MALTA Law and Practice Contributed by: George Bugeja, Stuart Firman, Nicholas Curmi and Luke Hili, Ganado Advocates
8.3 Business Judgement Rule There is currently no precedent in Malta with respect to the Maltese courts’ deference (or otherwise) to the judgement of the board of directors in the context of a takeover scenario. This said, given that Maltese com- pany law is heavily modelled on the UK equivalent, it is expected that a Maltese court asked to adjudicate a dispute would, in line with UK jurisprudence, decline to examine the merits of a business decision taken by a company’s directors – except in so far as it is out - right fraudulent or in flagrant breach of the directors’ fiduciary duties in relation to the company. In the con - text of a takeover offer, the Maltese Capital Markets Rules emphasise (by virtue of guidelines to this effect) that when directors of a target company make recom- mendations in relation to a bid, they are bound to act honestly and in good faith in the best interests of the company, and shall at all times take into account the collective interests of their shareholders prior to and during any bid process. 8.4 Independent Outside Advice The use of independent outside advice varies from transaction to transaction and can range from advice given with respect to due process from a corporate governance perspective to minority shareholder rights. 8.5 Conflicts of Interest Over the years, there have been a number of land- mark judgments on conflict of interest of directors, managers and advisers. These cases are closely tied to breaches of fiduciary obligations which directors, managers or advisers may owe to a company. 9. Defensive Measures 9.1 Hostile Tender Offers Hostile (or competing) bids are permissible in Malta but are not common. 9.2 Directors’ Use of Defensive Measures Where a target company has received a takeover notice, or has reason to believe that a bona fide offer is imminent, the directors of the target company must not take or permit any action in relation to the affairs of the company that could effectively result in the offer being frustrated or the shareholders being denied
(including an evaluation of the consideration being offered against the background of the offer made) must be appended to the offer and, separately, an opinion of the board of directors of the target com- pany on the offer (including the effects of implemen - tation of the offer on all the company’s interests and specifically, employment) must also be made available to the public.
8. Duties of Directors 8.1 Principal Directors’ Duties
A director of a Maltese company has a general duty to act honestly and in good faith and in the best inter- est of the company. Maltese law recognises that such duties are owed to the company as a whole rather than to the shareholders. The Maltese Companies Act sets out the directors’ general duties. These include (i) the duty to remain within and not misuse their powers, (ii) the duty to avoid conflicts of interest and conflicts of duty, (iii) the duty to exercise care and skill, (iv) the no-profit rule, (v) the duty not to compete with the company, and (vi) the duty not to benefit from third parties at the expense of the company. These general duties play a significant part in the manner in which directors navigate a trans- action in the company in which they sit as directors, particularly in a management buyout scenario. Additionally, directors are also subject to general prin- ciples of fiduciary obligations as set out in the Civil Code of Malta. 8.2 Special or Ad Hoc Committees It is common for Maltese target companies to estab- lish special or ad hoc committees, typically composed of members of the management team of the com- pany. Such committees are generally set up prior to the acquisition and allow for a more efficient process. In the case of management buyouts (or similar arrangements), the committees are generally com - posed of non-conflicted directors.
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