Shareholders toast ‘moral victory’, court rejects appeal over National Bank compensation

The Constitutional Court has rejected an appeal by the Maltese government, on a decision by a civil court in its constitutional jurisdiction, that found that the rights of National Bank of Malta shareholders had been breached when they were forced to surrender their stakes without any compensation.

A chief spokesperson for the National Bank of Malta shareholders, Milica Micovic, said the decision was a “moral victory that puts us a step closer to compensation”.

The 14 October judgement in favour of the National Bank shareholders moves them a step closer to compensation, with their next sitting scheduled for the 28 October 2014.

A second decision by the Constitutional Court also rejected another appeal on a similar court decision of 6 February 2014, that decreed that shareholders’ constitutional rights had been breached and that compensation was due.

The judgment by Mr Justice Joseph Micallef, originally in January 2014, arrived over 40 years after the government led by the late Dom Mintoff nationalised the National Bank, which became Bank of Valletta in 1972, after a run on the bank’s reserves.

The case was instituted by 49 shareholders and their heirs in 1992 against the prime minister, the finance minister and the Council of Administration that ran the bank shortly before its nationalisation in 1974.

The claimed that their constitutional rights had been violated when the Mintoff government forced them to sign over their shares to the State, without any compensation.

The courts will now have to determine the level of compensation due to the shareholders.

It is unclear whether the government will seek an out-of-court settlement.

The previous Nationalist Administration had unsuccessfully tried to negotiate an out-of-court settlement with shareholders.

The National Bank of Malta was hit by a run on its reserves back in December 1972, but its original shareholders claim the Central Bank of Malta had refused to act as lender of last resort, and even blocked attempts by Barclays Bank to loan money to the NBM. In four days, the run on the bank saw enormous withdrawals totalling at least Lm2.5 million.

Around 350 shareholders lost their shares after they were forced to sign them over to the government, without compensation. Prime Minister Dom Mintoff had threatened in parliament that if the bank’s directors refused, he would remove the limited liability of the banks’ shareholders, extend it beyond the bank’s capital to their personal assets, and withdraw the four million pounds in parastatal funds which were deposited at the bank.

In 2005, informal discussions between Investments Minister Austin Gatt and the National Bank shareholders were held over a reported Lm8 million compensation package to the shareholders.

In his decision, Mr Justice Micallef had said that even if the takeover of the bank had been a “salvage operation”, this did not give the government the right not to compensate the shareholders for their loss.