Malta

Family businesses, often spanning generations, possess a unique dynamic that necessitates special attention and care. Typically initiated by one generation and passed down through time, they create a legacy that evolves with each succeeding generation. Each generation brings its own set of features and realities, often differing from those of their predecessors and successors. While teamwork, mutual support, and respect are critical for all companies, family enterprises face distinctive challenges in maintaining these principles within familial contexts. Unlike other entities brought together by shared interests, families are inherently bound together by nature, each member contributing their unique experiences, education, skills, personalities, likes and dislikes. In a family setting, authority and respect operate on different dynamics compared to a business environment, where hierarchies and professional norms govern interactions. Participating in a family business extends beyond operational involvement; it entails being part of a larger familial ecosystem encompassing home, history, space, and business. Individual goals and aspirations intertwine with familial expectations and legacies, often leading to choices that diverge from the family’s path as children mature and develop their dreams. While individuals may choose not to join family enterprises, they inherit assets and reputations that shape their roles within both the family and the business. Understanding the implications of these choices within the family context is crucial for maintaining harmony and prosperity, apart from resilience to deal with crises which invariably hit all businesses, ultimately aligning actions with shared values to foster cohesion and sustain the familial legacy beyond monetary gains. To navigate the complexities of a family business successfully, establishing and implementing a clear family plan and corporate structure is essential. This plan should delineate a limited number of reserved matters for all family members, define leadership roles for those with appropriate skills, give enough space for them to operate effectively, and promote transparency on financial matters while allowing strategic decision-making by qualified individuals. Education should be provided to all family members to equip them with the knowledge and skills needed for their chosen roles should they be interested in committing themselves to the family business. The same, of course, applies if they should choose to remain out of the business as the education could focus on assessing business performance, corporate governance and compliance which is relevant to any shareholder in a business. In either case, the important skill of restricting oneself to the proper role and parameters – avoiding egoism –  is critical. Setting clear expectations and consequences for negative behaviours within the family business framework helps maintain harmony and discourage misconduct. Utilizing third-party perspectives for sensitive decisions like employment or remuneration ensures objectivity, provided there is prior agreement within the family regarding the family plan and educational initiatives. Objective standards in the structure, remuneration, and decision-making processes uphold fairness and equity for all family members.  Ultimately, aligning individual aspirations with the collective vision of the family business enhances cohesion and prosperity whether inside or outside the business itself. Top tips for ensuring the success of a family business include pursuing and supporting the collective dream which must be clear and simple, leveraging diverse ideas and perspectives, and implementing effective business management practices such as role identification, succession planning, and goal setting. By embracing these strategies, family businesses can thrive and evolve across generations while nurturing a culture of innovation and collaboration. On November 7, Ganado Advocates and Zampa Debattista will be hosting their annual Family Business Forum at Corinthia Attard. This article was first published on the ‘Times of Malta’ on 21/07/2024. Author: Max Ganado, Christine Borg

Shareholders’ Rights vs Supervisory Authority In the case T-134/21, Malacalza Investimenti Srl and Vittorio Malacalza (the “Applicants”),shareholders of the Italian bank, Banca Carige, brought a case before the General Court of the European Union (the “Court”), seeking compensation for unlawful conduct of the European Central Bank (“ECB”) in exercise of its supervisory functions of Banca Carige. The Applicants claimed that the Court should order the European Union (“EU”) to pay them a sum of circa EUR 880,000,000 for the harm they suffered as a result of the actions taken by the ECB. Under Article 340 of the Treaty of Functioning of the European Union (the “TFEU”), the EU is to make good of any damage caused by its institutions in cases of non-contractual liability since it is subject to review of the conformity of their acts. Moreover, under the third paragraph of this article[1], it is the ECB that must make good of any damages that an individual may have suffered from its conduct. Facts of the case Banca Carige is an Italian credit institution listed on the stock exchange and has been subject to supervision by the ECB since 2014. Between 2015 and 2019, the ECB adopted a series of supervisory actions. The Applicants are shareholders of the bank, where Malacalza Investimenti, an investment company and Mr. Malacalza held a considerable amount of the bank’s capital. Mr. Malacalza was also a member and vice president of the bank’s board of directors between 2016 and 2018. In 2015, the ECB noted that the bank did not fulfil its own fund requirements and therefore, stepped in to adopt an early intervention measure. In 2019, the bank was placed under temporary administration until a new board was elected in 2020. Since the Applicants held considerable shares in Banca Carige, they viewed that the actions taken by the ECB were detrimental to their rights and interests as shareholders of the bank. In the Applicants’ view, the decisions taken by the ECB were against their duties associated with their supervisory functions and claimed that the EU incurred non-contractual liability on the basis of eight instances of unlawful conduct which will be explained below. Findings of the Court The Court noted that for the EU to incur non-contractual liability, applicants must first cumulatively satisfy the following three conditions: Unlawfulness of the conduct attributable to the institution confers rights on individuals; the fact of the damage; and the existence of a causal link between the alleged conduct and the damage complained of. The Court confirmed that it was satisfied with the first part of the conditions since the alleged conduct involved a rule of law intended to confer rights on individuals and undertakings and the breach alleged against the institution were sufficiently serious. For the remainder, the Applicants had to show that the ECB seriously and manifestly disregarded, beyond the discretion given to it, a rule of law which conferred rights on them. Thus, the Court proceeded to examine the eight instances of alleged unlawful conduct raised by the Applicants. In the first instance, the Applicants contended that the ECB infringed Italian law by failing to intervene to correct misleading statements made by the bank’s directors concerning its soundness. The Court referred to Council Regulation No 1024/ 2013 (the “Regulation”), pertaining to the ECB’s policies on the supervision of credit institutions, and stated that the ECB has an obligation to publish information to ensure proper functioning of the markets and that, there is no obligation on the ECB to respond to statements made by stakeholders of institutions. Thus, the argument was rejected. Under the second instance, the Applicants argued that the ECB violated Articles 4 and 16 of the Regulation[2] in relation to Banca Carige’s board of directors by limiting their powers and placing the bank under temporary administration. The Court rejected this argument, stating that these provisions enable the ECB to structure the operation of the banking in the public interest and do not impose any rights on individuals, thereby invalidating the basis for a claim of unlawful conduct. On third ground, the Applicants alleged that the ECB infringed Italian law by approving a capital increase without adhering to the pre-emption rights granted to shareholders through the bank’s statutes. In terms of the consolidated law on banking in Italy, which also applies to the ECB by virtue of Article 9 of the Regulation[3], the supervisory authority is to ensure that recommended amendments to the statutes of credit institutions are compatible with constraints arising from prudent management.[4] The Court concluded that this did not relate to the proposed amendments to the shareholders’ pre-emption rights, but rather to ensuring that the amendment was sound and prudent. Therefore, the relevant Italian law did not confer any rights on individuals, and this ground was also dismissed. The fourth argument put forward by the Applicants was also rejected by the Court. They alleged that the ECB significantly violated Italian law with the appointment of temporary administrators who had a conflict of interest, making it difficult for the Applicants, as shareholders, to bring a company action against the administrative bodies. The Court examined that when the ECB appoints temporary administrators, they should be free from conflicts of interest to perform their duties accordingly. Therefore, this principle did in fact confer a subjective right on individuals, and if breached, it could cause harm in a sufficiently serious manner. However, the Court found that the ECB exercised its discretion reasonably in appointing temporary administrators who were well acquainted with the bank’s affairs. Moreover, it was noted that once a temporary administration is lifted, shareholders can bring an action for damages against the members of the administrative bodies for up to five years after those members have ceased to hold office. Thus, the Court determined that there was no sufficiently serious breach by the ECB. In the fifth instance of the alleged unlawful conduct, the Applicants claimed that the ECB committed a sufficiently serious breach regarding its adoption of the early intervention measure (the “Measure”) and raised six complaints. They argued that the Measure breached shareholder rights, however, the Court confirmed that the ECB used its powers to protect public interest. Additionally, the Applicants alleged that the ECB’s Measures were more stringent than those imposed on other credit institutions in similar circumstances thereby breaching the principle of equal treatment. The Court stated that an applicant must precisely identify comparable situations which led to the rejection of this argument. The Applicants also alleged a breach of the principle of proportionality noting that the Measure caused a write-down of the bank’s loan, resulting in significant losses. The Court reiterated that the “ECB enjoys a broad discretion” in exercising its supervisory tasks and given the Banca Carige’s serious deterioration between 2013-2016, the ECB’s Measure was appropriate, and the argument was also dismissed. The Applicants further contended that the bank was given a short period to meet its own funding requirements. However, based on the Court’s analysis of the principle of proportionality, it was concluded that the ECB assessed this matter appropriately. Under the seventh instance, the Applicants argued that the ECB breached the principle of the protection of legitimate expectations by providing assurances to the shareholders regarding the situation of the bank. The Court spurned this argument, stating that the Applicants had not provided any evidence to support the alleged assurances from the ECB, rendering this claim, inadmissible. The final allegation concerned the breach of the shareholders’ right to property. The Applicants claimed that the value of their shares fell following the ECB’s measures.  However, they failed to establish that that the ECB’s actions directly or indirectly caused this outcome, leading to the rejection of this argument. Conclusion The Court concluded that none of the instances of unlawful conduct alleged by the Applicants against ECB for its supervision of Banca Carige gave rise to non-contractual liability within the meaning of Article 340 TFEU. This case reaffirms the ECB’s role in its prudential supervision of credit institutions under the Regulation in order to safeguard public interest and the financial industry within the EU. Author: Simay Cilingir Footnotes [1] The third paragraph of Article 340 TFEU states: “Notwithstanding the second paragraph, the European Central Bank shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by it or by its servants in the performance of their duties”. [2] Article 4 sets out the tasks conferred onto the ECB while Article 16 sets out its supervisory powers. [3] This article states that the ECB is the designated authority in the Member States to carry out its tasks conferred on it in this Regulation. [4] Referring to Article 56 of the Consolidated Law on Baking.

On April 23, the US’ Federal Trade Commission (US FTC) published the final version of a rather controversial new rule, which will introduce a nationwide ban on the use of post-termination non-competition clauses (NCCs) by employers. The final rule will become effective after the lapse of 120 days from its publication in the Federal Register. NCCs are not only prevalent in the US, but are also quite widespread in the EU. Will the EU follow the US lead in proposing some form of EU-wide regulation restricting the use of post-termination NCCs in employment relationships? And if so, should post-termination NCCs in employment contracts be completely banned as proposed by the US FTC, or simply limited to reduce their anti-competitive and restrictive effects? What are non-competition clauses? While there is no single universal definition of the term ‘non-competition clause’, or in short, ‘non-compete clause’, this generally refers to a contractual promise undertaken by an employee, binding himself/herself to refrain from conducting business of a similar nature to that of the employer. NCCs typically impose restrictions on what an employee can do after the employment relationship has been terminated, regardless of whether the employee has resigned from said employment, or whether the employment relationship has been terminated by the employer. These types of NCCs are typically referred to as ‘post-termination’ NCCs. The main function of a NCC in the context of an employment relationship is that of protecting a company’s business interests, by preventing employees from making use of ‘insider’ knowledge and skills which they would have gained through their employment with a particular company to the benefit of an existing competitor, or to start their own business in competition with that of their former employer. The US FTC’s rule banning the use of non-competes The final rule which was published by the US FTC on April 23, in essence, provides that it is an unfair method of competition (and thus in violation of Section 5 of the US Federal Trade Commission Act which deems ‘unfair methods of competition’ to be unlawful) for employers: to enter into or attempt to enter into a post-termination NCC with a worker; to maintain a post-termination NCC with a worker; or to represent to a worker that he/she is subject to a post-termination NCC where the employer has no basis to believe that the worker is subject to an enforceable NCC. Under the final rule, existing NCCs for senior executives can be retained but cannot be enforced by employers, and employers are prohibited from entering into new NCCs with senior executives. The final rule defines senior executives as workers who occupy policymaking roles, and who earn more than $151,164 annually. Additionally, employers will also be obliged to inform workers bound by an existing NCC that the NCC will not be enforced against them in the future. A look at the EU situation In terms of the situation in Europe, in view of the virtually non-existent intervention of the EU in regulating the use of post-termination NCCs in employment contracts, member states have been predominantly left to their own devices and thus, there is quite frankly a ‘hodgepodge’ of widely varying frameworks in place across the different member states. The regulation of post-termination NCCs in employment contracts varies quite significantly across the different member states, both in terms of form and content, with some member states having elaborate and clear statutory provisions regulating the validity of NCCs in employment contracts, and others with a largely uncertain approach on the topic, characterised by ambiguity and in certain cases, conflicting rulings. In contrast with the socio-political context surrounding the US FTC’s proposed rule, it appears that while traces of a similar sentiment can indeed be identified across the EU, the issue does not seem be as critical so far. It is, however, submitted that the rule which has been published by the US FTC may indeed have the effect of encouraging EU researchers in the field to look into this matter further, and in the event that increased EU-based research were to reveal the existence of abusive practices in this field for example, this may lead to a situation where the EU may decide to step in and legislate on the matter. In any case, it is clear that the EU is monitoring the situation quite closely, and in a press conference held in February 2023, European Commissioner for Competition Margrethe Vestager noted that “the US has done quite an impressive work, they have made it a priority to look at labour market issues”, and that “we don’t see that many [in the EU]… if we did, we would definitely look into it”. Concluding remarks In the field of social policy, previous legislative intervention has shown that the EU often steps in as a response to certain trending issues which, in one way or another, have an impact on the world of work. A number of trends, including the ongoing war for talent that most employers are currently facing, the vast labour shortages which are being reported all over the world, and the emergence of numerous new forms of work, will likely all contribute to the increased scrutiny of NCCs within the EU in the years to come. Therefore, while the issue may currently not appear to be as pressing in the EU, if this matter were to continue gaining momentum across the EU, there is indeed a good chance that the EU will decide to step in and regulate this matter. Author: Nina Fauser

Introduction and Background On the 8th of May 2024 following an action for annulment by German credit institution Max Heinr. Sutor OHG (“The Applicant”), the General Court annulled a decision by the Single Resolution Board (“SRB”) in regard to the setting of 2021 contributions to the Single Resolution Fund (“SRF”). The SRB is a Board responsible for determining the annual contributions from financial institutions to the SRF as part of the Single Resolution Mechanism (“SRM”), which acts as an operation framework designed to ensure the orderly resolution of failing banks with minimal impact on the Union and Member States’ public finance. Such action was brought by the applicant due to failure of the Board to fulfil its obligation to provide reasons as regards to the determination of the annual target level. The ruling underscores the necessity for the SRB to offer a clear and comprehensive explanation for their financial determinations, ensuring transparency and accountability within the Union’s financial regulatory framework. The Court delved into whether the SRB’s decision adhered to the procedural and substantive requirement set out within EU legislation, including but not limited to Regulation 806/2014 and Delegated Regulation 2015/63 dealing with ex ante contributions and whether sufficient reasoning was provided in its decision to allow for the applicant to verify and understand the calculations of its contribution. The Court’s Findings Transparency and duty to provide reasons Amongst other pleas brought forward by the applicant the decision of the SRB was mainly contested for not meeting the requirements in light of the SRB’s obligation to provide reasons, as while the Court outright rejected the former pleas of the applicant, it examined ex officio whether the SRB was in breach of its duty to provide reasons regarding determination of the annual target level (i.e. at least 1% of the amount of covered deposits)as encompassed within Article 69(1) of Regulation 806/2014. The Court in regard to the issue of transparency recalled that failure to provide reasons constitutes a plea of public policy as provided for in C-89/08 and must therefore take into account any failure of the SRB to state reasons in determining the annual target level as well as the method of calculating such contributions as held in C-584/20. In terms of the content of such obligation, the Court further notes that the statement of reasons for a decision taken by any institution or body of the Union, including the SRB, must be free of contradiction so as to enable the persons concerned to ascertain the real reason for that decision, with a view of defending their rights and enabling an exercise of its power of review. Furthermore, when explanations regarding such grounds for that decision are given such explanations must be consistent with the consideration set out within the judgment. However, this was not the case within SRB decision taken against the applicant as the method of calculation actually applied by the SRB did not correspond to the method described within the contested decision, therefore making the reasons on the basis of which the target level was established unidentifiable by the institutions as well as the Court. Decision In view of such defects found in regard to consistency and transparency of the method employed by the SRB, the contested decision was vitiated by defect of the statement of reasons, and consequently lead to the annulment of the contested decision insofar as the applicant was concerned. However, recognising the potential disruption which such ruling may cause to the SRF, the Court maintained the effects of the annulled decision for six months, allowing for the SRB to adopt a new decision taking into consideration the judgment and findings of the Court. Concluding Remarks The General Court’s decision in case T-393/21 to annul the decision of the SRB in regard to Max Heinr. Sutor OHG underscores the importance of transparency and the duty to provide reasons within the decision-making processes of EU bodies. The Court in their judgment identified significant defects in the SRB’s decision drawing particular attention to inconsistencies and contradictions which led to annulment of the contested decision. This ruling serves as a reminder to EU bodies of their obligation to provide thorough and transparent reasoning in their decisions, with such practice serving as a fundamental aspect of good governance, ensuring both accountability and the protection of rights within the EU legal system. This article was first published on ‘The Malta Independent’ on 17/07/2024 and co-authored by Elena Sissons a Student Intern at Ganado Advocates. Author: James Debono