Issue link: https://maltatoday.uberflip.com/i/1488480
maltatoday | SUNDAY • 18 DECEMBER 2022 15 LAW CLASSIFIEDS CLASSIFIEDS INFO @MEDIATODAY.COM.MT A shareholder of a compa- ny which is now struck off the Companies Register is allowed to sue directly the former direc- tors, as long as the claim refers to the shareholder's personal right. This was held by the Court of Appeal in Ingrid Fiorini -v- An- na Zerafa and Josianne Miceli decided on 14 December 2022. Fiorini filed a sworn application against two former directors of Nova Co Limited. The Plaintiff explained that her father had set up the company in 1998 and af- ter his death she became a share- holder together with her three other sisters. The Plaintiff was being edged out of the company and Zerafa took complete control of the company. Zerafa's chil- dren set up a competing compa- ny Women's Costmetics Limited and Zerafa was deviating business from her company to her chil- dren's company. Zerafa who con- trolled Nova Co Limited refused to present to the Companies Reg- ister the audited accounts and an- nual return of the company. This resulted in the company being struck off from the Register. The Company has sufficient funds to pay for its statutory obligations. The Plaintiff asked the court to condemn the Defendants to pay damages caused. The defendants filed a statement of defence and pleaded amongst other pleas that the Plaintiff did not have juridical interest in this case because the directors' obli- gations are towards the company and not the shareholders and that she cannot filed a damages claim against the directors. The Civil Court in its Commer- cial Jurisdiction rejected this plea, where the parties had to produce evidence on the personal rights of the Plaintiff as a shareholder against the other shareholders. The Defendants appealed from this judgement. The Defendants submitted that the judgement was erroneous that this action is a personal one and not on dam- ages as it is the company which should have taken action against the shareholders or directors of the company. The Court dealt with each of the grounds of appeal separately. The first ground of appeal dealt with whether the action was a damages case instituted by a shareholder. The Defendants ar- gued that the Plaintiff is causing a confusion of the rights of the company and her personal rights as a shareholder. The Plaintiff according to the Defendants, is acting on behalf of the company and not in her name. In fact, the Plaintiff is claiming lost profits, which the company suffered and not the shareholders. The Court of Appeal disagreed that there was an error by the Court of First Instance in that this action is in fact a damages case. One has to see the premis- es of the sworn application and not by the pleas. The applica- tion makes it clear that since the Plaintiff is claiming that she did not receive dividends from 1998 is a damages cases, especially if the claim includes that she is per- sonally responsible for fines and penalties imposed by the Malta Business Registry and the tax de- partments. Therefore, the action was not instituted in the name of the company, but in her name personally. This ground of ap- peal was rejected. The Court of Appeal then dealt the ground of appeal that this action could have never been in- stituted against the directors per- sonally. Since according to Article 136A of the Companies Act the di- rectors obligations are towards the company Nova Co. Ltd. The Defendants have no juridical re- lationship with the Plaintiff and therefore, it should have been the company which should take action against the company. The lifting of the corporate veil takes place in exceptional circumstanc- es. Furthermore the Defendants argued that the damages case was instituted in terms of Article 402 of the Companies Act which al- lows individual shareholders to seek a remedy in the name of the company, but it cannot be used to sue a director. Neither should the action have been instituted because the com- pany was struck off, because the company could have been re- vived. The Plaintiff rebutted these arguments on whether she has juridical interest in the case, she emphasised that she had a loss because of the actions of the De- fendants. Zerafa had taken the company s money and the com- pany made a loss because of mal- administration. The plaintiff fur- ther argued that it was impossible for the company to take action on its own. The Plaintiff argued that if the company had to be revived, this would cause more prejudice be- cause Zerafa took all the com- pany s money and therefore the company would not pay the fines and penalties. The Court of Appeal then held that a director is a mandatory of the company and the compa- ny has a distinct personality and therefore in general the directors are answerable to the company. If the director is not in conformity with his duties, then it is the com- pany which should take action. The general principal is found in the UK judgement Foss vs. Har- bottle and Edwards vs. Halliwell. The general principle of law is not without its exceptions. One is when there is an act or an omis- sion of the director which violates the plaintiff s personal rights. The Court of Appeal disagreed with the Defendants that a share- holder cannot file a damages claim as allowed in Article 402 3 f of he Companies Act. This can take place when the company is still trading. Furthermore the damages claim can take place in the general principle of law. This was outlined in various judge- ments and authors. However this does not give the plaintiff a carte blanche to sue for any type of damages against the director. The action against the director must be strictly personal and separate from damages in- curred by the company from acts and omissions of the director. This principle was outlined in other judgements Martin Bonello Cole vs. Kenneth Cole decided by the Court of Appeal on 5th Octo- ber 2021 and M J Folla -v- JH Sor- atas decided on 12th March 1976 decided by the Court of Appeal. As to the Court of Appeal list- ed which actions were deemed as personal damages a shareholder could take against a shareholder could take against a director. As to profits and dividends the claim should be sought by the compa- ny Nova Co. Ltd. since the loss is suffered by the company. This was outlined is Prudential Assur- ance Co. Ltd. Vs. Newman indus- tries Ltd. decided in 1982. The Court of Appeal explained that the Plaintiff could not claim in this action the sale of the stock and the fact that Zerafa took for herself the money from this sale. It is the company that should have a claim on this since this money could have been used by the company to prepare the ac- counts and present these to the MBR. The Plaintiff held that she was receiving letters from the MFSA, VAT and tax department since 2008, where she was informed that the company was incurring fines and penalties. She blamed the Defendants for the company to be struck off and consequently she lost her shares in the compa- ny. The Court of Appeal held that the loss of her shares could be decided in this action. The same goes for the fines and penalties that are attached to the Plaintiff personally, since she did occu- py the position of director for a considerable time. Although the Plaintiff has joint and several li- ability on what is owed to MBR, MFSA and the tax departments, is actionable directly against the Defendants, if her claim is that they are in fact responsible for totting up these fines and debts. The Court, then ordered that the case be referred back to the Commercial Court to decide on these claims. Shareholder may use Directors of struck off company only on personal rights LAW REPORT MALCOLM MIFSUD Mifsud & Mifsud Advocates HOLIDAY ACCOMMODATION MARSALFORN, Gozo - holiday apartments for short or long lets with magnificent sea-views. Call 21556021, 27556021, 79426883 PROPERT Y TO LE T XLENDI - catering premises in prime site to let. Can be used for other com- mercial purposes. Phone 79493021, 79426883, 77481592 or 77484029 PROPERT Y FOR SALE SAN GWANN- Open plan 190sqm, ready to move into designer finished second floor apartment in a central quiet street forming part of a block of 5 apartments. Two double A/C bed- rooms and 1 single A/C bedroom, two bathrooms, lift, double glazing doors and windows. Direct from own- er €350k inquire on 79402244. TARXIEN - Larger than usual first floor duplex maisonette. Three bed- rooms; double glazed windows; inverter air conditioners including solar water heater. Being sold fur- nished. Own airspace with possibility of further development. Contact own- er on 99912005/99450639. SER VICES COLLECTIBLE items such panini albums and loose stickers, old post- cards and posted envelopes, med- als, militaria, coins and paper money, books, toys, stamps, badges, paint- ings, gold & silver items etc. Call on 21310238, 99246632.