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8 maltatoday | SUNDAY • 28 JUNE 2026 LAW Fraus omnia corrumpit in modern commerce JULIAN MIFSUD Mifsud & Mifsud Advocates MODERN commerce depends on a simple but powerful legal principle—a company is treated as a person distinct from those who own it. It can enter con- tracts, own property, incur debts and be sued in its own name. For more than a century, following the landmark decision in Salo- mon vs A Salomon & Co Ltd, separate juridical personality has been regarded as one of the cornerstones of modern compa- ny law. Most of the time, the princi- ple works exactly as intended. It encourages investment, fa- cilitates entrepreneurship and provides certainty in commer- cial dealings. Yet, every so of- ten, a court is confronted with a more difficult question. What happens when the corporate structure is alleged not to have been used to conduct business, but to frustrate the rights of creditors? At what point does the law cease to look at the company as a separate legal person and instead focus on the conduct of those standing behind it? These questions were recent- ly considered by the Court of Appeal, composed of Chief Justice Mark Chetcuti, and judges Robert G. Mangion and Simone Grech, in Sberbank vs Palmali International Holding Two Company Limited et on 23 June 2026. The litigation arose from financing facilities granted by Sberbank to two Russian companies within the Palma- li group. As security for those obligations, Palmali Holding Company Limited constitut- ed itself as guarantor through a Guaranty and Indemni- ty Agreement dated 26 April 2016. According to the pro- ceedings, Sberbank accepted this guarantee because Palma- li Holding Company Limited possessed a substantial cor- porate structure, including a network of direct and indirect subsidiaries operating in the maritime sector. The relationship between the parties subsequently deterio- rated when the main debtors failed to satisfy their obliga- tions. Sberbank alleged that the outstanding debt exceed- ed US$194 million, excluding interest, and consequently in- itiated precautionary proceed- ings before the Maltese Civil Court whilst simultaneously commencing arbitration pro- ceedings in London in accord- ance with the contractual arbi- tration clause. What transformed the dis- pute from an ordinary debt recovery case into a significant commercial law judgment was what allegedly occurred after- wards. According to Sberbank, on- ly days after precautionary warrants had been issued and arbitration proceedings com- menced, a series of transfers took place within the Palmali corporate structure. The judg- ment records allegations that on 19 April, 27 April and 3 May 2018, shares held in indi- rect subsidiary companies were transferred to another Turkish company known as Gunesli Denizcilik Tasimaciligi Sanayi Ve Ticaret Anonim Sirketi, a company ultimately connected to the same beneficial owner, Mubariz Mansimov. The bank maintained that these transactions were not innocent corporate reorganisa- tions. Rather, they were alleged to have been deliberately struc- tured to diminish the patrimo- ny available to satisfy creditor claims. As reproduced in the judgment, Sberbank argued that the transfers occurred at a time when litigation between the parties was already under- way and therefore constitut- ed "deceitful and fraudulent transfers, intended to reduce the patrimony of PHL and its subsidiary companies with ob- vious prejudice to Sberbank's rights". The legal significance of this allegation becomes apparent when one considers the doc- trine of separate juridical per- sonality. Ordinarily, the law respects the distinction be- tween a company and its share- holders, directors or affiliated entities. Courts are generally reluctant to interfere with that distinction because commer- cial certainty depends upon it. If every creditor could simply disregard the separate identity of companies whenever con- venient, the entire corporate system would be undermined. Yet Sberbank's case rested upon a different proposition. It argued that the protection afforded by separate juridical personality cannot become an instrument of fraud. Indeed, one of the most strik- ing passages reproduced in the judgment is Sberbank's reli- ance upon a principle deeply rooted in Maltese jurispru- dence in that our law is built on bona fides and no transaction is immune from the principle fraus omnia corrumpit. The maxim fraus omnia corrumpit — fraud corrupts everything — has ancient or- igins, yet it continues to reso- nate within modern legal sys- tems. The principle reflects a simple but powerful idea. The law will ordinarily protect le- gal rights, legal forms and le- gal structures. However, where those rights or structures are abused through fraud or bad faith, the law may refuse to al- low the wrongdoer to benefit from them. It was precisely this argu- ment that Sberbank advanced before the Maltese courts. As recorded in the judgment, the bank maintained that where fraud is established and where separate juridical personality is being abused, the court should be prepared, in exceptional cir- cumstances, to disregard the distinction normally existing between legal entities. The court ultimately upheld the conclusions reached by the First Court and confirmed the relief granted in favour of Sber- bank. In doing so, it accepted findings concerning the effect of the transactions within the Palmali structure. One of the most significant observations endorsed by the court was that the transfer of shares of sub- sidiary companies meant that the assets of Palmali Holding Company Limited, the guaran- tor, disappeared. The court was equally dis- missive of attempts to min- imise the significance of the transfers through reference to alternative guarantees or po- tential remedies. In one pas- sage, it described aspects of the appellants' position as ingen- ious. While judicial language is of- ten measured and restrained, such remarks reveal the court's scepticism towards explana- tions which failed to address the practical consequences of the transactions in question. What makes Sberbank v Pal- mali particularly important is that it illustrates the continu- ing tension between two com- peting legal values. On the one hand stands legal certainty, which requires courts to re- spect the separate personality of companies. On the other hand, stands the principle that legal structures should not be manipulated in a manner which defeats justice or frustrates le- gitimate creditor claims. The decision does not under- mine the doctrine established by Salomon. Nor does it sug- gest that every corporate re- structuring undertaken during litigation is suspicious. What it does demonstrate, however, is that Maltese courts remain willing to scrutinise the reality behind transactions where alle- gations of bad faith and fraud are supported by compelling circumstances. What one can take from this judgment is that juridical per- sonality remains a shield for le- gitimate business activity, but it cannot become a refuge from accountability. Where fraud is alleged and substantiated, the maxim fraus omnia corrumpit retains its force. Even in the most complex corporate struc- tures, the law will ultimately concern itself not merely with form, but also with substance.