The First Hall Civil Court, presided over by Mr Justice Joseph Zammit McKeon, on June 9, in the case “Lonavi Properties Limited vs Balkan Power Invest Holding Limited and others” held, among other things, that the fact alone that the minority shareholder did not have the right to appoint a director was not in itself an act of oppression. A shareholder did not enjoy an absolute right to appoint a director. The court also affirmed its authority to give interim orders under article 402 Companies Act.

At issue was whether the court had authority to give a temporary, interim under Article 402, Companies Act.

Article 402(1) 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 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.’’

The Company Lonavi Properties Limited requested the court to regulate the management of Balkan Power Invest Holding Limited in terms of Article 402 (3) (a) of Chapter 386; to appoint an administrator or director, to authorise him to take immediate action to safeguard the interests of Lonavi even as sole shareholder in Bulgarian Power EOOD, Terra Bulgaria and Terra Bulgaria 2;

(2) To declare and decide that B. Ahlman did not have the power to represent Lonavi; to revoke any of his decisions as director, even as sole shareholder in other companies which include Bulgaria Power EOOD and Terra Bulgaria 1.

(3) to order in terms of Article 402 (3) (e) of Chapter 386 Balkan Power Invest to initiate legal proceedings against B. Ahlman for damages suffered; for B Ahlman to appear for any act of rescission and for this purpose to authorise, Lonavi to carry out all judicial acts in the name of Balkan Power Invest.

During the proceedings, another company, Cementir Holdings Ltd intervened in statu et termines.

On February 11, Lonavi filed an application asking that in the interim period, the court would take all temporary measures, until a director was appointed to represent Balkan Power Invest, and to take such measures to protect its rights as a shareholder. It requested the court to give such order to prohibit Balkan Power dispose or charge its assets and business including assets of its subsidiary companies.

In the sitting on March 21, Cementir Holdings informed the court that with effect from March 14, G. Rise was appointed director.

Lonavi, however, disputed the validity of the appointment of G. Rise as new director.

On March 28, Lonavi filed another application, After referring to the statute of Balkan Power Invest and after referring to articles 129 (3), article 130, and article 33 of the First Schedule of Chapter 386, Lonavi asked the court to exercise its power under article 402; and to order temporary measures with immediate effect.

Lonavi asked the court to declare that the new director G. Rise was not appointed regularly as a director of Balkan Power Invest; to appoint another director to protect the interests of the company and its shareholders according to its statute, and shareholders’ agreement, and in particular to safeguard the assets of the company in and outside Malta, subject to such directives which the court might deem fit and opportune.

In this decision, the court said that it was limiting its considerations to Lonavi’s application of March 28, 2011.

It was not deciding the merits, which were still to be determined after all the evidence was heard.

The court noted that in its application Lonavi was requesting the following:

• A declaration from the court that the appointment of G. Rise as a director of Balkan Power Invest was not regular;

• To give interim measures;

• To give such interim measures to appoint another director to protect the interests of Balkan Power Invest and its shareholders, as well as to safeguard the assets of the company both in Malta and outside Malta.

• To give such other directives.

The court noted that legal action under article 402 was generally filed by a shareholder against another shareholder, in relation to alleged acts or omissions of the company, which could be oppressive, unjust, discriminatory or unfairly prejudicial to a member or members or against the interests of members as a whole.

Article 402 was not intended to resolve every company problem.

The court said that the appointment and or the removal of a director was regulated by statute and by law.

Although the minority shareholder had a right to control the operations of the majority shareholder, it could not be stated that the appointment or removal of a director could be considered as an act which was prejudicial to the rights of the minority shareholder.

By virtue of article 402, the minority shareholder could request protection from the court, regardless of whether they had a right to appoint a director on the Board.

The purpose of the unfair prejudice action was to control the majority shareholder, not to commit an unjust act towards the minority shareholder.

But the fact alone that the minority shareholder did not have the right to appoint a director was not in itself an act of oppression. A shareholder did not enjoy an absolute right to appoint a director.

In Monreal et vs Delia dated May 13, 1999, the Court held that this provision was intended to protect the minority shareholder of the company. The remedy was available to any member who had to show that the affairs of the company were likely to cause on a balance of reasonable probability, oppression, unfair prejudice, or discrimination.

It was not necessary to show actual prejudice, suffered by a member.

In this case the court considered the appointment of G. Rise as director of Balkan Power Invest to be a legitimate act.

It said that under article 402(3), this court had full power to give any necessary order, if it results that the application was justified and if it felt that it was equitable and fair.

The court had to consider whether;

• The alleged act was in accordance with the statute of the company;

• Any legitimate expectations of the applicant. Article 402 was based on principles of equity and justice which recognised legitimate aspirations. Reference was made to the case Apap Bologna vs Bianchi et dated December 16, 2010, and to Prof. A Muscat’s book Principles of Maltese Company law:

‘‘Before examining the different types of orders that can be made by the court, a preliminary question should be considered: Whether a court may issue an interim order pending final judgment. The position in English law is that English courts do, where appropriate, have the power to issue interim orders – usually orders for payment on account or those designed to preserve the status quo. The Maltese Companies Act is silent on the question of whether a court, seized of an issue under article 402, is entitled to issue an interim order.

Nor does any jurisdiction result from any general provision in the Code of Organisation and Civil Procedure. It is significant that power to make interim orders, the legislator did so by express provision, as with power of the court to issue a ‘‘provisional order’’ under article 37(5) of the Merchant Shipping Act (prohibiting dealings in a ship until the court definitely decides on the merits) and the power of the court to initially issue a warrant of prohibitory injunction for an ‘‘interim period’’ under article 873(7) of the Code of Organisation and Civil Procedure. In practice, situations may sometimes arise where the issue of an interim order would be necessary to protect the interests of the complainant or of the company. The introduction of an amendment to article 402 would allow the court to issue interim orders would be another helpful tool in the court’s arsenal against oppressive, unfairly prejudicial or unfairly discriminatory conduct...

The court said that Maltese Company Law did not specifically mention ‘interim measures’ under article 402. It appeared, however, that the court had wide discretion, to decide whether an act was unfairly prejudicial and what remedy to grant.

It could not be excluded, therefore, pointed out the court, that it had authority to give temporary measures if requested or if the court felt that it was appropriate. The protection of the minority shareholder was the main concern of the courts.

The court had power, it said, to give any order if it felt it to be appropriate. It could also give temporary orders to safeguard the status quo until a dispute was determined, under article 402.

On June 9, the court delivered its decision, in respect of Lonavi’s application dated March 28.

It refrained from deciding whether G. Rise was appointed validly as a director of Balkan Power Invest Holding Ltd; but accepted to give a temporary order under article 402.

It ordered the present director G. Rise with immediate effect to act carefully and diligently, as expected from a director of Balkan Power Invest to protect the assets of the company in and outside Malta as well as the interests of the company and of its shareholders according to the company’s statute and shareholders’ agreement.

Dr Grech Orr is a partner at Ganado & Associates.