Share pledges constitute one of the most commonly used forms of security in Maltese corporate and financing transactions. They are primarily regulated by the Companies Act[1], which establishes the formal requirements for the creation, registration and enforcement of pledge of securities. However, where a pledge falls within the scope of the Financial Collateral Arrangements Regulations[2] (the “Regulations”), a parallel and more flexible enforcement regime applies. This article examines the enforcement of share pledges under both the Companies Act and the Regulations and highlights the practical advantages under the financial collateral framework from an enforcement point of view.
The Regulation of Share Pledges under the Companies Act
The pledge of shares is primarily regulated by the Companies Act. The Companies Act provides that securities may be pledged by their holder in favour of any person as security for any obligation, unless otherwise provided in the company’s memorandum and articles of association or under the conditions of issue of the relevant securities. A pledge is constituted by means of a written instrument entered into between the pledgor and the pledgee.
Notice of the pledge must be delivered by the pledgor or the pledgee to the Registrar of Companies within 14 days of the granting of the pledge. The pledge only becomes effective in relation to third parties upon registration of such notice by the Registrar.
By virtue of Act No. XVIII of 2025, a further requirement has been introduced whereby a document containing the particulars of the security agreement must also be delivered to the Registrar for registration within 14 days of the granting of the pledge. However, this requirement has not yet entered into force.
In terms of enforcement under the Companies Act, in the event of default under a pledge agreement, the pledgor must give notice to the pledgee and the company by means of a judicial act. Following such notice, the pledgee is entitled to dispose of the pledged shares or to appropriate and acquire them in settlement, in whole or in part, of the secured obligation. The value of the securities is established by agreement between the pledgor and the pledgee following notice of default. In the absence of agreement, the valuation is determined by a certified public accountant appointed by the First Hall of the Civil Court on the application of the pledgee. The pledgee also has the right to apply for the judicial sale of the pledged shares.
Prior to exercising these rights, in the case of a private company, the pledgee must first offer the shares to existing shareholders in accordance with any pre-emption rights relating to the transfer of shares contained in the memorandum and articles of association. In the absence of such pre-emption rights, the shares must be offered to all existing shareholders in proportion to their respective holdings. The offer must remain open for a minimum period of 10 working days.
In the case of a public company, where the memorandum and articles of association require a transferring shareholder to offer shares on a pre-emptive basis to other shareholders, the pledgee comply with such requirement. The offer must remain open for a minimum period of 10 working days.
Act No. XVIII of 2025 also introduced a provision whereby for the purposes of enforcement, the pledgee or any person acting on its behalf may exercise enforcement rights by acting on behalf of the pledgor as its mandatory, provided that the pledgee is authorised to so act, irrevocably and by way of security, in accordance with article 1887 of the Civil Code[3] and that the right to act in such manner is expressly provided for in the pledge agreement. This codified what was already common practice prior to its introduction.
While the Companies Act establishes the core framework for the registration and enforcement of share pledges, the Regulations introduce a parallel framework which operates alongside it, while streamlining the enforcement process. Under the financial collateral framework, enforcement is largely regulated by the underlying share pledge agreement.
The Regulation of Share Pledges under the Financial Collateral Arrangements Regulations
The Regulations apply exclusively to:
- Financial collateral which consists of cash, instruments or credit claims;
- Financial collateral which has been provided and which can be evidenced in writing; and
- Financial collateral arrangements which can be evidenced in writing or in a legally equivalent manner.
Furthermore, both the collateral taker and the collateral provider must be an entity listed in regulation 4 of the Regulations. These include, among others:
- A corporation or other legal person established by law;
- A bank or credit institution licensed in Malta or authored by a foreign authority in a recognised jurisdiction (which includes EU Member States and EEA States);
- An investment services entity licensed in Malta or licensed or authorised by a foreign authority in a recognised jurisdiction;
- A financial institution; and
- An insurance company or insurance undertaking.
The Regulations implement the provisions of Directive 2009/44/EC, which is intended to facilitate the cross-border use and enforceability of financial collateral within the EU.
Where a financial collateral arrangement falls within scope, including a share pledge agreement, it is valid and enforceable in accordance with its terms and the Regulations. The enforcement regime is therefore predominantly contractual in nature and is largely regulated by the contractual terms contained in the share pledge agreement, which override legal formalities and restrictions which would otherwise apply.
Furthermore, in the event of conflict, the Regulations prevail over any inconsistent provisions of the Civil Code, the Code of Organization and Civil Procedure[4], the Companies Act, the Companies Act (Investment Companies with Variable Share Capital) Regulations[5] or any other law.
The obligations ordinarily incumbent upon a pledgee under the Companies Act to offer pledged shares to existing shareholders on a pre-emptive basis do not apply where the pledge constitutes a financial collateral arrangement under the Regulations. Similarly, any requirement to offer pledged shares on a pre-emptive basis under the Companies Act (Investment Companies with Variable Share Capital) Regulations does not apply.
In terms of enforcement, the Regulations provide that a collateral taker may realise financial collateral in accordance with the terms of the relevant security agreement. In the case of instruments (including shares), realisation may be effected by sale or by appropriation, and by setting off their value against, or applying their value in discharge of, the secured obligations. Appropriation is only possible where expressly agreed to in the security agreement, which must also set out the valuation mechanism for the relevant instruments.
Unless the security agreement provides otherwise, the realisation of financial collateral does not require prior notice, approval by any court or public office, the conduct of the realisation by sale by auction, or the lapse of any additional time period.
Furthermore, valuation of collateral under the Regulations differs from that under the Companies Act. Under the Regulations, valuation must be carried out in accordance with the terms of the security agreement and, in any event, in a commercially reasonable manner and in good faith. This contrasts with the Companies Act which expressly states that any prior agreement on the value of the securities is invalid and which requires that the value is determined following a default.
The financial collateral regime facilitates swift and efficient enforcement of security interests, an essential feature for the proper functioning of financial markets and corporate transactions. In practice, the Regulations provide a significantly more streamlined enforcement framework, allowing both the pledgor and the pledgee to regulate the enforcement process primarily through the terms of the underlying security agreement.
[1] Chapter 386 of the Laws of Malta.
[2] Subsidiary Legislation 459.01of the Laws of Malta.
[3] Chapter 16 of the Laws of Malta.
[4] Chapter 12 of the Laws of Malta.
[5] Subsidiary Legislation 386.02 of the Laws of Malta.
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