The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, on June 17, 2014, in the case ‘Tina Petersone now Tina Gulbe and Liga Langmare as directors of Norvik (Malta) Sicav plc v Norvik (Malta) Sicav plc’, held, among other things, that a breakdown of mutual confidence between the directors of a SICAV and its manager and custodian constituted serious grounds to warrant the dissolution of the company.
The facts in this case were as follows:
Norvik (Malta) Sicav plc was a collective investment scheme, registered in Malta on March 1, 2007, with variable share capital and with a number of separate investment sub-funds. Its registered office was at Ivy Mansions, Triq il- Qasam, Swieqi. It was licensed by MFSA as professional investor fund in terms of the Investment Services Act, Cap 370, Laws of Malta.
The company was composed of seven sub-funds. The sub-funds invested in immovable property in several countries in the sectors of agriculture and forestry and in other financial instruments. The company had engaged AS Norvik Banka as custodian and JSC Norvik as administrator and manager of the scheme.
All the financial statements were kept by the manager, who was responsible for the valuation of the net asset value of the investor’s shares in the sub-funds; who refused to pass this information to the company’s directors.
There was a dispute between the company’s directors and the manager and administrator. Tina Petersone wished to transfer her 999 Founder A shares (voting). However, the company never registered this transfer.
Subsequently, in October 2012, the manager transferred a substantial investment of the company in SIA Meza Funds, at an alleged gross undervalue. This led to litigation in Latvia, including criminal action against the manager and the board of directors of SIA Meza Funds.
The company terminated the engagement of the manager and administrator of the scheme.
On November 20, 2012, the company requested the manager and the custodian to return the company’s books, but they failed to do so. In this way the directors of the company said they were denied access to documentation and information on the company, its sub-funds, as well as to the financial position of the scheme.
The directors claimed they were not in a position to know the financial position of the company and its sub-funds.
They complained that the manager and custodian spread false information against them to ruin their reputation. These allegations, they said, were completely unfounded and false.
The directors of the company opposed the decision of the manager to sell the company’s shares, appertaining to a sub-fund of the company. They denied all allegations, of acting in bad faith, and attributed fault on the custodian and manager.
Subsequently, the MFSA issued a directive in terms of the Investment Services Act, ordering the company to cease operations including those carried out by AS Norvik Banka and Norvik ieguldijumu parvaldes sabriedriba. It also ordered the directors of the company and the holders of the Founder A shares to cease exercising any of the powers afforded to them.
The directors of the company were ordered by MFSA to cease all operations with immediate effect, to refrain from carrying out any act or transaction and to put the scheme into dissolution without delay and to appoint a liquidator to wind up the company.
The company engaged KPMG Latvia/Malta to be the liquidator of the company.
However, they could not proceed with a voluntary liquidation. The directors were not aware of the financial position of the company, as the manager/custodian did not permit the directors to assess its financial position. The directors of the company said they were unable to make a declaration of solvency as required by article 286 of the Companies Act.
The directors of the company submitted there were serious grounds to dissolve the company under article 214(2)(b)(iii) of the Companies Act, which provides that a company could be dissolved if it:
“…is of the opinion that there are grounds of sufficient gravity to warrant the dissolution and consequent winding up of the company”.
Faced with this situation, they filed legal proceedings against the company, asking the court:
1. To declare there were serious reasons to dissolve the company under article 214(2)(b)(iii) of the Companies Act;
2. To order the dissolution and liquidation in terms of article 214(2) of the Companies Act; and
3. To appoint KPMG as a liquidator of the company or some other person who the court felt appropriate.
The court appointed a curator to defend the company. It was stated that the sub-funds of the company were the property of JSC Norvik Banka, a bank registered in Latvia. It was also the only investor in the company, sole owner of the manager and custodian.
It was stated that the directors of the company holding the founder’s shares acted against the interests of the company; allegedly the directors blocked the sale and caused a substantial loss of approximately €1.5 million. The curator maintained that there existed serious grave reasons to dissolve the company under article 214(2)(b)(iii) of the Companies Act, owing to the director’s abusive acts.
The directors were not aware of the financial position of the company, as the manager/custodian did not permit the directors to assess its financial position
The court considered that the curator did not contest the locus standi of the directors. It noted that the parties for different reasons felt there were serious grounds to order the dissolution of the company under article 214(2)(b)(iii) of chapter 386. The court said that this provision was clear. It gave wide discretion to the court to dissolve the company under chapter 386. Our law did not define “serious reasons’’ in article 214.
The court referred to article 122 of the Insolvency Act 1986 (UK) which listed the grounds where a company could be dissolved by the court. There was no equivalent provision in the Companies Act, chapter 386. The most similar provision was article 122(1)(g) which provides: “The court is of the opinion that it is just an equitable that the company should be wound up.”
Our law was stricter, while under our Companies Act there had to be ‘serious reasons’ in the UK, the criteria was ‘equity and justice’. Our courts were obliged if there were ‘serious reasons’ to order the dissolution of a company and had no discretion in this regard.
Reference to article 122(i)(g) of the UK’s Insolvency Act 1986 was useful to see how the English courts interpreted ‘just and equitable’ in the context of winding up.
Although the company was registered in Malta, the persons administering the company were all located in Latvia. The dispute between the parties led to litigation in Latvia and to action by the MFSA.
The court was convinced that between the directors and the owners of the sub-funds of the company, there was a breakdown in mutual confidence. It was clear and unequivocal that the company could not continue to remain in existence. The court felt it was justified to apply article 214 (2)(b)(iii) of chapter 386.
For these reasons, on June 17, 2014, the court gave judgment as follows:
1. It declared that in its opinion there existed sufficient grave reasons to justify the dissolution and liquidation of Norvik (Malta) Sicav plc under article 214 (2)(b)(iii) of the Companies Act;
2. It ordered the dissolution of the company with effect from the date of this decision under article 214(2)(b)(iii) and article 223(i) of the Companies Act;
3. It appointed the official received as liquidator of the company: and gave him all powers and duties under chapter 386.
4. The liquidator had three months to file a report on his operations in court; the directors had to pay all judicial costs while the company had to pay the costs of its liquidation.
Dr Karl Grech Orr is a partner at Ganado Advocates.