This article examines briefly three recent significant judicial decisions which may have important implications. Some or all of these landmark decisions may be under appeal. It is always sad and disturbing when public agencies lose important cases.

The Registry of Companies loses an important case:

The defunct company procedures may breach fundamental human rights. Article 325(4) of the Companies Act

Dr David Fabri

In its decision of 12 October 2023, the Constitutional Court (Justice Dr Toni Abela, Rikors 21/19TA)) held that the striking off of a company from the company register thereby causing its property to devolve in favour of the government without compensation was null and void as it breached fundamental human rights.

The court criticized the procedure set out in article 325(4) as being draconian and punitive in nature. It held that the defunct company procedure was disproportionate and violated a person’s right not to have his property expropriated without compensation.

It permitted the Registrar to strike a company off without hearing representations and with no care for the financial and other consequences that may follow. The court also expressed the view that the five-year period during which restoration to the register could be requested was too short. The court ordered the Registrar of Companies to restore the company to the register and ordered the immediate restitution of the property to the company.

(The defunct company procedure was not part of the original Companies Act of 1995 but was introduced in 2003. It was largely borrowed from UK company law, another fact that the court frowned upon. The procedure was envisaged as an exceptional measure to be used sparingly. Indeed, it is extraordinary that a company can be struck off without first being wound up.)

The Malta Financial Services Authority loses an important case:

An administrative sanction is declared null. Article 11 of the MFSA Act

The Financial Services Tribunal (Chairman Dr Ian Stafrace) in its award of 5 July 2023 (FST 02/21) overturned an administrative measure taken by the Executive Committee of the MFSA against one of its licensed entities, declaring it “defective and hence null and void”.

The appellant was MC Trustees Limited and the fine amounted to €160,000. The company had appealed on the grounds that fair hearing guarantees were not in place and that the procedure adopted was intrinsically biased seeing that “the investigative and decision-making bodies of the MFSA overlap”.

The Tribunal established that the MFSA Act today required that such decisions should be taken by a different organ, namely the Enforcement Decisions Committee (EDC) established in terms of article 11 of the Act. The decision was therefore procedurally unsound and consequently invalid.

Accordingly, the Tribunal did not enter into the actual merits of the contention. The Tribunal rejected the MFSA’s defence that the Executive Committee had proceeded to take the contested decision itself because the EDC could not do so, and that it was “impracticable or impossible” to convene the EDC.

It held that the MFSA had “ignored the provisions of Article 11” and had failed to “recognise the distinction between the roles of the Executive Committee and the Enforcement Decisions Committee”. The Tribunal was also satisfied that the EDC had not yet been set up as required by law as a result of the MFSA’s own omission.

The FIAU loses a constitutional case:

The agency’s internal sanctioning procedures declared unsound.

The Constitutional Court presided by Justice Dr Toni Abela recently nullified a penalty imposed by the Financial Intelligence Analysis Unit on a Maltese notary who had been fined over €60,000 for alleged administrative breaches of the anti-money-laundering law and regulations. (Rikors 11/22 TA).

The breaches themselves are not described in the judgement, but the Court of Appeal had earlier reduced the fine dramatically to €4000. The fine has now been annulled in its totality on constitutional grounds and the court was very scathing in its criticism of the manner in whereby the FIAU had arrived at the decision to impose the sanction and how the amount was computed.

The Court found that the internal FIAU processes in deciding and quantifying sanctions were ‘biased’, ‘incestuous’ and ‘byzantine’, also comparing them sarcastically to the mythical dual-natured Minotaur. It also declared that the significant penalty imposed was of a criminal (rather than administrative) nature, and the professional in question should therefore not have been deprived of the safeguards arising under criminal and constitutional laws. The court awarded €10,000 in moral damages to the notary.

David Fabri LL.D., Ph.D. (Melit) lectured at the University of Malta and co-ordinates the Masters in Financial Services programme offered by the University of Malta. He has published books on the regulation of financial services and on company law.