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Legal interest claim granted

The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit Mc Keon, on June 28, 2012, in the case “Michael Debono as trustee of The J. Saliba Trusts and Mary Saliba vs Mario Debono in his own name and as director of the companies, The Village Pharmacy Ltd and Karizia Company Ltd” held, among other things, that Michael Debono in his capacity as trustee and Mary Saliba both had legal interest (locus standi) to file an unfair prejudice action, even if they were not registered members.

The facts in this case were as follows.

Where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this Act, be treated as a single member; and, unless otherwise provided in the memorandum or articles, the name of only one of such persons shall be entered in the register of members

Michael Debono, as trustee of the The J. Saliba Trusts, and Mary Saliba filed an unfair prejudice action under Article 402 of the Companies Act against Mario Debono in his own name as well as secretary and director of the companies The Village Pharmacy Ltd and Karizia Company Ltd.

Article 402 (1) of the Companies Act provides:

“Any member of a company who complains that 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 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, may make an application to the court for an order under this article”.

Both Michael Debono and Ms Saliba wished to utilise their legal remedies under Article 402 and request the protection of the court.

Mario Debono, in reply, disputed their claims and filed a counter-claim.

Michael Debono and Ms Saliba contested the validity of the counter-claim under Article 402.

On September 29, 2011, the court declared null and without effect, the counter-claim and ordered Mario Debono to submit a reply which was not sworn.

Mario Debono requested permission to advance additional pleas. It was stated that Michael Debono and Ms Saliba did not have legal interest (locus standi) to present any legal action under Article 402.

As they were not registered members of The Village Pharmacy and Karizia Co. Ltd, it was argued that they did not have the right to file an unfair prejudice action.

The First Hall of the Civil Court considered that the two companies were registered on May 16, 2005. Joseph Saliba died on September 25, 2007 and was survived by his widow Mary Saliba.

His estate included 10,000 shares fully paid up in the company, The Village Pharmacy, and 2,500 fully paid up shares in Karizia Company Ltd.

According to his last will, dated September 18, 2007, his universal heir was the trustee of The J. Saliba Trust and with effect from January 23, 2009 Michael Debono was appointed as trustee.

It resulted, however, that Mario Debono refused to register the trustee as a registered member of both companies. Instead he asked for the shares to be offered to him for sale.

At issue now, which this court had to decide, was whether Michael Debono as trustee and Ms Saliba, as the surviving widow, were entitled to file an unfair prejudice action under Article 402.

It was not disputed that the shares of J. Saliba in both companies were still registered in the name of the deceased, at the time these legal proceedings were filed.

Article 2 (1) of the Chapter 386 defined member as: “except where otherwise specifically defined, means a shareholder of a company and a partner in any other commercial partnership.”

A shareholder was defined as: “a person entered in the register of members of a company pursuant to Article 123 or the bona fide holder of a share warrant referred to in Article 121”.

A wider definition of “member” was given in Article 402 (6 “member includes a person entitled at law to represent the interests of a deceased member, a person to whom shares in the company have lawfully devolved by way of testate or intestate succession, and a trustee, as defined in Article 127, who holds shares in the company.”

The court considered the sources of Article 402.

In Vella vs Vella Brothers Ltd et, dated March 9, 2007, the Court of Appeal expressly said that Article 402 was modelled on Article 459 UK Companies Act 1985 (now Article 994 of the UK Companies Act 2006).

Professor Andrew Muscat writes in his book Principles of Company Law: “The requirement for a ‘member’ to have been entered into the register of members can well prove to be a stumbling block to the successful exercise of the action...”

Article 402 (6) does not, however, cater for the situation where shares have been transferred or transmitted by operation of law other than by intestate succession. Thus, for example, in the case of a division of a company, if shares held by the company to be divided are allocated to a particular recipient company, that recipient company will need to be registered in the register of members of the company in which the shares are held, if such recipient company is to have locus standi to file an action under Article 402.

As regards English law, reference was made to Mayson, French and Ryan in Company Law, 26th edition writes:

“Under CA 2006, s.994 (1) a petition for relief of unfairly prejudicial conduct of company’s affairs may be presented by a member of the company…

“A person to whom shares in a company have been transferred or have been transmitted by operation of law but who is not a member of the company (because of not being on the register of members) is treated as a member for the purposes of CA 2006 s.994 (1) and reference to a members or members must be constructed accordingly s.994 (2)

“The word “transferred in s.994 (2) requires at least that a proper instrument of transfer should have been executed and delivered to the transferee or the company in respect of shares in question. It is not sufficient that there is an agreement for transfer (Rec Company (No 003160 of 1986) (1986) BCLC391; Re. Quickdome Ltd (1988) BCLC 370).

“The phrase “transmitted” by operation of law” in s.994 (2) refers to a legal process by which the legal title passes and does not cover the creation of an equitable interest, for example under a trust (Re a Company (No 007828 of 1985) (1985) 2 BCC 98,951).

“A nominee shareholder, holding shares as a bare trustee, may petition under s.994 because the interests of such a shareholder include the economic and contractual interests of the beneficial owners of the shares (Atlasview Ltd vs Brightview Ltd (2004) EWHC 1056 (Ch) (2004) 2 BCLC 191.”

The court said that if a person was a registered member, there would be no doubt that he had the right to legal action under Article 402.

In the circumstances, however, both Michael Debono and Ms Saliba were not registered members of the companies. The court noted that the word “includes” in Article 402 (6) indicated the intention of our legislator not to be exhaustive and not to deny persons who had a right, but if the law were to be strictly interpreted, they would be excluded.

The court said that Ms Saliba should be included as a member of the companies. It made reference to Article 123 (2) of Chapter 386 which provides:

“Where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this Act, be treated as a single member; and, unless otherwise provided in the memorandum or articles, the name of only one of such persons shall be entered in the register of members.

“Such person shall be elected by the joint holders and shall for all intents and purposes be deemed vis-à-vis the company to be the member of the company in respect of all the shares so held.”

This provision applied when one spouse was the registered shareholder. It was not contested that the shares in both companies were registered in the name of deceased Joseph Saliba.

As these shares formed part of the community of acquests and belonged to both spouses jointly, this meant that on the liquidation of the community of acquests, Ms Saliba who was already a member, ope legis, continued to be a member in the companies.

In the light of the definition of “member” in Article 402, Ms Saliba was entitled to file legal proceedings under Article 402, even if she was not entered in the register of members.

Likewise, Michael Debono, as trustee, also had a legal interest, to file an unfair prejudice action under Article 402.

Michael Debono as trustee of The J. Salba Trusts was the universal heir of deceased Joseph Saliba and in this respect, he came within the definition of “member” under Article 402 (6) companies.

For these reasons, on June 28, 2012, the Court of First Instance gave judgement by declaring that Michael Debono as trustee of The J. Saliba Trusts and Ms Saliba were both entitled to file an unfair prejudice action under Article 402.

Dr Grech Orr is a partner at Ganado & Associates.

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