The liquidity ratio of the Maldives financial industry increased in 2022, after a severe decline in 2020 and 2021 due to the pandemic. There has been a decline in lending from Sri Lankan banks due to the economic crisis in Sri Lanka. However, this has created room for other foreign banks to fill in the gaps in the lending market.

The Maldives government at present is active in providing financial assistance, mainly to small businesses, through various financial aid schemes. Although not at the same rate as in 2020 and 2021.

Both the government and private parties continue to seek assistance from international and local financial institutions to refinance and restructure their existing debt, owing to the increase in inflation in 2022, mainly due to the conflict between Russia and Ukraine.

The Maldivian economy has recovered significantly from the impact of the COVID-19 pandemic. In 2021, there was an increase in GDP of 37%, thanks to the country’s borders having remained open which resulted in a resurgence of tourism. It has been estimated that real GDP is expected to increase by 19.3% in 2022.

The government has not implemented any new special measures in the form of financial aid or otherwise for those affected by the pandemic. However, the government continues to be active in supporting small businesses.

The Ministry of Fisheries, Marine Resources and Agriculture partnered with the SME Development Finance Corporation Pvt Ltd (SDFC) to introduce small loans of up to MVR2 million for eligible parties in the agriculture sector with a maximum grace period of 12 months and a repayment period of seven years. New loans were also introduced for small businesses of up to MVR3 million (if applying for trade financing) or up to 60% of the total contract value (if applying for project financing or contracts) with an interest rate of 9.5% per annum and a repayment period between one and five years depending on the type of loan applied for.

Interest rates of retail banking products targeting individuals are between 10% and 19%, which may be considered high-yield by international normative standards. Interest rates above 12% may be considered high-yield in other jurisdictions, but such interest rates are considered conventional in Maldives.

Interest rates of between 18% and 25% are considered high-yield in a Maldivian context. These loans usually relate to short-term and/or domestic/household borrowing needs. These facilities are not normally backed by security and have relatively low eligibility requirements. Therefore, there continues to be high demand for facilities with these interest rates, as there has been for some years now.

There are no emerging trends affecting the financing terms and structures of conventional loans as a result of the high-yield market, largely because the high-yield market targets a different borrowing group and relates to different borrowing needs. The high-yield market therefore has not in any meaningful way encroached on the conventional loan market share.

Maldives has not seen a significant growth in alternative credit providers.

There is a small unregulated private loan market, but the market share of these private lenders is too small for it have any meaningful impact on the financing terms and structures of conventional loans.

Local banks and financial institutions have been slow to respond and adapt to new trends in the loan market, which has led to an increase in borrowing from foreign banks or financial institutions. For instance, local banks have struggled to compete with foreign lenders in attracting financing deals from the large-scale foreign direct investments made in Maldives in tourism, real estate or infrastructure. In this regard, Maldives’ local banks are a long way from catching up with their foreign counterparts in the project finance market.

In terms of evolving techniques to reflect the needs of the domestic borrower base, there has recently been an increase in Islamic finance or sharia-compliant banking products being introduced to cater for the needs of local borrowers. There are no other notable finance techniques evolving in Maldives to reflect the investor base and needs of borrowers.

Under the Income Tax Act (Law No 25/2019) introduced in 2020, all banks are subject to income tax at a rate of 25%. Furthermore, non-resident withholding tax is now payable on payments to foreign banks or institutions that are not approved by the Commissioner General of the Maldives Inland Revenue Authority (MIRA). A full list of the approved banks and institutions is available at www.mira.gov.mv/IncomeTax.aspx. These taxes were not payable under the old Business Profit Tax Act, which was repealed with the introduction of the new Income Tax Act.

Maldives’ ESG Credit Impact Score is profoundly negative and reflects the jurisdiction’s susceptibility to natural and social dangers. For many years, the nascent legal framework around financial administration had meant that the government could not exercise effective oversight and control over corruption, money laundering and other financial crimes. Recent enhancements have been made to broaden the range of control of corruption. However, tackling financial crimes and money laundering remains unresolved and of concern.

Maldives’ susceptibility to natural dangers is highly negative, and natural phenomena continue to threaten lives and vocations. As Maldives is highly susceptible to climate change and rising sea levels, the government is investing in large land reclamation projects such as the construction of the artificial Hulhumalé island to move people most threatened by rising sea levels.

Maldives’ exposure to social risks is highly negative. Given the low and scattered population, logistical challenges are a predominant concern, demonstrated by a shortage of gifted labour and specialised capacity. This contributes to raised levels of youth unemployment and low rates of female participation. The government continues to invest in educational opportunities in order to address these concerns.

Maldives accordingly continues to receive development and conservation assistance, in terms of grants and loans from several international institutions, including the Asian Development Bank, for conservation of the environment and awareness programmes funded by the United Nations Development Programme, to name a few.

The Banking Act (Law No 24/2010) is the primary law regulating banks, financial institutions and banking services in Maldives. All activities of banks and financial institutions are overseen and regulated by the central bank – ie, the Maldives Monetary Authority (MMA).

Providing Banking Services in Maldives

A licence issued by the MMA must be obtained prior to commencing any of the following activities:

• engaging in banking business outside Maldives through the use of a company that is organised under the laws of Maldives or operates from offices located in Maldives;
• opening a branch or a subsidiary in Maldives of a domestic or foreign bank;
• opening a branch or representative office outside Maldives of a domestic bank or of any bank operating from offices located in Maldives; and
• operating a representative office in Maldives of a foreign bank.

In the case of domestic entities, licences are only granted to companies that are registered under the Companies Act (Law No 10/96); in the case of branches or representative offices of foreign banks, licences can be granted to companies that are registered under the respective companies acts of their jurisdiction of incorporation. Previously, all foreign investment applications were reviewed on a case-by-case basis. However, following the new Foreign Direct Investment Policy, which came into effect in 2020, express provision has been created for 100% foreign held companies to be allowed to incorporate and provide banking and related services. There continues to be a requirement for at least two shareholders and at least one resident to sit on the board of directors.

Licences are granted in writing and can be valid for an indefinite period of time. Licences are not assignable or transferable. The licence or its attachments shall specify the conditions under which it is issued, and compliance with all conditions of licensing is a continuing requirement for all licensees, unless such conditions are later modified.

Licences are applied for in writing to the MMA. Said application has to be in the form prescribed by the MMA from time to time, and must contain all requested information. The MMA prescribes different application forms and different informational requirements for the various categories of licences available. Under the Banking Act (Law No 24/2010), the MMA has discretion to determine the procedures that it will use to evaluate applications for licences.

The information submitted with the application for a licence must include at least the following.

• An authenticated copy of the charter and corporate governance documents of the applicant, and of its audited annual balance sheets and profit and loss statements for the last three years.
• A description of the proposed capital funds of the applicant, the sources of such funds and the amount that has been paid in. The MMA has discretion to require that the intended capital funds be deposited with the MMA, or another depository approved by the MMA, together with a certification that there is no encumbrance on such funds.
• The premises and the addresses at which the applicant proposes to do business, and the name under which the applicant intends to conduct its banking business.
• The names, places of permanent residence, business and professional backgrounds, and other biographical and financial data to be determined by the MMA, of each proposed major shareholder and administrator of the applicant.
• For each major shareholder and administrator, an affidavit duly signed by the individual stating any convictions for crimes or no conviction, and any involvement in a managerial function in an insolvent company or a company subject to insolvency proceedings, if any. The standard text for such affidavit may be determined by the MMA.
• A business plan describing the objectives and business activities intended for the proposed entity, including a description of its organisational structure and internal controls, including measures appropriate to counter money laundering and the financing of terrorism, together with projected balance sheets, profit and loss accounts and cash flow statements for the first three years of operations.
• In the case of an application by a foreign bank or bank holding company, or the subsidiary of such foreign bank or bank holding company, a statement from the foreign supervisory authority responsible for the prudential supervision of the foreign entity to the effect that it has no objection to the proposed establishment of operations in Maldives by the applicant. This statement shall also state that such authority will exercise consolidated supervision over the applicant.

In the case of an application by a bank holding company or bank to organise a domestic bank, the MMA must obtain detailed financial and operational information regarding the prospective licensee, in addition to the information listed above. This information must also include details of the major shareholders and administrators of the applicant bank or bank holding company. The MMA may use this information to determine the following:

• that the ownership by the bank holding company or bank will not weaken the subsidiary bank but will bring financial and managerial resources that will benefit the domestic subsidiary bank; and
• that the major shareholders and administrators of the bank holding company or bank are fit and proper persons.

In the case of an application by a foreign bank to open a branch or representative office in Maldives, the MMA may request any additional information that it believes to be pertinent to the proposal. It can also request the applicant to provide financial and biographical information regarding the persons to be designated as branch manager or representative office manager, as the case may be.

Applications for licences are to be accompanied by an application fee payable to the MMA in such amounts as the MMA may prescribe from time to time.

Applicants applying for a licence are required to act expeditiously in providing the required information, as well as any other information requested by the MMA for the purposes of processing the application. If an applicant fails to complete their application filing requirements within three months of applying for the licence, the MMA has the discretion to deem the application to have been abandoned and the application fee forfeited.

Providing Cross-Border Services

Cross-border lending is not regulated by the MMA, so foreign banks, financial institutions or non-banks do not require any permits or licences to provide financing to a company or party in Maldives. Licences may be granted to foreign banks only if they are subject to consolidated supervision by a supervisory authority in the country in which the foreign bank maintains its head office, and which the MMA determines to be adequate.

There are no restrictions on foreign lenders granting loans to borrowers in Maldives. There are no requirements to obtains registrations or licences, as cross-border lending is not regulated by the MMA.

Borrowers who may wish to remit proceeds from Maldives to service their debts will need to consider the taxation implications they may face if they wish to borrow from a foreign lender that is a bank or non-bank financial institution not approved by the Commissioner General of MIRA. This is because payments made in relation to interest or to a payment that is economically equivalent to interest (excluding principal amount), including any commitment, guarantee or service fee, are liable for Non-Resident Withholding Tax (NWT) if they are paid to a bank or non-bank financial institution that is not approved by the Commissioner General. Therefore, NWT may act to disincentivise borrowers from taking loans from foreign lenders that are not approved by the Commissioner General, which may act as an indirect restriction on such unapproved lenders. As the NWT is relatively recent, whether this taxation will have an effect on foreign lending is yet to be determined.

There are no restrictions or impediments on the granting of security or guarantees to foreign lenders per se, but mortgages on tourist developments are subject to obtaining a written mortgage approval from the Ministry of Tourism, as required under the Grant of Rights Regulation (Regulation No 2010/R-14). Once the mortgage agreement has been executed, the mortgage must then be registered with the Ministry of Tourism and a mortgage registration fee of MVR10,000 shall be payable to MIRA.

Securities over residential land do not require prior approval, but there is a formality to register the mortgage with the relevant authorities – ie, the city or local council, depending on the location of the residential land over which the mortgage has been created.

There are no restrictions, controls or other concerns with respect to foreign currency exchange in Maldives. Parties wishing to engage in the business of foreign currency exchange can do so by obtaining a licence from the MMA, pursuant to the relevant regulations, including the Money Changers Regulation (1987).

There are no restrictions on the borrower’s use of proceeds from loans or debt securities, although general requirements under the Prevention of Money Laundering and Financing of Terrorism Act (Law No 10/2014) must be complied with.

Restrictions may also be imposed under the contract governing the underlying loan or debt securities, wherein the borrower’s use of proceeds should be in line with the conditions or purpose of financing set out in the loan agreement.

There are no statutes or regulations governing trusts or agency law in Maldives.

The agency principle has been in practice for quite some time and is governed largely under the respective contractual arrangements between the parties.

Trusts have been recognised through precedent-setting Supreme Court judgments in two different cases, where the Supreme Court recognised the existence of implied trusts. Distinctions were not drawn between resulting and constructive trusts. Trust structures have therefore not been heavily utilised locally.

The treatment of beneficial ownership as being distinct and separate to legal ownership has not sufficiently matured in Maldives. Notwithstanding the aforementioned Supreme Court judgment, the long-standing practice has been that only legal ownership is strictly recognised in Maldives. Trust structures, if one were to arise at all, are likely to arise out of usually unwritten, implicit and likely unwitting understandings between parties and through operation of law as established in the recent Supreme Court judgment.

Offshore trusts are being utilised in transactions.

Despite the absence of a specific statute governing trusts in Maldives, the Banking Act allows the provision of trust services as a banking service.

Lenders should approach trust instruments in Maldives with caution as the principles and parameters of trust and agency law are not clearly defined and are not contained in a governing statue. It would be ideal for all rights and obligations with respect to trust and/or agency concepts to be expressly included in the deed/contract in order to guarantee protection.

There are neither statutory requirements nor any precedent-setting case law on loan transfer mechanisms.

Loan transfers can be done contractually through assignment, sale and novation of the loans. The lender may include an express provision in the underlying contract allowing such a transfer, and incorporate the requirements and protections into the contract.

Securities granted to the original lender may be released after terminating existing agreements and the borrower entering into new agreements with the new lender (or a tripartite agreement with the original and new lender where the securities are transferred to the favour of the new lender).

Debt buy-back is not regulated nor commonly practised in Maldives. However, it is common for debt buy-back and the relevant procedure/mechanisms to be subject to the requirements contractually agreed between the parties.

There is no requirement under Maldivian law for the buyer to show that it has “certain funds” in order to acquire a target. Much like most M&A activities in Maldives, this is unregulated.

However, parties are free to agree conditions precedent, and lenders may therefore include certain funds provisions as part of the conditions precedent required from a buyer. A seller’s existing lender may also impose such a requirement as part of the refinancing conditions precedent prior to completion. Ultimately, certain funds protection is one which the lenders ought to acquire from the seller/buyer of a transaction as appropriate. Lenders must independently make an assessment as to the level of certain funds evidence and comfort they require for any transaction, and must obtain and review such documentation ahead of completion as there is no statutory protection to rely on.

In terms of documentation, local Maldivian banks provide debt financing on the basis of in-house standard documentations (consisting of general terms and conditions). This should be considered “short form”. International banks in the Maldivian loan market generally refer to the “long form” documentation that is usually structured and drafted in line with the standards of the Loan Market Association. Upon execution, these documents do not normally need to be filed publicly, save for any securities such as mortgages over tourist developments or residential land, which need to be filed with the Ministry of Tourism and relevant city/island council, respectively.

From 1 January 2020, payments made in relation to interest or a payment that is economically equivalent to interest (excluding principal amount), including any commitment, guarantee or service fee, are liable for NWT if they are paid to a bank or non-bank financial institution that is not approved by the Commissioner General of MIRA. The term “interest” also includes any discounts, premiums, passive interest and profit in respect of any Islamic financial instrument.

Any bank or non-bank financial institution that is licensed by the central bank of its respective jurisdiction is considered an approved bank or non-bank financial institution; selected international financial institutions are also considered to be approved entities for this purpose. A full list of approved banks or non-bank financial institutions is available from www.mira.gov.mv/IncomeTax.aspx.

Any interest payment made to a party other than those approved by the Commissioner General of MIRA is liable for NWT at the rate of 10% on the gross amount, from 1 January 2020. Furthermore, it is important to note that the NWT is payable on a monthly basis to MIRA and, in order to determine the period in which the NWT is to be settled, the earlier of the paid or payable date (determined as per the relevant accounting standard) is to be considered.

All businesses are currently taxed under the Income Tax Act, including banks. Maldives currently has a worldwide tax system, where the tax base is calculated based on the tax residency of the entity. Where a lender is tax resident in Maldives in a given tax year, then its tax base is its worldwide income after deduction of the allowable expenses. If the lender is a non-tax resident in Maldives in a given tax year, then the tax base of the lender is only income sourced in Maldives. Under the Income Tax Act, banks are charged a flat rate of 25% on their taxable income.

Lenders who have obtained a licence from the MMA are not required to register or charge Goods and Service Tax (GST) as the service falls within the definition of “financial services”, which is exempted for the purpose of the Goods and Services Tax Act (Law No 10/2011).

There are no usury laws limiting the amount of interest that can be charged.

Usury is a controversial topic in Maldives. The Constitution of Maldives requires that “tenets of Islam” shall be maintained in all dealings. Under this broad constitutional provision, inordinately high-yield loans could be challenged as usurious. However, this has not yet been regulated through statute and there has not been any precedent-setting case law on this point. This observation should give any lender comfort as loans charging compound interest of up to 25% per annum interest have not been challenged as usurious.

While there are no defined limits of how much a lender may charge as interest, it should be noted that the tax legislation of Maldives allows a deduction of only 6% of interest as “deductible expenses” in computing taxable profit where the bank or financial institution is not approved by MIRA.

Furthermore, in applying the thin capitalisation rule, only 30% of the tax EBITDA may be deducted as interest in computing taxable profits.

The assets commonly made available as collateral to lenders include:

• first or second-ranking mortgage(s) over a borrower’s real estate assets, including islands leased for tourism development and residential land;
• pledge(s) over the shares of the borrower or its subsidiaries;
• assignment of the borrower’s bank accounts (over both the bank account balance and the banking account);
• assignment of insurance policies;
• assignment of proceeds or credit rights derived from income-producing agreements entered into by the borrower, such as hotel management agreements;
• personal guarantees by directors or shareholders; and
• sovereign guarantees by the government.

Mortgages over Tourist Resorts and Residential Land

Mortgages created over the leasehold rights of tourism developments would require prior approval from the Ministry of Tourism and subsequent registration with the Ministry after payment of a mortgage registration fee of MVR10,000. The approval and registration process generally takes five to seven working days per step.

Mortgages over residential land do not require prior approval, but there is a formal requirement to register the mortgage with the relevant authorities – ie, the city or local council, depending on the location of the residential land.

Share Pledge

With respect to pledges over shares of a borrower or its subsidiaries, there is no legal requirement for a share pledge to be registered in favour of the lender with any authorities in Maldives. However, it is the general market practice for the same to be communicated to the Registrar of Companies, which maintains a record of the charges. This usually takes three to four working days, and no costs are involved.

Assignment of Bank Accounts and Insurance Policies

The general practice is for notice of assignment to be given to the respective banks in which the accounts are held and to the insurers from which the respective policies have been procured, and to obtain their signed acknowledgment as a condition subsequent to the completion of the transaction. The period in which this must be satisfied will be governed contractually. However, in recent financing transactions, local banks have been much more hesitant to allow the creation of a charge over the bank accounts.

Sovereign Guarantees

The Public Finance Act (Law No 3/2006) regulates the provision of guarantees backed by the state or state-owned companies, or the mortgage of assets, rights or other interests held by the state, or the giving of undertakings and covenants affecting state assets or funds. This is with respect to loans or debt finance obtained by the state or by state-owned companies using the government as an intermediary, or with respect to transactions entered into on behalf of the state.

The Public Finance Act provides that such activities shall be carried out only after a proposal to do so is made by a Minister and approved by the President. Parliamentary consent by a simple majority of Members present and voting must be obtained.

Floating charges are commonly used in Maldives, especially as project finance securities.

The crystallisation moment of such a charge generally occurs when the borrowing company defaults on its financial covenants or enters into insolvency.

Entities in Maldives are allowed to give downstream, upstream and cross-stream guarantees without restriction or limitation. There are therefore no issues relating to the adequacy of credit support in relation to these guarantees.

A target is restricted from granting guarantees, securities or financial assistance for the acquisition of its own shares. There are no limitations on the seller involved in an asset sale providing such guarantees, securities or financial assistance.

There is a requirement to obtain prior approval from the Ministry of Tourism where the leasehold rights to a tourism development are being mortgaged. No costs are incurred in obtaining this approval.

Securities may be released upon the borrower fulfilling its obligations and/or the parties agreeing for the security to be released.

In the instance of securities that are registered with the governmental authorities, the bank or the lender will execute a deed of discharge and communicate the same to the relevant authorities, which will then release the security from their records and communicate the discharge/de-registration in writing.

There are no specific statutes (such as insolvency laws) governing the priority of competing security interests in Maldives. There is, however, an established practice whereby reference is generally made to Section 91 of the Companies Act to assume that the same order of settling debts (where the company enters a winding-up process) shall apply when a borrower goes into insolvency. In this regard, after paying the expenses incurred for winding-up and remunerating the person(s) appointed to wind up the company, the assets of the company are to be used in the following order:

• money due to the government/government bodies;
• wages due to the employees of the company except directors for three months from the date the court issued the winding-up order or the company passed the special resolution to wind-up the company; and
• the balance, if any, after settling the above, if not sufficient to discharge all debts of the company, shall be applied in satisfaction of the company’s liabilities pari passu.

However, this means that, in a liquidation scenario, competing security interests may not have priority despite being perfected and registered with the authorities. It is ultimately a matter for a court to decide. Courts may take an approach that the security interest shall be ranked according to the time of creation or perfection.

In this regard, courts have followed the following ranking where such priority can be established through the contractual agreements of the debtor and creditors. Courts have also referred to the laws of developed jurisdiction to assist their assessment of the appropriate order to rank debts. The commonly utilised ranking is as follows:

• first priority mortgages;
• fixed charges and secondary mortgages;
• floating charges; and
• unsecured debt (including judgment debts).

A secured lender may enforce its collateral where there is an event of default under the underlying loan or security agreements.

The secured lender would have to file a claim at the Civil Court of Maldives to obtain a judgment debt against the borrower in default, through which they can request permission to sell the mortgaged asset.

Concerns to be taken into account are delays attributable to the court and any subsequent appeal processes, which may cause further delays in enforcing the collateral. Recent developments through case law indicate that the enforcement of an order (eg, for sale of a mortgage) shall not be stayed unless the appellate court issues a stay order on enforcement proceedings.

Section 18(d) of the Contracts Act (Law No 4/1991) allows parties to decide on the governing law of the contract, whether it is foreign law or Maldivian law. It is usual practice in Maldives for loan and financing agreements to be governed under foreign law, especially in cross-border lending transactions.

The choice of foreign law as the governing law of a contract and a waiver of immunity will be upheld by the courts in Maldives.

Judgments given by a foreign court may now be directly recognised and enforced pursuant to the Maldives’ Civil Procedure Code (CPC), which came into effect on 16 June 2022. As per the CPC, courts are not allowed to decide on the merits of a foreign judgment applied for enforcement in Maldives, but courts may look into the merits of the case to ensure the case is enforceable in Maldives. A judgment given against a party by foreign court shall only be recognised and enforced through Maldivian courts, if the same judgment has legal effect and is enforceable in the country of origin of the judgment. The party defending enforcement may raise an objection where the foreign judgment has been appealed in the country of origin or if the appeal period has not yet expired, A foreign judgment is only enforceable if it complies with the laws of Maldives and fundamentals of Islam and satisfies one or more conditions in Section 391 of the CPC. The respondent to the enforcement application may object the enforcement under the Section 392 of the CPC. However, it should be noted that no request for enforcement of a foreign judgment has been filed in Maldivian courts to date.

Arbitral awards issued pursuant to a foreign-seated arbitration shall be recognised and enforced in Maldives, without a retrial of the merits of the case, pursuant to section 72 of the Arbitration Act (Law No 10/2013) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), unless the award has been set aside in the courts of the seat or in Maldives, or recognition of the arbitral award is refused by the High Court of the Maldives upon such an application being made.

Save for any restrictions in the underlying loan or security agreement, there are no particular legal or regulatory provisions that may specifically impact a foreign lender’s ability to enforce its respective rights.

In practice, companies are free to set internal procedures in relation to company rescues or reorganisations.

According to the Banking Act, the MMA shall appoint a conservator for a bank when it determines that:

• the bank has failed to pay its financial obligations as they fall due, including but not limited to deposit liabilities;
• the capital of the bank is less than 50% of the minimum capital required by the Banking Act or by regulation of the MMA issued pursuant to Chapter 4 of the Banking Act;
• a petition has been submitted for initiating bankruptcy proceedings against the bank; or
• the board of directors is unable or unwilling to properly manage the affairs of the bank.

Additionally, the MMA may appoint a conservator for a bank when it determines that:

• the bank has failed to carry out an order given to it by the MMA, including an order for payment of civil monetary penalties;
• the capital of the bank is too low to support safe and sound banking operations;
• there is evidence that the bank or any of its administrators have engaged in criminal activities punishable by imprisonment of one year or more or there is evidence or reasonable cause to believe that the bank or any of its administrators is engaging in criminal activities; or
• there is reasonable cause to believe that the board of directors is unwilling or unable to properly manage the affairs of the bank.

The above provisions shall apply to the domestic branch offices and domestic representative offices in Maldives of a foreign bank as if all these offices together were to form a single legal entity. All assets, liabilities, acts and omissions of the foreign bank resulting from or otherwise relating to the business of any such office shall be attributed to that single entity in applying the provisions. The conservator of a foreign bank shall be authorised to take all actions with respect to such foreign bank as could be taken by the authorised manager or by shareholders at the general meeting of shareholders of a domestic bank.

Parties are generally also free to enter into voluntary creditor arrangements to come into agreement outside of insolvency proceedings. There have been instances where the government has also intervened to rescue or reorganise companies in which it is a stakeholder.

There are no insolvency laws in Maldives.

However, assuming a similar procedure to the winding-up of a company applies, where insolvency proceedings commence, the onus is on the lender make a claim for the debt and prove the existence of such.

If the debt is secured and the securities can cover the value of the debt, there should not be any impediments on the lenders’ rights to enforce their loans or security or guarantee, subject to the order of priority with respect to creditors.

Insolvency laws do not exist in Maldives and, with reference to Section 91 of the Companies Act, after paying the expenses incurred for winding-up and remunerating the person(s) appointed to wind up the company, the assets of the company are used in the order set in 5.7 Rules Governing the Priority of Competing Security Interests.

One could argue that, according to this order, no priority is given to secured creditors over unsecured creditors and that they stand on an equal footing.

This is largely an untested area in Maldivian courts, which generally take a prudent approach in such instances and make reference to the laws of developed jurisdictions. In this regard, with reference to the insolvency laws applicable in other competent jurisdictions, the courts would most likely give priority to secured creditors over unsecured creditors. In terms of priority over securities, it is reasonable to assume that mortgages would rank first, followed by fixed charges and floating charges, in that order. The proceeds of a sale of a company’s assets would only be paid to unsecured creditors (such as judgment debtors and trade creditors) after the debts to secured creditors are cleared.

There is neither a concept of equitable subordination nor any similar concepts in Maldives.

There is a risk that the lender may not recover the value of debt if the dues payable to the government or government authorities and employees are excessive, as the lenders would only come third in terms of priority, despite having a perfected and registered security.

Project finance has been used in Maldives for the past few decades, mostly for the financing of tourism development projects and government infrastructure projects.

In the absence of a specific legal framework in Maldives for project finance, the applicable rules will be found under the respective project finance documents.

Since 2008, the government has made efforts to promote developmental projects, through public-private partnerships, especially infrastructure development projects. As such, an international airport project (the Malé International Airport) was tendered out on a public-private partnership basis and became the subject of political and social debate, which led to the public-private partnership being terminated by the following government; in turn, this resulted in a prolonged arbitration against the government, which the government ultimately lost.

Since then, the appetite for major public-private partnership projects has been low.

It is not necessary for project finance documents to be registered or filed with any governmental body, nor for any taxes, fees or charges to be paid, save for the prior approval required by the Ministry of Tourism (in the event of a mortgage being created over a tourist resort/island) and registration of the mortgage with the Ministry after the payment of a MVR10,000 fee.

There are no oil and gas, power and mining sectors in Maldives. Although there are no detailed laws or regulations to regulate these sectors, as such, the Ministry of Economic Development has the legal mandate to do so.

There are no specific laws or restrictions that are relevant to project companies, although the primary consideration that needs to be made in structuring a deal may be tax-related.

In terms of foreign investment, the Foreign Direct Investment Policy reiterates the activities that are open for foreign investment, with the maximum foreign shareholding percentage and maximum period of investment that would be allowed for the activity, and the minimum investment requirement.

Typical financing sources include term loans from commercial banks or financial institutions. Project bonds have also gained momentum in Maldives, with the government seeking additional financing to meet their working capital requirements.

There are no oil and gas, power or mining sectors in Maldives, so any acquisition or export in relation to these sectors is not regulated.

The acquisition and export of natural resources are governed under the respective environmental laws in Maldives, with the Environmental Protection Agency regulating its compliance under the mandate issued to the Agency by the Ministry of Environment, Climate Change and Technology.

The Environment Protection and Preservation Act (Law No 4/93) sets out the basic framework for environmental protection. The relevant ministry (now the Ministry of Environment, Climate Change and Technology) is mandated under this Act to further develop regulations and policies to ensure environment protection.

The Environment Protection Agency is a regulatory entity, affiliated to the Ministry, that is responsible for regulatory activities relating to the protection, conservation and management of the environment and biodiversity, as well as waste management and pollution prevention under the above-mentioned Act.

There are no laws on health and safety requirements that are applicable to projects. However, the Employment Act (Law No 2/2008) contains provisions on workplace safety and employee health, which shall apply to persons employed under the project. There are no mechanisms or procedures to oversee this, but employees may file a complaint at the Labour Relations Authority or Employment Tribunal for any breach of the general health and safety standards imposed under the Employment Act.