Court rejects Shoreline attempt to lift €43 million garnishee order

Shoreline – the beleaguered real estate project at Smart City – has suffered another significant legal setback after a court rejected its attempt to lift a €43 million precautionary garnishee order obtained by Turkish contractor Koray Global Malta, ruling that the company’s proposed property guarantee did not offer creditors the same level of protection as the existing court order.

In a judgment delivered this week, Judge Miriam Hayman dismissed all requests made by Shoreline Mall plc and related companies to replace the garnishee order with a special hypothec over a portfolio of real estate, leaving the precautionary warrant fully in force while the underlying dispute continues.

The legal battle stems from claims exceeding €56 million filed by Koray Global Malta, the Turkish contractor responsible for building the Shoreline development at SmartCity.

Last year, the court had already reduced the amount covered by the garnishee order to approximately €43 million, but refused to revoke it altogether.

In fresh proceedings, Shoreline argued that the garnishee order was unnecessarily restricting its operations, including the repayment of its debt with bondholders, and offered instead to secure Koray’s claims by granting a special hypothec over properties which it claimed were worth well in excess of the disputed amount.

The company maintained that the assets available as security exceeded €100 million in value and insisted that they provided adequate protection for Koray’s claims. Shoreline also argued that the continued freezing of funds was preventing the group from accessing the capital needed to operate the shopping mall, meet operating expenses, and service its financial obligations, including bond repayments.

Those arguments mirror the explanation given by Shoreline to bondholders earlier this month when investors approved a two-year extension to the repayment of the company’s €14 million bonds.

At the time, Shoreline blamed the precautionary garnishee order for frustrating refinancing efforts and forcing the restructuring.

Koray strongly opposed the request, arguing that cash frozen through a garnishee order provides substantially stronger protection than immovable property. The contractor maintained that enforcing a hypothec would require lengthy judicial proceedings with no guarantee that the property would ultimately realise its estimated market value.

The court accepted those arguments.

In her judgment, Judge Hayman observed that the properties offered by Shoreline were already subject to privileges and hypothecs in favour of the government and SmartCity Malta, meaning Koray would not rank first should enforcement become necessary.

The court also noted that the assets could potentially become subject to additional claims by other present or future creditors.

The judgment further stressed that recovering money through the judicial sale of immovable property is an uncertain, lengthy and costly process that cannot guarantee the creditor will recover the full value ultimately awarded by the courts. By contrast, funds secured under a garnishee order offer a far more effective form of protection.

Concluding that the alternative security proposed by Shoreline did not constitute a sufficiently solid and reliable guarantee, the court rejected all of the company’s requests, leaving the €43 million garnishee order intact and ordering the Shoreline companies to pay the costs of the proceedings.