Supreme Court in landmark ruling ousts company director
The Supreme Court on Thursday quashed earlier decisions of the High Court and disqualified Shiham, one of the shareholders of Save the Maldives.
By
Fathmath Ahmed Shareef
For the first time, the Supreme Court has ordered the removal of a board director of a company by holding that the court has the power to remove a director from the board membership via the court when a director has violated the duty of integrity of directors and the company's general body fails to take action against him.
The order was issued on the basis of a complaint filed against Hussain Shiham Ali, who owns a stake in Mahal Tours, which owns the headlease rights of Rihiveli Beach Resort developed in K. Mahanaelhi-Hura, and Save the Dream, which had previously been subleased the island. In the complaint, he was alleged of violating the integrity duties of the company's board director being one of the shareholders of Save the Dream.
The case was filed by Save the Dreams France, a French company that is one of the shareholders of Save the Dreams Maldives. The Supreme Court on Thursday ruled on an appeal filed in the Civil Court in 2020 against the decisions of the High Court.
The Supreme Court on Thursday quashed earlier decisions of the High Court and disqualified Shiham, one of the shareholders of Save the Maldives, from the post of board of director of the company. The Supreme Court also ruled that the USD 500,000 requested by the company could not be recovered from Shiham.
The Rihiveli Beach Resort is leased by the government to Mahal Tours Pvt Ltd. Mahal Tours is a family business of the accused Hussain Shiham Ali. He is a shareholder and board director of the company. He is also the Managing Director of the company.
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15 February 2018 - Save the Dream France and Hussain Shiham Ali signed a joint venture agreement and registered a joint venture company in Maldives on 29 April of that year
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The purpose of the company is to sublease and operate the Rihiveli Beach Resort; Shiham owns 50% of Save the Dreams and Save the Dream France owns the other 50%
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According to the company's bylaws, the company's board of directors consists of two directors; They are Shiham and Christian Carb from the French company, but Shiham is the managing director of the company
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28 May 2018 - Mahal Tours and Save the Dreams signed an agreement to sublease Rihiveli Beach Resort to Save the Dreams
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Two endorsements have since been signed between the two companies, both of which were signed on behalf of Mahal Tours by Ali Yousuf, a founder of Mahal as a director of the company
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When the French company learned in 2019 that Ali Yousuf was not a director of Mahal, Save the Dreams suspended the payment of the rent to Mahal without verifying the validity of the endorsement
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February 20, 2020 - Shiham pays USD 550,000 (MVR 8.4 million) to Mahal Tours by check from an account opened at Bank of Ceylon under the name Save the Dreams while rent is on hold; Shiham did this against the company's rules without the knowledge of the other shareholder, Christian Carb
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10 November 2020 - The French company filed a civil suit against Shiham for breach of fiduciary duty as the company's director as the company ran out of money and could not pay further rent
In the first civil suit, the French company sought the removal of Shiham from the board of directors of Save the Dreams, a joint venture between Mahal and the French company, Save the Dream, and the removal of Ali Usaid from the post of secretary. The company also sought an order to repay the USD 550,000 taken by Shiham, along with an order to change the company's bylaws.
The civil court ruled on August 31, 2021 that Shiham's actions were correct and that neither he nor the company's secretary Ali Usaid could be dismissed.
The French company appealed the civil court's decision to the High Court, which ruled on June 13 last year that there was no need to change the civil court's decision. The High Court ruled that the money taken by Shiham was for the emergency payment of rent owed by Mahal on behalf of the company. The company's main agreement did not require the written permission of the other shareholder every time the rent was paid.
The High Court also ruled on France's request to remove Shiham and its secretary that the company is a company with 50% stake each and that a board of directors cannot be formed without a person from both companies. And in that case, there is no rule under the Companies Act that a director can be removed from the board of directors of the company and the removal of directors from the board of directors of Save the Dreams cannot be done under a court order, the High Court ruled.
Dissatisfied with the High Court's decision, the French company went to the Supreme Court. The Supreme Court has ruled on two issues in the case.
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Whether or not Shiham has breached his duties of responsibility as a board director of the company
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Whether or not he can be removed if he has breached his duties of responsibility
The court on Thursday quashed the previous decisions of the Civil Court and the High Court against Mahal Tours, except for the decision that the secretary of Save the Dreams Maldives cannot be dismissed. The Supreme Court did not rule on changing the decision on the dismissal of the Secretary as it was not requested to do so.
Meanwhile, the Supreme Court judges on Thursday unanimously ruled that Shiham had breached his duties as a board director of Save the Dreams Maldives and disqualified him from the post. However, the court also ruled that the company could not recover the USD 550,000 he took.
Presiding Justice Husnu Al Suood, who heard the case in the Supreme Court, ruled that an order for removal of a board director of a company and compensation for damage caused to the company's interests can be issued.
It is the vision of the Maldivian Companies Act to prevent corruption, abuse of office and an environment in which companies are run fairly.
Since Save the Dreams Maldives, which is involved in the case filed in the court, is an equal shareholder of two parties, and Shiham, one of its shareholders, is a shareholder and managing director of Mahal Tours, the judge noted that Shiham can can only make such decisions on the basis of disclosure to the board and the board’s decision. Therefore, since Mahal, who took the USD 550,000 and has Shiham’s shares, could not leave without submitting it to the board, he had clearly breached his duty of responsibilities, the opinion said.
"In this case, this court has disqualified Hussain Shiham Ali from the board of directors of Save the Dream Maldives and the company has the power to seek court assistance to remove or resolve the obstacles to the operation of the company”, the Supreme Court ruled.
The license granted to Save the Dreams to operate the Rihiveli Beach Resort had been revoked by the Ministry of Tourism in 2021.
