Minority shareholders lose case against directors

Mr Justice Joseph Azzopardi, sitting in the First Hall of the Civil Court, has dismissed a writ filed by minority shareholders against a number of company directors and against eight companies.

Gordon Mizzi, Corinne Apap Bologna and Spearhead Investments Ltd filed their writ against John C. Grech, Maurice Mizzi, Brian Mizzi, Jeffrey Mizzi, Kenneth Mizzi, Mizzi Holdings Ltd, Kastell Ltd, Consolidated Holdings Ltd, the General Soft Drinks Co Ltd, Demoncada Ltd, Demoncada Holdings Ltd, Devilhena Ltd and Daragon Ltd.

Gordon Mizzi and Corinne Apap Bologna claimed they held shares in Demoncada Ltd and that Spearhead Investments Ltd held shares in Demoncada Holdings Ltd.

Apap Bologna also claimed she was a shareholder in Demoncada Holdings Ltd.

On its part Demoncada Ltd held shares in Kastell Ltd, Consolidated Holdings Ltd and in Mizzi Holdings Ltd while Demoncada Holdings Ltd held shares in The General Soft Drinks Co Ltd.

All these companies formed part of a group of companies that traded under the name of Mizzi Organisation.

Plaintiffs claimed that defendant Dr Grech was the group's chairman, while Maurice Mizzi, Brian Mizzi, Jeffrey Mizzi, Kenneth Mizzi and Gordon Mizzi were directors of the various companies in the group.

Plaintiffs explained that the group of companies was managed by a board composed of the chairman and the directors and plaintiffs claimed that this board was managing business in such a manner as to cause serious prejudice to plaintiffs.

They claimed that the business was being run in an irresponsible manner and that they were being systematically excluded from all decisions concerning the group.

Furthermore, plaintiffs added that the operation of the said group was being structured in such a manner so as to benefit defendants and that a substantial part of the group's earnings was being taken by defendants to the obvious detriment of plaintiffs.

Plaintiffs asked the court to declare that they were being oppressed and discriminated against by defendants.

On their part, defendants pleaded that the action was null as it had been filed by means of a writ of summons rather than by an application in terms of law.

They also pleaded that none of the plaintiffs was legally entitled to file the suit as plaintiffs were not shareholders of defendant companies. Thus, the defendant companies ought not to have been sued.

Defendants denied that they had prejudiced plaintiffs and added that the companies had been run in a responsible manner.

Mr Justice Azzopardi dismissed defendant's first procedural plea and ruled that plaintiffs had validly filed their case by using a writ of summons rather than an application.

The law governing civil procedure stipulated that no nullity was caused when a case that ought to have been filed by an application was instead filed by a writ of summons.

The Companies Act stipulated that this type of minority shareholders' action was to be filed by an application but the court did not find that the action was null as it had been filed by writ of summons.

The court then proceeded to examine defendants' second plea that plaintiffs could not have filed the writ as they were not shareholders of the defendant companies.

It resulted from the evidence produced that Gordon Mizzi and Apap Bologna did not personally hold shares in defendant companies.

It was Demoncada Ltd and Demoncada Holdings that held shares in some of defendant companies, namely in Mizzi Holdings, Consolidated Holdings, Kastell and General Soft Drinks.

The other defendant companies were in fact the personal property of some of the other defendants.

It was therefore clear, the court ruled, that plaintiffs could not file any action against Devilhena Ltd and Daragon Ltd as neither they nor Demoncada Ltd and Demoncada Holdings Ltd were shareholders in said companies.

The defendant individuals also pleaded that they could not be sued in their personal capacity in this particular action by plaintiffs as this action could only be filed against the companies in which plaintiffs were shareholders.

Mr Justice Azzopardi added that Demoncada Ltd and Demoncada Holdings Ltd were shareholders in the defendant companies but that plaintiffs, in their personal capacities, were shareholders in these companies.

The question to be decided by the court was therefore whether plaintiffs could file this particular action in such circumstances.

English case law stipulated that such an action had to be filed for the benefit of the company in which plaintiffs were shareholders and not to benefit the shareholders themselves.

The shareholders were given other remedies at law and the court added that the shareholders had also filed an action in court for the liquidation of the company in which they were shareholders.

The court found that in the circumstances plaintiffs could not file the action as shareholders and it therefore dismissed their writ.