Specific protection of minority shareholders in Maltese public listed companies

Abstract

Protecting minority shareholders in the corporate world is one of the most difficult problems being faced in modern company law. Although standard statutory remedies for minority shareholders are provided for in the Companies Act, additional protection is provided for minority shareholders in public listed companies. The Listing Rules lay down specific protection for minority shareholders in listed companies. Since Maltese listed companies are dominated by ownership concentration, conflicts of interest arise between controlling and minority shareholders. Controlling shareholders become involved in the running of the business and consumed by personal interests, and as a result minority shareholders’ interests are often overlooked. Measures safeguarding minority shareholders may be of two kinds; direct mechanisms which are executed directly by shareholders, and indirect mechanisms which involve the representation of minority shareholders through different corporate structures. In the context of public takeovers, the ‘mandatory bid rule’ together with the right to squeeze-out and sell-out are essential to ensure equitable treatment of minority shareholders. As the concealment of information weakens minority shareholder activism, the reinforcement of the right to information is perceived as a means of protection. Furthermore, the disclosure and reporting of related party transactions is crucial to reduce conflicts of interest that arise between those controlling the company and minority shareholders. Minority shareholders’ protection is also enhanced when a legal system is characterised by a strong corporate governance framework supported by the independence of the board. Although protection of minority shareholders in Maltese public listed companies is provided for quite adequately, when compared to other legal systems, there still remains room for improvement. Recommendations to heighten the protection of minority shareholders in Maltese public listed companies are addressed in the conclusion of this paper.