Commercial Court’s Landmark Decision: Redefining Impracticability in Corporate Governance

In the case 44/2023/ISB delivered on 6th October 2023, the applicant, a majority shareholder in a company requested the Civil Court (Commercial Section) to fix a date for an extraordinary general meeting of the company under Art 132(1) of the Companies Act in an attempt to remove two directors from the Board of Directors without adequately proposing replacements. Such a move could push the company into a precarious state of regulatory non-compliance, endangering its very existence as it may lose its operational license. These consequences also undermine the minority shareholder’s decade long commitment which contributed to the company’s consistent profitability, while the majority shareholder remained passive.

The applicant’s actions prompted a critical examination of the legal framework governing the calling of meetings. As the minority shareholder argued, article 132(1) of the Companies Act is designed for exceptional cases where convening a meeting becomes truly impracticable. In this case, a meeting was convened in accordance with Article 129(3), which obliges the Board of Directors to call a meeting “in the same manner, as nearly as possible, as that in which meetings are to be convened by directors.” The meeting was convened within the prescribed 21-day period following the requisition order, as mandated by law. Notably, Article 129(3) does not impose any time limit for holding the meeting convened by the directors.

The court emphasised that an action under Article 132(1) should only be invoked in situations of extreme impracticability, where the intervention of the court is indispensable to enable the meeting to take place. In this case, it became evident that extreme circumstances were indeed absent. This conclusion stems from the fact that the meeting could be convened in accordance with the law, and once called, it becomes implausible to argue impracticability in line with Article 132(1). Furthermore, it is equally implausible to claim impracticability in the manner in which company meetings are typically called, as this is precisely how the meeting in question was convened.

This reaffirmed the principle that court intervention should ensure that meetings are held but not alter the expected outcome of those meetings. Furthermore, the Court also agreed with the argument advanced by the minority shareholder and held that it should not substitute itself to the company’s organs but rather should only intervene or called to intervene whenever it is impracticable for a meeting to be convened or led in terms of its statute or of the law.

The minority shareholder was represented by Dr Jonathan Abela Fiorentino.