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Priceclub Saga • February 15 2004

Priceclub directors aggravated their suppliers’ losses to their own advantage – auditor

According to audit expert John Zarb, had the directors of Priceclub been aware of the financial situation of their supermarket empire in 1999, they could have saved the company and suppliers would not have lost Lm8 million liri.
Zarb’s evidence in court has not been contested and the directors of the Priceclub are expected to have their say within the coming weeks, but when MaltaToday contacted the directors they preferred to remain silent.
Zarb’s revelations about a company that stood to lose Lm101,000 for its shareholders, but Lm8 million of their suppliers’ money has brought no official reaction from the government and questions put to finance minister John Dalli by this newspaper remain unanswered.
In Zarb’s affidavit, the auditor employed by PricewaterhouseCoopers, claims that "had the directors properly taken stock of Priceclub’s situation in June of 1999, the additional capital requirement (to properly fund the company) would have been in the region of Lm1 million – not a small amount but possibly attainable at that time."
Zarb told the court how: "instead, the directors pursued a course of action which…was not designed to minimise the further losses of creditors but served, rather to aggravate such losses."
Zarb described how Priceclub, instead of acting cautiously, "continued to advance monies to Day to Day Ltd; borrowed Lm1.4million from BOV to purchase the Birkirkara outlet from two of the shareholders without using any of the funds raised to increase capital or to repay the amounts borrowed from Priceclub; made other advances to related companies; invested in Happy Saver and settled liabilities towards banks in excess of rental charges due."
Zarb describes how the directors of PCO to an insolvent company, Day to Day Ltd., "to the personal advantage of one of the shareholders, thereby creating a non-recoverable debt at the expense of the company and its creditors." According to Zarb, up to September 1999 Lm172,942 was advanced to Day to Day Ltd and up to September 2000 another Lm227,503 were advanced.
The web of transactions following these advances is difficult to follow, but Zarb notes that Biochemicals International Limited, a company owned by Victor Zammit, the major shareholder in Priceclub: "supplied goods in extinguishment (sic) of the amounts owed by it, at no credit risk. As a result, the position of Biochemicals International Limited was advantaged when compared to that of other suppliers unrelated to the directors, who delivered goods on credit at their risk and to their significant eventual loss."
Zarb notes how other loans were made by Priceclub "to companies owned by some or other of the shareholders/directors, benefiting them at the expense of the company and its creditors for material amounts." Among these were loans to F & G Holdings and Limited and F& G Marketing Limited, which Zarb describes as an insolvent company. The loans amounted to Lm156,266.
About the purchase of Happy Saver, Zarb notes how Lm224,246 was paid as a premium in July 1999 to acquire two further supermarkets then trading under the brand Happy Saver. "Notwithstanding the Priceclub’s evident financial troubles, the directors proceeded to pay this premium, and to take on other premises (eg Gozo in August 1999, a Luqa warehouse in January 2000) without, in my opinion, adequate consideration being given to the added capital requirement being created. In all cases, the burden and the risk of an expanded enterprise were being passed on to the creditors, unwitting financiers of the Price Club Group.
Priceclub’s management accountant gives evidence
George Vella the management accountant of Priceclub gave evidence in the court case instituted by Valle del Miele against the Priceclub directors for gross negligence and fraudulent trading.
Vella told the court that he provided financial information to the Executive Committee of Priceclub for management purposes.
Vella, who is a qualified accountant and the son of former MLP deputy leader with the same name, told the court that together with the management of Priceclub, he prepared financial projections in the form of a business plan. One business plan was prepared shortly after joining Priceclub in September 1999 showed that the company was projected to make losses for two years and a profit in the third year.
That business plan was revised several times following its preparation.
Appearing on behalf of Valle del Miele, legal counsel Dr Gasnavi repeatedly asked Vella whether he had prepared a business plan on his own that showed the Priceclub would only make losses in the years covered. Vella said he could not remember such a plan. The legal counsel asked whether such a plan may have been prepared for internal purposes and not for the banks, but again Vella insisted that from what he remembered there was no business plan that only showed losses.

Wallace Fino missed court because of severe pain in foot
Wallace Fino one of the parties in the court case Valle del Miele Ltd against the directors of Priceclub did not make it to court Friday, after a doctor certified he was suffering from a severe pain in his right foot.
Judge Tonio Mizzi had already fined Fino Lm50 for contempt of court, for not appearing before him, when Fino’s lawyer John Refalo ‘ran’ in to present the sickness certificate. Mizzi ordered the doctor who presented the certificate to appear in court at the next occasion to confirm his certificate.
The judge ordered that Fino will have to next appear under arrest.

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