Pilatus Holdings Ltd must pay the costs of an administrator appointed by the MFSA to oversee its bank, a court said on Wednesday.
The company had filed a warrant of prohibitory injunction seeking to block payments to veteran US banking regulator Lawrence Connell.
Mr Connell was appointed by the MFSA after it forced the bank’s former chairman Ali Sadr Hasheminejad out following his arrest in New York on charges of money laundering and violation of US sanctions.
As lawyers for both sides exchanged arguments in open court on Wednesday, it emerged that the warrant for prohibitory injunction filed by Pilatus Holdings Limited was not intended to remove Mr Connell from office but rather to block payment of his fees.
Mr Connell is being paid $350 an hour up to a maximum of $50,000 a month, over-and-above the cost of putting him up in a five-star star hotel and paying for two assistants.
Pilatus Holdings argued that those costs were pushing the bank’s capital dangerously towards the legal limit. The bank’s current capital stands at around €5.2 million, slightly above the €5 million limit allowed by law, with a monthly bill of costs totaling €200,000 against a minimal income of €25,000 per month.
Should such a situation persist, the bank would be unable to operate, it would lose its licence and would be left with no option other than that of winding up, lawyer Jean Farrugia argued, adding that the rights of shareholders would be prejudiced.
Professor Andrew Muscat appearing on behalf of Mr Connell, countered that this legal move by Pilatus was a “vexatious action” and nothing more than an attempt by Pilatus Holdings to trip up the MFSA, which had taken over the bank to safeguard shareholders and creditors as well as Malta’s reputation.
Prof. Muscat argued that his client’s fees were not excessive and that Pilatus Holdings’ claims that no further funds could be invested with the bank was “a fairytale”.
Just as Mr Ali Sadr had millions to fork out for bail in the US, so he might wish to invest funds at the Bank, Profs Muscat argued.
Lawyer Kris Borg, appearing for the MFSA, told the court that Pilatus Holdings was out to “stop the MFSA from investigating the bank”.
The European Central Bank had recommended that the bank's licence be withdrawn as it did not feel Mr Sadr was a "suitable person" to run the bank, Dr Borg said.
If the warrant were to be upheld, the bank would once against be taken over by him or someone appointed by him, he added.
After a lengthy sitting, Mr Justice Giannino Caruana Demajo, presiding over the Civil Court in its Commercial Jurisdiction, retired in chambers, later delivering a decision whereby the request to withhold payment of fees to Mr Connell was turned down.
“Should the warrant be issued, the function currently undertaken by the respondents (MFSA and Mr Connell) would be blocked and this would prove prejudicial to the bank itself, its creditors and the financial sector,” the court declared.
This prejudice outweighed any prejudice which might be incurred by Pilatus to which an action for damages would be available, the court concluded.
While Pilatus Holdings had claimed that the costly fees were a form of “irremediable prejudice”, the company could always sue for damages, the court said.
Lawyers Jean Farrugia and Jonathan Thompson appeared for Pilatus.
Lawyers Kris Borg and Deborah Mangion appeared for the MFSA.
Profs Andrew Muscat and Dr Joseph Camilleri appeared for Mr Connell.
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