Contracting out of Company law : the application of s.140 of the Companies Act in the quasi-partnership : a Maltese perspective

Abstract

The quasi-partnership label refers to Limited Liability Companies (LLCs) wherein members get involved with the presumption that each contributing member will be involved in the management. Members in such a scenario presumably consider their shareholding and directorship to be intrinsically and inherently intertwined. Possibly the venture could have started off as a partnership and subsequently converted into a LLC. It is most likely that shareholders in the aforementioned circumstances would never relinquish their directorship unless they want to opt out of the company altogether by selling their shares. Courts in England and Malta alike have come to accept that legitimate resolutions passed by a dominant majority to remove such members from their posts of director may constitute unfairly prejudicial conduct in their respect. This notwithstanding the clear statutory provisions providing for the removal of directors by simple resolution, regardless of provisions in the articles or any agreement between the company and the director himself. This has brought about a sort of de facto sub-classification of the private company form. If a party to a lawsuit is considered a quasi-partnership, courts superimpose legitimate expectations of members and the implied contract of partnership over the application of statutory provisions. The main focus of this research project is the application of s.140 of the Companies Act. in context of the Maltese quasi-partnership. The project will identify instances where Maltese courts relied on the ratio of English courts in cases of similar merits. Discussion will ensue on possibilities available to members in the quasi-partnership of lawfully contracting out of the application of s.140 of the Companies Act. A discussion is carried out throughout the project as to whether such peculiar interpretation of the law is justified. Finally, legislative interventions that could aid the conduct of management in the quasipartnership are considered.