Court protects shareholder by appointing a director on company board

In a bid to protect a minority shareholder, the First Hall of the Civil Courts ordered that a new director be appointed on the board of directors. This was decided in Av. Jonathan Abela Fiorentino as special mandatory of Marsoft International AS -v- Vroon Containers BV and Balticmax Holding Company Limited on 2 September 2016 by Mr Justice Joseph Zammit McKeon.

The plaintiff company, a Norwegian registered company, had filed an application in court asking it to regularise the affairs of the company by including amongst others an independent person on the board of directors of Balticmax Holding company Limited.

Vroon Containers BV, a Dutch company, replied by denying that it acted unfairly towards Marsoft as prescribed by the Companies Act.

However, on 5 July 2016, the parties minuted in the court proceedings that they were in agreement that the court should give an interim order to appoint a third directors to Balticmax in order for the company to continue to operate. The Court accepted to give this interim order, however, made it clear that this did not reflect on the possible outcome of the merits of the case it had in hand.

The Court explained that Article 402 of the Companies Act, is usually made use of by shareholders against directors of a company or a company with respect to unfair treatment or prejudicial towards them. In this article of the law, a shareholder would ask for protection of his/her rights on issues the shareholder has no control over.

The mere fact that a shareholder is not represented on the board of directors is not an act of oppression or unjust or discriminatory. A judicial protection of a shareholder is intended for that shareholder to have more control and to avoid any unjust acts of other shareholders. The Court quoted from a 1999 judgement Monreal et -v- Delia noe held that Article 402 of the Companies Act is a safeguard and a protection of minority shareholders. The shareholder may make use of this article if they manage to prove to the court that due to the management of the company he is suffering a prejudice. This may also take the form of one action or omission.

Mr Justice Zammit McKeon explained further that this article of the law is derived from the principles of equity and justice, that go beyond the statute of the company and even the law. Andrew Muscat in his book Principles of Maltese Company Law outlined the remedies available in Article 402:

“Before examining the different types of order that can be made by the court, a preliminary question should be considered : whether a court may issue an interim order pending final judgement. The position in English law is that English courts do, where appropriate, have the power to issue interim orders – usually orders for payment on account or orders designed to preserve the status quo. The Maltese Companies Act is silent on the question of whether a court, seized of an issue under article 402, is entitled to issue an interim order. Nor does any jurisdiction result from any general provision in the Code of Organisation and Civil Procedure. It is significant that where the legislator wished to grant to a court the power to make interim orders, the legislator did so by express provision, as with the power of the court to issue a “provisional order”

under article 37(5) of the Merchant Shipping Act (prohibiting dealings in a ship until the court definitely decides on the merits) and the power of the court to initially issue a warrant of prohibitory injunction for an “interim period” under article 873(7) of the Code of Organisation and Civil Procedure. In practice, situations may sometimes arise where the issue of an interim order would be necessary to protect the interests of the complainant or of the company. The introduction of an amendment to article 402 would allow the court to issue interim orders would be another helpful tool in the court`s arsenal against oppressive, unfairly prejudicial or unfairly discriminatory conduct ...”

The Court then moved by giving the interim order and appointed Dr Richard Galea Debono as director of Balticmax and instructed him to care and diligence to protect the interests of the same company and to make sure that none of the shareholders suffer any oppression, prejudice or discrimination.

Dr Malcolm Mifsud is partner Mifsud & Mifsud Advocates