Bank of Valletta’s €50 million to Deiulemar bondholders in Italy rejected

Bank of Valletta has offered a €50 million out-of-court settlement to Italian bondholders of the defunct Deiulemar shipping company, in return to drop a claim against the bank for €363 million.

The confidential offer was communicated to the controllers of the Torre d’Annunziata shipping company, whose fraudulent bankruptcy left thousands with lost savings after investing in the company’s bonds.

The offer also comes two years after BOV appealed an Italian court’s order for a precautionary warrant that requested it to hive off €363 million, as a provision for damages requested by bondholders.

The Italian court in Torre d’Annunziata, a province of Naples, upheld the claim back in March 2018 after it was brought by liquidators of the Deiulemar group and representatives of the company’s 13,000 Italian bondholders.

But the court has yet to issue a sentence. The case can be expected to go on into appeal and to the final Cassation Court decision.

The reason Bank of Valletta is facing such a lofty claim for damages is because it had taken over a trust that held €363 million in assets of the Deiulemar company in 2009, which filed for bankruptcy in 2012. A Rome criminal court in 2004 had already determined that the Deiulemar company had under-declared liabilities of €700 million. In 2014, seven members of the three founding families of the Deiulemar company were jailed for up to 17 years for illegal financial transactions, owing €800 million to creditors.

Bank of Valletta confirmed that it had made the offer to the Deiulemar bondholders.

“The bank has consistently been advised by its lawyers that the Deiulemar case is completely without merit. The advice has recently been confirmed by Italy’s leading legal authority in this area, and that advice has been brought to the attention of the court. This notwithstanding, the bank faces a most unusual risk in this litigation. It is seeking to eliminate that risk through proceedings filed before the European Court of Human Rights, and other measures,” a spokesperson for the bank told MaltaToday.

“But the risk at first instance remains. Because of this – and because of the consequential costs it may have to incur – the bank decided that it makes commercial sense to offer a settlement to the curators in order to close this matter. The offer was made on a confidential, privileged basis.

“Despite this, the offer has been (improperly) leaked in Torre Annunziata. The bank does not, of course, deny it has been made. However, the offer was not a result of any change the bank’s conviction that the claim is entirely unmeritorious. The offer – which was rejected – was aimed at finding a pragmatic solution.”

The Deiulemar shareholders were found guilty of fraudulent bankruptcy, having transferred their assets to Maltese, Swiss, and British Virgin Islands trusts to avoid their exposure to creditors and the 13,000 retail investors who subscribed to their bonds.

BOV has insisted that it was never in possession of any funds as a trustee when it was established in 2009, and the only trust assets it held consisted of shares in a Madeira-registered company, part of the Deiulemar group.

According to local press, the offer was deemed “insufficient and inadmissible” by the creditors’ committee of the Deiulemar bondholders.

BOV had insisted it was determined to take all the action required in any forum to defend itself against what it said were unfounded allegations levelled against it in the Italian Court of Torre Annunziata.

Then, in 2019, it filed proceedings against Italy before the European Court of Human Rights in Strasbourg, trying to ensure a ‘fair hearing’ in the €363 million Deiulemar case.

The bank had previously insisted that it was in a strong legal position to win the Italian case, on the basis of the fact that the events which caused the default of Deiulemar occurred before the bank became the trustee of the Deiulemar Trust. One of the pertinent issues the bank is facing is the location where the case is being heard, being the Tribunal of Torre Annunziata in Italy, which according to bank officials, could be biased due to the majority of the creditors originating from this relatively small provincial town.

The Italian case forced the bank to make a €75 million provision in 2018, which also affected the share price of the bank as it came under pressure from its increased risk profile, a suspension of the dividend that year, and the insecurity surrounding the future events it was exposed to.