MALTA Law and Practice Contributed by: George Bugeja, Stuart Firman, Nicholas Curmi and Luke Hili, Ganado Advocates
the opportunity to decide on the merits of the offer – except in so far as: • the action has been approved by an ordinary reso- lution of the shareholders themselves; • the action is taken or permitted under a contrac- tual obligation entered into by the target, or in the implementation of proposals approved by the directors of the target, prior to its receipt of the takeover notice or its having become aware that the offer was imminent; or • in all other cases, where the action is taken or per- mitted for reasons unrelated to the offer, with the prior approval of the MFSA. 9.3 Common Defensive Measures Defensive measures are not typically adopted in Malta, particularly in view of the fact that the board of direc- tors has its hands tied once it is aware that a bona fide offer is imminent (as set out in 9.2 Directors’ Use of Defensive Measures ). Pre-offer defensive measures (prior even to the target board becoming aware of an imminent offer) such as “poison pills” and staggered boards can be used but are not common. The key takeaway remains the fact that decisions on the control and ownership of a company should fall within the shareholders’ remit, and that as a result, directors should proceed with caution when consider- ing action that has the potential to frustrate an offer. 9.4 Directors’ Duties The directors must, at all times, honour their fiduci - ary duties to the company when enacting defensive measures (or otherwise making recommendations in relation to takeover offers). These include, in par - ticular, their duty to act honestly and in good faith in the best interests of the company, and to promote its wellbeing. 9.5 Directors’ Ability to “Just Say No” Any recommendation made by the directors as to the acceptance (or otherwise) of an offer shall be properly justified in view of their duty to act in the collective interest of the shareholders throughout the duration of the bid process. The directors should also ensure that sufficient information and advice is contained in the published offer document to enable sharehold -
ers to reach an informed decision, and are obliged not only to circulate their views on the offer, but also to explain to the shareholders the substance of any advice prepared by the independent expert engaged to report on the consideration being offered. All that being said, the board of directors of a target does not have the ability (also keeping in mind the restric- tion on the board taking any independent action that might potentially frustrate the offer) to reject an offer on behalf of the shareholders or take any action that prevents it from taking place, although the outright support of the directors (in terms of their opinion on the offer or on entering into certain commitments with the offeror) or lack thereof will always be an important factor in the likelihood of success of an offer. The Maltese Companies Act requires a private com - pany to include certain restrictions on the transfer of shares in its memorandum and articles of association. Consequently, shares in a private company cannot be transferred freely. It is common for one such restriction to take the form of a requirement for approval by the board of directors, and discretion is afforded to the directors over whether to register or decline to register the transfer in the company. If a transfer is not regis- tered, the transfer will be incomplete and title over the shares will not be transferred. In these instances, the board of directors is usually given absolute discretion over whether to register or otherwise. That said, the decision of the directors would still need to follow the fundamental principle that a director of a company is bound to act honestly and in good faith in the best interest of the company. It is customary for comple- tion of a business combination to be made conditional upon obtaining board approval.
10. Litigation 10.1 Frequency of Litigation
In both asset and share acquisitions in Malta, parties generally opt to have any disputes finally resolved by means of arbitration (in either a foreign or local seat). Arbitration provides both parties with a private forum within which to litigate their disputes. In contracts, lawsuits before the Maltese law courts are public and are generally avoided by the parties.
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