It would have been yet another forgotten piece of news. But it was the definite PricewaterhouseCoopers report drawn up by auditor John Zarb which the late MaltaToday journalist Julian Manduca picked up on, that finally how the Priceclub supermarket chain, despite sales of Lm22 million, had left suppliers short of Lm10 million, and 400 employees jobless.
Echoing many similarities with the Parmalat scandal, Zarb’s audit investigation into the operations of Pricelub’s owners – Wallace Fino, Christopher Gauci, and Birkirkara FC president Victor Zammit – had revealed the misleading picture they produced of their supermarket’s performance, far from the reality Zammit wanted to portray in April of 2001 when telling sister newspaper The Malta Financial and Business Times that Priceclub was “not in difficulty… Everything is now back to normal.”
The reality however was that Pricelub was technically bankrupt, having in June 1999 been refused additional funding by banks. Already then, Priceclub was in serious difficulty with no reasonable prospect of avoiding dissolution due to its insolvency.
People like bread supplier Edgar Portelli, of Daily Bakes, had told MaltaToday of the disastrous impact on his business, losing Lm20,000 he now may have no prospect of recovering.
“Prior to the Priceclub crash my business enjoyed a good cash-flow, but Priceclub nearly destroyed me. My business is doing better now, but still suffers the impact of the Priceclub loss. I feel very frustrated because I have been misled.”
Having resisted an offer to sell off his bakery to Fino and Gauci in return for Priceclub shares, Portelli claimed that up to a week before Priceclub went bust, the directors were telling him there were no problems.
Priceclub’s fall adversely affected the lives and businesses of about 200 creditors, some of them drastically. The larger creditors, those owed between Lm200,000 and Lm1 million, include Alf Mizzi and Sons, owed about Lm900,000; Foster Clarks owed about Lm450,000; General Soft Drinks, about Lm200,000; Farsons, P Cutajar, and Paolo Bonnici. It is not expected that these will recover their money.
That the directors of Priceclub tried to give a positive impression of what was then the leading supermarket chain on the islands is clear. In their directors’ report for 1999, approved in June 2000, the company’s turnover reached Lm21,722,055. But according to John Zarb, the directors of Priceclub should have been aware of the company’s difficulties when banks refused additional finance.
Instead, in the six years of their operations, the director-shareholders ignored creditors’ interests, funnelling off revenues from Priceclub Operations (PCO), which operated the supermarkets, to the holding company Priceclub Holdings (PCH) which owned the group’s assets, paying off debts to third parties incurred by PCH and other subsidiaries while accumulating its own debts from suppliers.
Starting off with a working capital deficit of Lm1.2 million when it took over the operation of Priceclub supermarket from Frans Gauci (Christopher Gauci’s father), PCO’s sales paid off Lm450,000 for the purchase of the Day To Day supermarket by PCH.
Perhaps even more damaging in John Zarb’s audit report was the allegation that the company never even kept any stock records of its millions in goods. Allegedly, higher values for year-end stocks were fabricated to show higher profits at year-end – in one case, as revealed in Zarb’s rigorous investigation, one erroneous stock entry presented losses as Lm262,000 when these could have been as high as Lm1.4 million.
But that year, the company’s pre-tax losses were set against a record turnover of Lm21 million, the result of the takeover of two supermarkets, Carter’s and Save On. “You gave the impression that this had not been as a result of the merger,” lawyer Henri Mizzi accused Victor Zammit in court. “You said directors were confident of a better performance when losses had in fact tripled.”
By 2001, Zammit was telling creditors the supermarket was heading towards breakeven, even producing a 20 per cent investment proposal to creditors, which liquidator Andrew Borg Cardona described as an attempt to “defraud third parties to the tune of Lm1 million through their estimation of the value of Priceclub at Lm5 million, when the company was effectively bankrupt virtually from its birth…”
Priceclub, in a nutshell, was destined to fail. Zarb’s investigation claimed Lm794,000 had been diverted into directors’ personal businesses. “They adopted the approach of continually squeezing more out of creditors, through delaying payments, missing various payment schedules and similar tactics,” he wrote.
And now, the long hunt for the money starts, a process that can be expected to take years – with an uncertain outcome to boot. Liquidator Andrew Borg Cardona will take charge of the exercise to locate any assets for partitioning between the numerous creditors which were left hanging when the Priceclub chain went belly-up.
Next week, Borg Cardona will call a meeting for Priceclub creditors. “My job now is to get the money,” Borg Cardona simply stated. “I will be examining whether any residual value is left from properties forming part of Priceclub Holdings (PCH) and locate any other assets.”
It will also mean tracing assets and other monies right down to the directors’ personal property and assets and related companies’ assets – an exercise which itself is expected to involve a great deal of investigation to locate assets which might have already been moved, possibly beyond Maltese shores.