The First Hall of the Civil Court, presided over by Mr Justice Joseph Zammit McKeon, in the case ‘SB Fiduciary Ltd v Crocodile Ltd” held, among other things, that unless a person was a member and entered in the register of members or qualified as a member under article 402(6), he was not entitled to file an unfair prejudice action.

The company SB Fiduciary Ltd stated it was fiduciary shareholder in the company Crocodile Ltd, a shareholder in PIVGame Ltd. It claimed that Crocodile Ltd and PIVGame Ltd failed to provide them with a detailed balance sheet and financial statements, and this in violation of its duties to the shareholders under the Companies Act.

Faced with this situation, SB Fiduciary Ltd filed an unfair prejudice application under article 402 of the Companies Act: “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.”

It asked the court:

1. To order defendant companies to provide them with a copy of their accounts; and

2. If the defendant companies were inactive, to nominate a liquidator to liquidate the companies.

The defendant companies, in reply, pleaded that as SB Fiduciary was not a shareholder it did not have any rights to make this unfair prejudice action under article 402.

The argument put forward was that the share transfer in Crocodile Ltd was never registered. No Form T was ever signed by a director, manager or company secretary as required by law and was never duly notified to the Registry of Companies.

In fact, the Registry returned the Form T, even if it was aware that a share transfer was signed and could not process the share transfer. Reference was made to articles 118, 119, 120,123 and 127 of the Companies Act.

The court said that the term ‘member’ was defined in article 2(1) of Chapter 386. A shareholder was deemed to be a person who was entered in the register of members in terms of article 123, or the bona fide holder of a share warrant referred to in article 121 of the Companies Act.

Article 402(6) provides: “In this article, the term ‘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 made reference to the sources of our law.

Our article 402 was based on the UK Companies Act 1985, article 459 (now codified in article 994 of the UK Companies Act 2006: re ‘Vella v Vella Brothers Ltd et’ (CA) dated March 9, 2007.

In Principles of Maltese Company Law, Andrew Muscat states:

“A specimen form of notice of transfer or transmission of shares (known as a ‘Form T’) has been published by the Registrar: a person can only be recognised as a shareholder, at least for the purposes of the Companies Act, if his name is entered into the register of members.

“This rule results from article 2(1) of the act which inter alia defines a ‘shareholder’ as ‘a person entered into the register of members of a company...’ Moreover articles of association often provide that the transferor of a share is to be deemed to remain a holder until the name of the transferee is entered in the register of members in respect thereof. Unfortunately, many companies do not in practice keep a register of members or, if they do, fail to update it...”

The terms ‘shareholder’ and ‘member’ are interchangeable under our law. In English law, although the terms are often used interchangeably, there is in fact a difference. Thus a company limited by guarantee has members but it does not have shareholders; and the holder of bearer shares does not become a member, since entry in the register of members is necessary for this purpose (vide section 122 of the UK Companies Act 1985, which has been restated by section 112 of the UK Companies Acts 2006).

The court maintained that for a person to file an unfair prejudice under article 402, he had to be a member of such company

In Maltese law, however, the holder of a share warrant is a ‘shareholder’ and a ‘member’ unless otherwise specifically provided means a shareholder, vide article 2(1) Companies Act.

According to the Memorandum & Articles of Association of Crocodile Ltd, it resulted that all shares (2,000) were registered in the name of International Trust Ltd, a licensed trustee. Its director was Cesone Florio and Katja Azzopardi was the company secretary. The transfer of shares to SB Fiduciary Ltd was not registered in the register of members of Crocodile Ltd according to article 119 of the Companies Act, which provides:

1. On the application of the transferor or of the transferee of any share in or debenture of a company, the company shall enter in its register of members or of debentures, as the case may be, the name and address of the transferee and where the application is made by the transferor, the entry shall be made in the same manner and subject to the same conditions as if the application for the entry were made by the transferee.

2. If a company refuses to register a transfer of shares or debentures, it shall, within two months after the date on which the transfer was lodged, send to the transferee notice of the refusal.

3. Notwithstanding the provisions of the regulations contained in part 1 of the First Schedule and notwithstanding anything contained in a public company’s memorandum or articles, the directors of a public company shall be obliged to register the transfer of any shares in the company in favour of any person who has acquired those shares as a result of a judicial sale thereof.

4. On the application of the person to whom the right to any shares in, or debentures of a company, has been transmitted causa mortis, the company shall register in its register of members or debentures, as the case may be, the name and address of such person.

5. If a company refuses to register a transmission as is referred to in sub-article (4), it shall, within two months after the date on which the transmission is lodged, send to the person to whom the right to any shares or debentures of a company has been transmitted causa mortis, notice of the refusal.

6. If default is made in complying with the provisions of sub-articles (2) or (5), every officer of the company who is in default, shall be liable to a penalty, and, for every day during which the default continues, to a further penalty.

Nor was it a shareholder in PIVGame Ltd, pointed out the court.

The court maintained that for a person to file an unfair prejudice under article 402, he had to be a member of such company.

As it did not result that SB Fiduciaries Ltd was a member of PIVGame Ltd, it was not entitled to present an unfair prejudice action.

In addition, there was no proof that the transfer of shares had been registered in the register of members of Crocodile Ltd in accordance with article 119 of Chapter 386. It had not been proven that the tax was paid in terms of article 126(2) of the Companies Act.

Once it was not proven that SB Fiduciaries qualified as a shareholder of Crocodile Ltd it was further precluded from taking legal action under article 402 (unfair prejudice).

For these reasons, on January 29, 2015, the court gave judgment by accepting defendant companies’ first plea that SB Fiduciaries was not entitled to file an unfair prejudice action against them once it was not a registered member. Defendant companies were freed from the legal proceedings.

Dr Karl Grech Orr is apartner at Ganado Advocates.