In a recent judgement of the Court of Appeal in the names Bank of Valletta p.l.c. (subsequently succeeded by another company in the proceedings) vs F.G.S. Construction Limited et, delivered on the 26 May 2025), the Court held that interest on a debt continues to accrue until the date of actual payment, not merely until the date of liquidation.
The judgement concerns an appeal by Bank of Valletta p.l.c. (subsequently succeeded in the proceedings) against a decision of the First Hall, Civil Court.
The original action was for the recovery of €513,481.33 plus interest, representing the outstanding balance on loan and overdraft facilities granted to F.G.S. Construction Limited, for which Jesmond and Juliet Falzon had acted as joint and several guarantors. One of the main issues of the appeal related to the calculation and accrual of interest on the debt following the liquidation of the debtor company.
The Court of Appeal overturned the lower court’s decision to limit the accrual of interest to the date of the company’s dissolution. The appellate court held that, in the absence of a specific statutory provision to the contrary, interest on the debt continues to accrue until the date of actual payment, not merely until the date of liquidation. The court found that the relevant provisions of the Companies Act (Cap. 386 of the Laws of Malta) do not impose a cut-off for the accrual of interest upon the dissolution of a company.
The court addressed the argument that Article 537 of the Commercial Code (Cap. 13), which provides for the cessation of interest upon the declaration of bankruptcy, should apply by analogy to company liquidations. The court rejected this analogy, pointing to Article 326 of the Companies Act, which expressly states that the bankruptcy provisions in Title III of the Commercial Code do not apply to companies. The court emphasised that the law is categorical in this respect, and thus, the jurisprudence that had previously applied the bankruptcy interest cessation rule to company liquidations was not binding and should not be followed.
The Court of Appeal allowed the appeal, set aside the lower court’s limitation on the accrual of interest, and ordered that interest on the sum of €513,481.33 should continue to accrue from 31 July 2015 until the date of effective payment. The remainder of the lower court’s judgement was confirmed, and costs were awarded against the defendants.
Prohibiting the accrual of interest post-insolvency incentivises creditors to engage in the timely resolution of insolvency proceedings. When interest continues to accrue, creditors may be less motivated to expedite the process, knowing that their claims will continue to grow. A legislative change to halt interest accrual would encourage creditors to seek swift resolutions, in so doing reducing costs and preserving more assets for distribution.
