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News •
March 7 2004 |
When the Priceclub Directors knew the company was in great financial difficulty they approached potential investors including some of their small suppliers in an attempt to sell 20 percent of the company for Lm1 million.
The Priceclub directors must have been keeping a brave face when they approached several of their not so large creditors with their proposal.
From evidence presented in court it results that at the same time they were negotiating with their larger suppliers, the Priceclub directors approached minor supplies with an ‘Investment Proposal’ and presented them with a big lie.
The small suppliers were told: “Priceclub’s directors have signed an agreement with seven of its major creditors whereby Lm4 million worth of trade debts will be transformed into an eight year bond at 5 percent interest with a year’s interest on interest and capital.”
If that had been true, the Priceclub’s position would have been much healthier, as Lm4 million amounted to approximately half the companies debts, and the company may have sounded like a good investment.
The larger creditors, however, were well aware of Priceclub’s difficulties, and were shocked to learn that the Priceclub directors had approached other suppliers and claimed a deal had been reached.
On 14 May advocates Camilleri Preziosi wrote to the Priceclub on behalf of Alf Mizzi & Sons, Alfred Gera & Sons, Francis Busuttil & Sons Marketing, Marsovin, Paolo Bonnici, Simonds Farsons Cisk and the General Soft Drinks Company wrote to the Priceclub directors and said: “We have been instructed to refer also to a document entitled ‘Priceclub Investment Proposal’ dated May 2001 which we understand you have been circulating to a number of creditors not represented on the Committee ….the Committee takes serious exception to the untruth….wherein you state that you ‘have signed an agreement with seven of [your] major creditors.’ As you know very well, no such agreement has been reached, much less signed.”
That should have been crystal clear to the directors who were meeting the major creditors regularly. While the Priceclub’s Investment Proposal was dated May 2001, on 13 April Camilleri Preziosi wrote to the directors mentioning that meetings between them and the big seven suppliers had taken place on 9 and 12 April, 2001.
In that letter, dated two weeks before the investment proposal was published, the advocates pointed out to the directors of Priceclub how auditors PricewaterhouseCoopers had been asked to be “given access to your records and to those of your bankers and auditors in order to review…the Priceclub group affairs.”
The letter continued: “the 30 September 2000 unaudited financial statements for Priceclub Holdings Limited indicate that the financial position of your group may actually be worse than our clients expected it to be.”
It was clear that in mid-April the major suppliers were well aware of the Priceclub’s difficulties.
The Priceclub’s Investment Proposal, however, paints a rosy picture of the companies prospects claiming, among other things that the company expected future earnings of Lm13 million.
On 14 May the big seven creditors also took exception to the attempts to sell shares in the company for Lm1 million and wrote: “Furthermore, as you have deemed it proper, in the circumstances, to offer creditors, and maybe others, the opportunity of buying 20 percent of your company for Lm1 million, the Committee now considers it its duty to give the creditors an informed view on this proposal at the forthcoming creditors meeting.”
On 26 April, five of the major suppliers, Simonds Farsons Cisk, Alf Mizzi & Sons, Francis Busuttil and Sons, General Soft Drinks and Paulo Bonnici, calling themselves ‘The Price Club Creditors Group,’ and using the address of PricewaterhouseCoopers wrote to the Priceclub Directors and said: “During the course of discussions held with you recently, we have become privy to financial and other information concerning your operations, which information gives rise in our opinion for considerable concern.”
The very next day the five suppliers wrote about the Priceclub directors intention to restructure the company, including investing Lm500,000 which was to be used “to reduce the existing indebtedness with creditors on an equitable basis.”
Of the Lm500,000 an injection of about Lm180,000 was made, but no more.
On 29 November 2000, Priceclub chairman Victor Zammit angrily rejected a suggestion coming from its largest supplier to increase its profit margin claiming: “Can you imagine going to the Office of Fair Competition with your suggestion to increase our margins to the detriment of the customer?”
But in the Investment Proposal dated May 2001 the Priceclub directors said they planned to “increase gross profit margins by 7.5 percent over the next three years.”
The investment proposal was full of nice words about how the Priceclub, up until that time doing disastrously, was going to improve.
The Priceclub directors claimed that it would increase market share by 12 percent by September 2003; reduce costs by 2 percent in the same period; reduce the average stock holding from 65 to 35 days; and reduce credit taken from suppliers from 157 to 90 days.
None of this was to happen as in July of 2001, the Priceclub crashed leaving debts in September 2001 of Lm 8,314,930 to suppliers, Lm193,398 to the bank, and Lm1,388,950 in respect of taxes and other accruals.
While the owners of Priceclub stand to lose Lm101,000 from the failure of their business, others have lost a total of nearly Lm10 million.
Over the last three weeks MaltaToday has asked Finance Minister John Dalli whether the government is considering changing the company law to make owners more financially responsible for their businesses, but no reply was received at the time of going to press. |
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