Top Story • 21 September 2003

REVEALED: KMB's naïve and ruthless treatment of Pace's business empire

The MaltaToday team continue to report in this exclusive reportage on the BICAL bank scandal

In a show of unashamed negligence and naïveté, Karmenu Mifsud Bonnici - reborn 'socialist saviour' and shadow to erstwhile premier Dom Mintoff - turned to breaking up all the wealth of the BICAL associated companies.
Cecil Pace was not just one of Malta's foremost mega-businessmen back in the sixties, but also a forward-looking entrepreneur, at the forefront of property and hotel development, plastic materials, car importation, and general shipping and boating.
Such was the legacy of the Malta Industrial Development Co Ltd, the parent company that grouped Jablo Plastics; Marsa Industries; VIP Ltd; John Bezzina & Sons; Carways: Harris Hughes & Johns Ltd; and Skylim. On 25 November, 1972, upon the closure of the BICAL bank on order of the Mintoff government, MIDC was seized by controller Karmenu Mifsud Bonnici as Mintoff let loose his guillotine strategy to nationalise private banking.
Jablo Plastics, later renamed Marsa Plastics, had an overdraft with BICAL of Lm22,127 on 25 November, 1972, carrying an interest of 8 percent per annum and covered with a general hypothecate and approved by the Central Bank as is the norm.
As controller, Mifsud Bonnici's duties were to sell enough assets to pay off the company's overdrafts to then release the company which would then continue its operations.
But Karmenu Mifsud Bonnici was in a different frame of mind.
"Instead of this happening," Cecil Pace told MaltaToday, "the controller kept the company running to eventually make a complete mess of the assets to the detriment of creditors, depositors and shareholders of the same company and BICAL."
At the time of seizure, Jablo Plastics comprised a large footprint for its factory, well-equipped with machinery, ample stocks of raw materials and finished products, with a business edge on local and foreign markets. It was evident that the sum of assets far exceeded the relatively small overdraft. The controller could have easily paid the overdraft immediately to then release the company.
Around five years later, Mifsud Bonnici authorised a loan of Lm12,000 to the manager of Jablo (now Marsa Plastics) from other associated BICAL companies, to make up for a inexplicably missing Lm11,345 in cash. In 1984, another sum of money went missing, this time it was Lm10,000, and so warranting another BICAL loan.
Both KMB and later controller Emanuel Bonello would acquiesce to repeated requests made by managers of the jablo company to loan monies from BICAL and associated companies - in 1978, Lm12,000; 1979 - Lm5,169; 1980 - Lm4,000; 1982 - Lm27,000; 1983 - Lm3000; 1984 - Lm10,000; 1985 - Lm13,000; a total of Lm74,169.
Cecil Pace has no ‘ifs’ and ‘buts’ about the background to the loans: "No controller had the right to approve such loans according to their duty's obligations, because their sole role was to pay off creditors and liabilities and not to amass debts. Ironically the two stolen amounts were equivalent to the overdraft balance with BICAL, proving that there had been money to pay off the bank."
Nothing, however, would equal the actions of KMB’s replacement Emanuel Bonnello as controller. When he sold off Jablo in 1991, both controllers had by then increased credit liabilities from BICAL from Lm22,127 in 1972 to Lm281,985 in 1991, and loans advanced from associated companies to the tune of Lm76,597.
According to the 1972 accounts, Jablo Plastics had Lm24,954 in cash at hand and in bank. Yet this cash also disappeared.
Additionally, in 1990 the company had a total asset value of Lm595,086 - Lm195,274 in machinery; stocks valued at Lm134,334; trade debtors owing the firm Lm114,542; and Lm50,936 cash in hand and at bank, as well as Lm100,000 in company goodwill. Emanuel Bonello decided to sell the company for the ridiculous amount of Lm140,000.
VIP Ltd - The Comino Hotel
The Pace family had invested Lm400,000 in the Comino Hotel on the island of Comino, which carried an emphytheusis for 150 years at Lm12,000 a year. When the company was seized, the hotel was valued at over Lm1.5 million.
In order to dispose of the annual rent of Lm12,000, Karmenu Mifsud Bonnici decided, in an unprecedented action of bizarre logic, to return the Comino Hotel to its landlord - John Gaul the British millionaire who owned Comino - for free. Removing the hotel without any form of recompense, Mifsud Bonnici lost an investment of hundreds of thousands of liri and the rest of the hotel's potential.
It was ironic that it was in fact Karmenu Mifsud Bonnici, then lawyer to a French man named Valliere, who encouraged the Pace family to buy the hotel from John Gaul's former wife, who had then partnered up with Valliere.
"This was another case of the controller removing all the BICAL group's wealth without any attempt being made to safeguard the interests of the shareholders and creditors as he was obliged to do in his role. At no stage were we ever consulted about this transaction," Cecil Pace told MaltaToday.
John Gaul no novice to making profits, disposed of the hotel some weeks later for the price of Lm2 million and Lm50,000 rent a year.
As the controllers dissipated the Pace empire, young aspiring businessmen moved in for a killing. Pace's Marsa Industries included two big storehouses which contained joinery machinery. It also incorporated yachts used for harbour and round-Malta cruises. Despite being worth five times the amount, the storehouses were sold for just Lm7,500.
The yachts ‘Comino,’ ‘Verdala’ and ‘Maria Louisa’ - valued in excess of Lm90,000 - were sold for a measly Lm7,400. The motor yachts ‘Roberta,’ ‘Michael,’ ‘Celia’ and ‘Sayonara Hago’ were sold as a going concern in 1976 to John Sullivan's Sunsea Cruises Ltd for the fine sum Lm39,500, despite having a value of over Lm100,000. When Sullivan paid the initial deposit of Lm20,000 for the boats, Karmenu Mifsud Bonnici never bothered to collect the remaining Lm19,500. Only in 1987, was Sunsea Cruises ordered by the Commercial Court to repay the outstanding amount plus interest, and to this day no controller has ever told the Pace family whether the money was actually paid or not.
Likewise, the ship ‘St Rule’ was sold for a ridiculous Lm4,800 in 1973, whilst the ‘Maltese Trader’ was sold for just Lm14,500.
This was yet another angle to the ludicrous attitude taken by the controllers who led everyone to believe they were dealing with bankrupt companies.