- securitisation investors and creditors are granted preferred claims by law;
- light touch regulatory oversight;
- swift incorporation of SVs, requiring only a day or two to complete registration from the submission of the constitutive documents in the case of limited companies or partnerships.
KPMG Malta can assist you in structuring and implementing securisation transactions, in establishing Malta securitisation vehicles and with their ongoing obligations thereafter.
Key elements of Malta securitisation
- SV is subject to the standard Maltese tax system. Income tax is charged on the worldwide income and gains of the SV
- Taxable income of the SV can be
reduced or eliminated by the general rules on deductions of
eligible expenses and the deduction of expenses under the
Securitisation Transactions (Deductions) Rules. Permitted
- Expenses wholly and exclusively incurred in the production of the income;
- Payables from SV to originator for the securitisation assets;
- Payables in relation to the instruments issued by an SV;
- Expenses connected to day-to-day running of an SV; and
- A further deduction (the "Residual Profit Deduction") of an amount equal tothe total remaining income, if any.
- No Malta tax liability for originator who is not tax resident in Malta on consideration for securitsation assets
- No withholding tax on payments by SVs to non-Malta resident investors holding of equity (dividend) or debt (interest) instruments of SVs
- Exemption from income tax on gains derived from a transfer of securities in an SV by non-Malta residents
- Exemption from stamp duty on a transfer of securities issued by an SV
- Malta resident SVs enjoys possibility to avail of extensive double tax treaty network(70 treaties currently signed and ratified by Malta)
- Exemption from VAT on transactions in shares and securities in general
- No thin capitalisation restrictions.
Originator / Assignor
- No requirement to be licenced / authorised or otherwise regulated
- No restrictions on identity of originator e.g. hedge funds (including non-licenced funds established outside the EU), shipowner or aircraft owning entities, IP holding entities, credit institutions, Government, parastatal bodies etc
- May hold equity stake in the securitisation vehicle, be a subsidiary of the securitsation vehicle or be unrelated to it
- No limitation on what may constitute a securitisation asset e.g. securities, commodities, plant and machinery (e.g. vessels & aircraft), intellectual property, insurance risk, receivables arising from the aforesaid and from other sources (e.g. lease income, interest payments on credit facilities, coupons due from bonds, dividends and interest on securities) etc
- In terms of the Securitisation Act a securitisation asset may consist of: '(...) any asset, whether existing or future, whether movable or immovable, and whether tangible or intangible, and where the context so allows, includes risks'
- Securitisation transactions or financial instruments issued by the SV must exceed EUR1,000,000.
Securitisation vehicle ('SV') / Issuer
- May be established in or outside Malta
- May take any legal form e.g. private or public limited company, investment company, partnership, trust, securitisation cell company etc
- Company and partnership formation in Malta in 1 - 2 business days from submission of constitutive documents for limited companies and partnerships.
- Minimum share capital for private companies of EUR1,165 (at least 20% paid up) and EUR46,588 public companies (at least 25% paid up)
- May be 'orphaned' through Maltese purpose foundations. Not required due to bankruptcy remoteness provisions built into the Securitisation Act.
Transfers of securitisation assets treated as final
- Title to securitisation assets may be transferred by any legally recognised form
- Such transfers are not subject to re-characterisation for any reason whatsoever
- Additionally, the Securitisation Act provides that such assignments are final, absolute and binding on the originator, the SV and on all third parties, notwithstanding any underlying contractual or statutory prohibition or restriction on the originator in relation to the securitisation assets.
Bankruptcy remoteness of originator
- Proceedings taken under Maltese law
against an originator cannot impinge on:
- a securitisation vehicle;- its cashflow;
- underlying securitisation assets; and
- any other assets and obligation due in its favour by underlying debtors in connection with the securitisation assets
- In practice an SV may additionally be 'orphaned' through a Maltese purpose foundation.
Limited litigious recourse
- By virtue of the Securitisation Act, only securitisation creditors are permitted to demand the issuance or enforcement of any precautionary act or warrant against the SV; save only where fraud is proven to the satisfaction of the courts in Malta.
- Provided also in the
Securitisation Act is that an SV's constitutive
documents may permit a particular class of persons only to demand
or place the SV under:
- dissolution and winding-up proceedings,
- company recovery procedure,
- company reconstruction or
- other proceedings affecting creditors' rights.
- The claims of investors and other creditors of a securitisation vehicle over its assets and proceeds derived there from are privileged. These claims ranking prior to any claims by third parties against the securitisation vehicle and its assets
- Such privilege arises by virtue of the Securitisation Act
- No registration requirement of such privilege
- Amongst themselves, the ranking of securitisation investors and other creditors maybe determined contractually.
- Single Malta regulator, the MFSA
- No licencing or authorisation requirements imposed on securitisation vehicle. Only SVs who issue financial instruments on a continuing basis require licencing by the MFSA
- Notification to MFSA of establishment of SV
- Securitisation vehicles classify as financial vehicle corporations ('FVCs') in terms of Regulation (EU) No. 1075/2013 ECB, not investment funds
- Securitisation vehicles also precluded from being considered / reclassified as a fund(including AIFs) by virtue of the Securitisation Act
- SVs required to submit quarterly reports to the Central Bank of Malta in terms of Regulation (EU) No. 1075/2013 ECB.
1. The Economist, Securitisation, It's Back, 11th January 2014 http://www.economist.com/news/leaders/21593457-once-cause-financial-worlds-problems-securitisation-now-part-solution-its
2. European Commission, Proposal for a Regulation of the European Parliament and of the Council, laying down common rules on securitisation and creating a European framework for simple and transparent securitisation and amending Directives 2009/65/EC,2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 and Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, p. 4 – 7 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015SC0185&from=EN
3. Chapter 484 of the laws of Malta
4. http://www.financemalta.org/sections/capital-markets/financemalta-capital-markets-articles/detail/maltese-issuers-of-structured-investment-products-rank-top5-deutsche-borse-frankfurt. Also reported that 'In the January 2016 report of the German Derivatives Association, Maltese Securitisation Companies ranked Top 5 of Issuer of delta1 structured investment products based on jurisdiction. Malta even overtook Luxembourg in the ranking, while the first four jurisdictions were Germany, France, Switzerland and Italy. One of the Maltese Issuer - ETI Securities plc, established under the Securitisation Act of Malta and arranged by Argentarius ETI Management Ltd - ranked 9th overall confirming the leadership as bank-independent issuer within the German marketplace.'
5. http://www.mfsa.com.mt/pages/licenceholders.aspx - accessed on 6th September 2016
6. In Malta SCCs are regulated by the Securitisation Cell Companies Regulations (Subsidiary Legislation 386.16).
7. In terms of Rule 12(2), SCC Rules, apportionments may be made out of the assets attributable to the individual cells towards the costs of the day-to-day administration of the securitisation cell company.
8. In the case of an SCC which acts as a 'Public Securitisation Vehicle', prior authorisation by the MFSA is required for a new cell to be created. The term Public Securitisation Vehicle means '(...) a securitisation vehicle which issues or which is desirous of issuing financial instruments to the public on a continuous basis;'. To date no Malta Securitisation Vehicles have been established as public securitisation vehicles.
9. Chapter 123.128 of the laws of Malta
10. Chapter 364 of the laws of Malta
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.