Recent interim orders in shareholder disputes under Maltese law
“Gauci-Maistre Av. Jean-Pie Noe vs Balticmax Holding Company Limited Et” (30 June 2020), “Boureghda Ahmed Amine vs Loureiro Alfonso Paulo Fernandes Duart Et” (30 June 2020), and “Vitrex Limited vs Tamarac Limited et ” (30 July 2020), are three separate orders delivered by the First Hall of the Civil Court (Commercial Section) (the “Court”) following applications for the issue of interim orders in terms of Article 402 of the Companies Act (“Article 402”)—the unfair prejudice action available under Maltese law. These orders, which were delivered very recently, are a testament to the Court’s continued readiness to intervene to preserve the status quo in the affairs of a company and shareholders’ interest, but serve as a reminder to shareholders of the essential requisites which must be satisfied and the pitfalls which are to be avoided when asking for one.
Article 402 is a judicial remedy provided for in the Companies Act which allows shareholders of a company to ask for the Court’s intervention in cases where the affairs of the company have been or are being or are likely to be conducted in a manner that is, or that any act or omission of the company have been or are or are likely to be, oppressive, unfairly discriminatory against, or unfairly prejudicial, to a member or members or in a manner that is contrary to the interests of the members as a whole. This conduct, as quoted from the law word by word, is sanctionable by the Court and deemed illegal. Naturally, each case is to be decided on its own merits and after all parties bring their evidence and submissions on the alleged conduct.
Should the Court decide that any such application filed by a shareholder is well-founded, Article 402(3) provides a list of remedies which the Court is be able to provide for to address the unfair prejudice conduct: ranging from directions on the future affairs of the company, buy-out of shareholders, and, in extreme cases, the dissolution of the company. The law provides an exhaustive list of the remedies which the Court may provide for in Article 402(3) but having said that, it does seem that the Courts have interpreted this provision in a flexible manner such that just and equitable relief is granted where merited.
The Court has held, on various occasions, that it is empowered to issue “interim orders” during the pendency of applications under Article 402 and this despite the law being silent on this point. The scope of these interims orders is the preservation of the affairs of the company and the interests of shareholders (and sometimes the company) from unfair prejudicial conduct until the Court delivers its final order on the merits of the application made under Article 402. Such interim orders cannot determine an issue on the merits, and in fact, the Court has made it very clear that it is to “exercise caution” when deliberating on requests for interim orders.
In “Vitrex Limited vs Tamarac Limited et”, an interim order was requested by the claimant minority shareholder Vitrex to prevent the transfer of land from the company Edilfin, subject-matter of the main application on the merits, to its majority shareholder Tamarac. The transfer of the same land was the subjectmatter of the application under Article 402 on the merits made before the same Court, but the claimant minority shareholder clarified that the interim order requested was only after the preservation of the status quo until a final determination on the merits. The Court upheld the request for the interim order, but it made it very clear that its order could not be taken to be any decision on the merits of the application brought under Article 402.
The interim order requested in “Gauci-Maistre Av. Jean-Pie Noe vs Balticmax Holding Company Limited Et” was preceded by a number of concluded and pending judicial proceedings before the Malta courts. The shareholder dispute concerned, in part, a
Malta company which in turn held all shares in another subsidiary Malta company. In earlier proceedings, the Court had appointed an independent director on the board of the Malta company—subject-matter of the unfair prejudice conduct claim—which was a party of the proceedings relating to main application on the merits in terms of Article 402.
The request for an interim order was made by the independent director, on behalf of the Malta company, for the sole director of the subsidiary Malta company to be stopped from acting as a director until the merits of the main application under Article 402 were determined. It is noteworthy that the request for an interim order was not made by a shareholder, but by the company itself, and this, was allowed by the Court. Further, the Court considered that all the requisites for the issue of the interim order were satisfied, in particular, the Court observed that the sole director on the subsidiary Malta company should not continue to act as a director if he did not enjoy the trust of all shareholders.
However, the Court noted that the subsidiary Malta company was a party to judicial proceedings in Germany and these proceedings were being conducted by this sole director on its behalf. The Court ordered that this sole director is allowed to continue representing the subsidiary Malta company in the judicial proceedings in Germany, but he is barred from acting in any further capacity as a director, except with the written approval of the board of directors of the Malta company.
In “Boureghda Ahmed Amine Vs Loureiro Alfonso Paulo Fernandes Duart Et”, the claimant shareholder Boureghda requested an interim order against the defendant Loureiro, who was the director of Pessoa One Limited, the company subject-matter of the main application on the merits under Article 402. The claimant Boureghda requested that the Court, by way of an interim order, prevents Loureiro from convening an extraordinary general meeting to take a vote on a proposed resolution to increase the capital in Pessoa One Limited. The director Loureiro explained that the capital injection was necessary because Pessoa One Limited’s subsidiary in Portugal, which was completing an infrastructural development, was short on cash. The claimant Boureghda insisted that the increase in share capital was unfairly prejudicial to his interests in view that his stake in Pessoa One Limited was to be diluted, and furthermore, the director Loureiro refused to provide the claimant Boureghda financial documentation requested on Pessoa One Limited.
In response to all three cases mentioned above, the Court held that its considerations and deliberations made in the request for the interim order cannot impinge on the Court’s determination on the main application on the merits in terms of Article 402. In fact, the Court insisted that any judge presiding over the request for an interim order should refrain from pronouncing itself on the merits of the case, as this is only permissible once all evidence and submissions have been presented by the parties to the case.
In Gauci-Maistre Av. Jean-Pie Noe vs Balticmax Holding Company Limited et and Vitrex Limited vs Tamarac Limited et, despite requesting different interim relief, both applications sought the preservation of the status quo and did not require the Court to consider or deliberate on the merits of the main application.
In contrast to these two cases, Boureghda’s request for an interim order in Boureghda vs Loureira was not upheld by the Court and this for the following reasons. First, the matter of the proposed increase in share capital in Pessoa One Limited was, in the Court’s view, unrelated and disconnected from the claims of unfair prejudice conduct made in the main application on the merits in terms of Article 402. For this reason, it could not uphold the request for the interim order. Second, the Court also held that the claimant Boureghda had, as a shareholder, no right at law to the “financial documentation” requested ahead of this extraordinary general meeting. Third, the Court further observed that, in support of his request for the interim order, Boureghda had included some of the arguments raised in the main application on the merits, and for this reason, the Court found that there is a real risk that if it were to consider and deliberate on those arguments, it would overstep its remit and determine prematurely on the merits. For these reasons, the Court rejected Boureghda’s request for an interim order.
The orders briefly analysed above are indicative that each request for an interim order will be assessed on a case by case basis by the Court, but do provide a guide as to when the Court might intervene to issue an interim order pending a final determination on the merits of an application made under Article 402. The key and underlying principle is that the interim order must be after the preservation of the status quo, whether that is relating to the affairs of the company or the protection of shareholders or company’s interests. The interim order, when upheld, can be an effective remedy for shareholders to preserve their claim and ensure that the company’s value is not eroded, at least until the Court has had the opportunity to consider the evidence and submissions made the parties, which in complex shareholder disputes can be voluminous.