From securitisations to shipping, compared with the rest of the EU Malta is making the most of its rude health by attracting increasing international work
The financial crisis has been kinder to some countries than others. One of those that has arguably been among the main beneficiaries is Malta.
Last year saw the Malta International Ship Register become the largest ship registry in Europe, overtaking Greece’s with a 16 per cent increase in the total tonnage of ships registered in the jurisdiction. In the past 15 years alone the number of ships registered and total tonnage has doubled. Malta is also increasingly popular as a superyacht registry.
“The main reason for this is the difficulties that Greece has been facing recently,” acknowledges Chetcuti Cauchi Advocates partner Priscilla Mifsud Parker.
Mifsud Parker says the firm has advised on a number of redomiciliations of ship registrations and also the movement of shipping companies’ head offices from Greece
to Malta over the past year. She believes the shift will continue thanks to Malta’s efforts in keeping fees low.
“I think we can maintain it because of the high standards that the government requires. It’s not a flag of convenience,” she adds.
Fenech & Fenech Advocates managing partner Ann Fenech agrees, pointing out that one of the causes of the growth in shipping work has been a shift by cruise operators from their traditional Caribbean flags to Malta as a result of more European holidaymakers considering cruises. Fenech does not think that recent high-profile cruise ship incidents, such as the grounding of the Costa Concordia off Italy in January, will have a negative impact on this trend.
“There’s no doubt that shipping generally is becoming safer,” she stresses, observing that shipping incidents are invariably due to human error.
The growth in Malta’s shipping industry has been echoed by growth in other sectors, and law firms are positive about the year they had in 2011 and the prospects for 2012.
“We tend to be a pretty good gauge of what’s going on in the economy,” observes Fenech. “If the work that we’ve been doing over the past year is a reflection of what’s going on in Malta, then we’re an exception to greater Europe.”
A key area, identified by a number of firms, is securitisation work. A 2011 amendment to the country’s 2006 Securitisation Act means that taxable income from securitisation vehicles has effectively been eliminated, as securitisation vehicles can claim tax deductions in respect of income from costs, acquisition price and residuals.
An increase in securitisation work is noted by Ganado & Associates and Camilleri Preziosi Advocates. The growth will be aided by the recent launch of a joint venture between the Irish Stock Exchange and the Malta Stock Exchange, known as the European Wholesale Securities Market (EWSM). The venture operates out of Malta and is authorised and regulated by the Malta Financial Services Authority (MFSA), with primary market infrastructure and listings services provided by the Irish exchange and Malta’s exchange providing secondary services.
The EWSM lists wholesale debt securities on an EU-regulated platform. Ganado & Associates managing partner Max Ganado thinks such ventures are the way forward for Malta.
“We’re potentially seeing that Malta will become a location for regulated platforms,” Ganado observes. “If that happens the capital markets work, which will be European in nature, will be more attracted to Malta because of what it can bring to the table.
“What Malta can bring to the table is speed, ease of process and relatively competitive costs. The weakness on the other side is that it’s not easy, you’re always breaking new ground.”
Ganado points to recent transactions such as the issuance of €234m (£187m) in exchangeable notes by German airline Lufthansa as examples of Maltese innovation. Lufthansa set up a Maltese limited partnership, Lufthansa Malta Blues, in order to issue the five-year notes, which are exchangeable into stock of JetBlue Airways.
Camilleri Preziosi senior associate Malcolm Falzon agrees that Malta’s prominence in such areas is growing.
“International players are becoming more aware of the stability and credibility of the Maltese legal environment,” he says. “That’s helping to send the message out that Malta is and remains a viable option.”
Spreading the word
Falzon says that, while the bulk of transactions coming through Malta are predominantly European, there is increased interest from outside the EU, with true multinationals and US-based companies now displaying awareness of what Malta might be able to offer.
Ganado adds that Malta is well-positioned to take advantage of any work coming from North Africa, and in particular Libya, following the Arab Spring. Similarities in culture and language will help make Malta attractive to Libyan businesses, he believes, but he also thinks Maltese structures would be a good way of investing into what could develop into a growth economy.
Fenech agrees. She points out that North African businesspeople have always been attracted to Malta and says Fenech & Fenech has been working with the North African nations for the past 25 years, but that recent visits to Libya have convinced her that there is vast opportunity there.
“I see a very different Libya in the future to what we’ve been accustomed to and I think the people are desperate to get on with their lives,” she says, describing a visit to the country’s business capital Misrata, where despite the city being flattened by the former regime’s forces entrepreneurship is thriving.
“These people are really keen to get back into business and it’s really exciting.”
She believes that Malta attracts North African business in a number of sectors, including arbitration, and will continue to do so.
Innovations such as Malta’s recent protected cell company (PCC) legislation, which makes it the only EU country able to offer this type of structure – one that is promoted most heavily by offshore jurisdictions, notably Jersey – are another example of the way the jurisdiction is trying to make the most of its economic health while its fellow EU countries struggle.
“In certain fields, apart from the regulatory type of work, which in reality, although very important, can prove quite tedious and routine at times, we thrive on being involved in engagements featuring increasingly innovative structures involving Malta-registered vehicles,” says Falzon, explaining that working on such transactions offers more of a challenge.
Expanding sectors within financial services includes foreign exchange (forex) trading vehicles. Chetcuti Cauchi Advocates managing partner Maria Chetcuti Cauchi reveals that her firm is currently advising a client on launching a forex-only investment fund.
“I’d say that, in the past 24 months, we’ve seen an influx of forex companies wanting to set up here,” she reveals.
According to Chetcuti Cauchi, this growth can again be ascribed to Malta’s place in the EU and the ability to “passport” vehicles across the European Economic Area (EEA).
Trust work is also on the up, says Ganado, pointing to the introduction of trust law into Malta’s civil code in 2007.
“Now that’s stable we see retirement trusts, pensions trusts and employee trusts looking at Malta – they’re finding it can be done,” says Ganado. “This is why we feel the financial services industry in Malta has got momentum, because a couple of laws were introduced a few years back. When people come to Malta they find this mix of civil law and English law, which suddenly makes structures possible.”
Ganado praises the MFSA and the country’s government for their willingness to keep an eye on legislation and amend it if necessary.
“There’s always the need for tweaking laws as they go along,” he points out. “You find that the regulator’s willing to consider reviewing the law to deal with issues.”
Hands across the water
As a result of the activity in financial services and capital markets, many firms are focusing heavily on this area and also increasing their international offerings.
Although Chetcuti Cauchi is the only Maltese firm to have a foreign office in Cyprus, and no international firms have any physical presence in the jurisdiction, the amount of cross-border activity makes relationships with firms from elsewhere in Europe and the US critical.
Ganado reveals that his firm employs a number of foreigners, including English- and Irish-qualified partner Richard Ambery, who was hired from Irish firm Arthur Cox in 2010. The firm also welcomes secondments from overseas firms as well as sending its own lawyers away on secondments: currently it has one lawyer in Ireland and one in New York.
He says such initiatives help to improve the way the firm works, in particular making it more internationally facing.
“We believe that’s going to enhance our general awareness of standards and how we should do things,” Ganado states.
Camilleri Preziosi has similar arrangements, according to Falzon.
“Maltese practitioners have proved to be very capable of adapting to a changing environment, particularly in the financial services sector,” he points out. “A level of adjust-ments commensurate with the increased complexity of the market in which we operate has further refined and improved the way in which leading firms operate.
“Undoubtedly this process is facilitated by exposure to major international firms engaging counsel in Malta or forming part of networks coming together to share ideas on their respective operations, as well as by the increased number of foreign lawyers on secondment or settling in Malta, who provide first-hand knowledge of the way things are done elsewhere within larger firms.”
Fenech is a little more cautious about the need to employ foreign lawyers, although her firm does have Croatian, French and Italians on its roster.
“I see the strength of Maltese lawyers and Maltese law firms in the fact that we’re Maltese,” she says. “I much prefer the option any day of having Maltese lawyers who know the Maltese system working abroad and coming back to Malta.”
She reveals that she herself is an example of this, having spent several years at UK firm Holman Fenwick Willan, which she says provides Fenech & Fenech with a great referral network.
“We have direct access to law firms everywhere in the world at the end of a phone line on a 24-7 basis,” she says.
Despite the offshore sector, which typically handles much of the same types of work as Malta, moving into similar jurisdictions such as Cyprus, Ireland and Luxembourg, Maltese lawyers do not think there will be any similar influx in the near future.
“We don’t think the market’s big enough to attract this kind of firm, but we’d be excited if they did, because that’s a signal of progress for the system. We wish to think that we serve them so well they don’t think they need to,” Ganado comments.
“I think the industry would welcome that,” adds Chetcuti Cauchi, although she too agrees that an imminent move in this direction is unlikely.
Playing the field
In the meantime Maltese firms are focusing on building in the jurisdiction’s many growth areas. On top of the capital markets work, Ganado sees an increase in aviation finance – a similar area to the buoyant shipping market.
Gaming work also continues apace. Chetcuti Cauchi identifies a recent development of more “hybrid” games, following the 2004 introduction of legislation to allow Maltese gaming licences. She says the types of online games now using a Maltese structure as a platform are no longer easily slotted into one category, such as casinos or betting.
“The Maltese licence lends itself well to these types of changes in the industry. It’s a very expandable definition and it includes most online games,” she explains.
She also identifies IP work as a growth practice.
“Companies are focusing more on investing in their brand, maybe restructuring their portfolio of companies to protect their trademark in Europe,” Chetcuti Cauchi says.
But the fundamental nature of Malta as a service centre is unlikely to change.
“Malta’s very good at being an intermediary as we’ve been intermediaries throughout our lives. We’re born an intermediary because we don’t have a natural economy – it’s all services,” Ganado notes.
He and his counterparts in other firms think Malta has made the best of its position in this regard, developing flexible, well-regarded laws that are now attracting international users.
“We compete on costs and we compete on speed, but at the end of the day the quality of the law has contributed tremendously to the success,” he concludes.
As a service centre for the financial industry, Malta has flourished in recent years. This, combined with thriving shipping and aviation sectors, means it is a good time to be a Maltese lawyer. This week’s report looks at growth areas in this small EU jurisdiction.
Ten things you (probably) didn’t know about Malta
1 Malta has no mountains or rivers.
2 Malta’s history, which has seen it invaded by multiple cultures, makes it a useful place to double as a location for various other real and imagined places. Recent films and TV shows shot in Malta include Game of Thrones, The Da Vinci Code and the next Asterix movie.
3 At 316sq km, Malta is the world’s 207th-biggest country.
4 90.2 per cent of Malta’s population speaks the native language, Maltese, according to the 2005 census.
5 Imports into Malta outweigh exports. The country produces only 20 per cent of its food needs and services contribute over 80 per cent of GDP.
6 In 2010 there were 109.5 mobile phone subscriptions for every 100 people in Malta.
7 And in the same year 566 cars for every 1,000 people.
8 Malta sent six athletes to the 2008 Beijing Olympic Games, competing in athletics, judo, shooting and swimming. Malta has never sent a team to the Winter Olympics and has never won an Olympic medal.
9 Malta is 93km from Sicily, the nearest European landmass, and 288km from Tunisia, its closest neighbour in Africa.
10 The islands are home to three World Heritage Sites and include the Ggantija Temples on Gozo, said to be the oldest free-standing monuments in the world.
Sources: CIA World Factbook; Malta Department of Information
Malta: key dates
Pre-5000 BC: first men arrive in Malta
800-480: Phoenician colonisation
480-218: Carthaginian colonisation
218: Malta incorporated in Republic of Rome
60 AD: Introduction of Christianity
395-970: Byzantine domination
870: Invasion by Aghlobite Arabs
1090: Norman invasion
1194-1266: Swabian occupation (German)
1266-1283: Angevin occupation (French)
1283-1530: Aragonese occupation (Spanish)
1530: Order of St John takes possession
1566: Founding of Valletta
1798: French occupy Malta under Napoleon
1799: Britain takes control
1814: Treaty of Paris; Malta becomes British colony
1964: Malta becomes independent state and part of the Commonwealth
1974: Malta becomes a Republic; Sir Anthony Mamo elected as first president
2004: Malta joins the EU
2008: Malta adopts the euro
Succession planning in Malta
Like many firms across Europe, several of Malta’s are reaching the point where founding partners are beginning to think about the future and about handing on the baton to the next generation.
While most remain traditional partnerships, one has gone down a different route.
Several years ago Ganado & Associates, founded by Joseph Ganado, now a consultant, scrapped its partnership structure to go for something new.
Managing partner Max Ganado, Joseph’s son, explains that when he joined it was very much a family business with only a handful of lawyers. It now employs around 60 people and Ganado is aware that at some point he will want to step down.
So a few years ago the firm got rid of its equity partnership and turned itself into something that is more akin to an English barristers’ chambers. Every lawyer in the firm is technically self-employed and everyone’s earnings are pooled into one pot before being shared out again on a system roughly akin to lockstep. The youngest associates receive the smallest portion, while the oldest lawyers the most, with the shares calculated by seniority and performance. It is very much not an eat-what-you-kill system.
Ganado says implementing the structure “took a lot of foresight” and thinking, but he believes it has paid off. He says it encourages older lawyers to introduce younger ones into the big deals, as there is no financial incentive to guard jealously the best work.
“Quality hasn’t suffered,” he stresses when asked about recruitment, but admits that the structure does not suit everyone.
“It gives status to individuals who want to participate in an exciting operation,” he adds.
Ganado believes the shift away from a partnership has changed the whole ethos of Ganado & Associates. He says it has helped the firm become a more sharing entity generally – for example, by being keen to share information about new legislation with other firms and clients within Malta.
“That is influenced a lot by our collaborative approach,” he says. “We don’t look at sharing jobs as a threat, we look at it as a help.”
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