No reason for Bical liquidator not to register share transfer

The First Hall of the Civil Court presided over by Mr Justice Joseph Zammit McKeon, in the case Cecil Pace vs Raymond Gatt in his own name and as Bical liquidator, on December 16, 2010 held among other things that there was no good reason why the liquidator and comptroller had not registered the share transfers.

The facts in this case were as follows:

Gatt, Galea & Co. were nominated as comptroller of Bical and associated companies with effect from April 1, 2003, while Raymond Gatt was personally appointed as liquidator of the companies, Finindustry Ltd, Finexport Ltd, Tradefin Ltd and Malta Properties Ltd, and Universal Investment Company Ltd with effect from April 10, 2006 under article 29, Chapter 371, and in accordance with the provisions of Chapter 383.

Cecil Pace requested the comptroller and liquidator to register shares transfers in his name of 2,500 shares in Finindustry Ltd, Finexport Ltd, Tradefin Ltd and Malta Properties Ltd, as well as the transfer of 5,000 shares in Universal Investment Company Ltd.

Originally, it had been arranged that the shares appertaining to the Pace brothers in these companies would be held by Victor Grech and A. Zammit (ex-employees).

Subsequently, it was stated that in December 1972 these shares were re-transferred. Share transfer forms were signed by Mr Grech and Mr Zammit in favour of the Pace brothers, who had retained control of the companies. As both the comptroller and liquidator refused to register the share transfer, Mr Pace proceeded by filing legal proceedings. He requested the First Hall Civil Court:

• To order Raymond Gatt in his own name and as liquidator and in representation of Gatt Galea & Co. as comptroller of the companies, to register the transfer of shares from Victor Grech in Finindustry Ltd, Finexport Ltd, Tradefin Ltd, Maltese Properties Ltd, as well as 5000 shares in the Universal Investment Ltd, all to Cecil Pace;

• To declare that the comptroller and liquidator to have acted abusively, irresponsibly, illegally, in bad faith and in violation of the Companies Act and Commercial Partnerships Ordinance;

• To declare the liquidator Mr Gatt, personally and in representation of Gatt Galea & Co., to be responsible for damages, which damage should be liquidated by separate, judicial proceedings.

Mr Gatt, in reply, contested liability. Without prejudice, it was argued that any dispute regarding the companies should have been referred to the Board of Appeal under the Companies Act which had exclusive jurisdiction in connection with disputes involving the companies.

He maintained that the proposed share transfer was a fraudulent act – in violation of the law – and that Mr Pace’s legal action should be dismissed. He said that Mr Pace had to prove damages suffered as a result of the refusal to register the share transfer.

In addition, Mr Gatt and the company he represented could not be held liable for damages.

On June, 27, 2008, a decision in parte was delivered whereby the court declared that it had jurisdiction to hear the dispute.

On December 6, 2010, the First Hall of the Civil Court gave judgment by ordering the liquidator and comptroller to register the share transfers. The claim for damages was rejected in absence of sufficient proof.

During the proceedings Mr Pace produced the original share transfer forms. The Memorandum and Articles of Association of the five companies were also exhibited. From the statute of the companies, it resulted that the share transfers occurred before the appointment of the first comp-troller. Every company was a “controlled asset” in terms of the Controlled Company (Procedure for Liquidation) Act, Chapter 383 of the Laws of Malta.

A “controlled asset” was defined in Chapter 383 as meaning and including “a bank or other credit institution, property, partnership, firm or other business in respect of which the minister, in terms of article 18 of the Banking Act, or the competent authority in terms of article 29 of the Banking Act, has appointed a person or persons to assume control of the same”.

Mr Pace claimed that the liquidator/ comptroller should have registered the share transfers. The liquidator and comptroller, on the other hand, felt that the proposed share transfers were fraudulent and in violation of the law regulating banking.

The court noted that the liquidation procedure was a period of transition, wherein steps were taken to wind up a company. A liquidator had the function to take charge of the company, placed in his responsibility, to liquidate it until it was eventually struck off the company register.

On his appointment, the liquidator assumed the powers of the director and secretary of the company.

When a liquidator was appointed, the purpose of the company changed from carrying out commercial activities , to the “realisation” of assets of the company, the payment of its debts and the distribution of the proceeds to the shareholders. The liquidator was appointed to bring to an end the operations of the company, to effect the payment of its debts and the collection of what was due to the company. The liquidator could not carry out new business. His purpose was limited to liquidatation of the company.

The court pointed out that, in the circumstances, no proof was brought to show that the share transfers were fraudulent, or in breach of the respective company’s statute, or against thelaw.

The court did not doubt the authenticity of the share transfer documents. Nor did the liquidator and or the comptroller dispute that the share transfers had taken place. Reference was made to Pennington’s Company Law (Fourth Edition, p. 296) where it is stated that “the legal title to the share is vested in the person entitled to it either by allotment by the company or by a transfer from a former holder, but if all the legal rights in respect of the share are to be enjoyed by that person, the company must have registered him as a holder of it in the company’s register”.

This court noted that there was no good reason why the share transfers from Mr Grech to Mr Pace were not registered. The share transfer was not a new business activity.

In the case Pace pro et noe vs Bonello pro et noe dated July 31, 1996, (Vol. LXXX.II.849) the Court of Appeal held that the comptroller was vested with power to register a share transfer. He had to consider the legality of the transfer. This did not mean that the comptroller was a priori excluded from taking decisions on the basis of social considerations in the interests of the shareholders, if such decisions could, in addition to safeguarding the interests of shareholders, be deemed useful to carry out his functions, according to law and for the purposes of liquidating the company.

The comptroller had the same powers of the board of directors in so far as the exercise of such powers was in good faith and reasonable.

The Court of Appeal also said that the board of directors as well as the comptroller had every power to refuse to register a share transfer, without giving reasons for their act. A comptroller was fully justified not to approve a share transfer before obtaining a declaration from the court, confirming the validity of the share transfer.

Dr Grech Orr is a partner at Ganado & Associates.