Priceclub’s turmoil proportionate to Parmalat’s financial fiasco

By Julian Manduca
The impact of the collapse of the Priceclub on Malta is probably equal to or could even be in excess of that of the possible impacts of the Parmalat scandal, The Malta Financial and Business Times reveals.
The Priceclub turmoil has come to the fore again following revelations in MaltaToday of the evidence given in court by PricewaterhouseCoopers’s John Zarb.
If one compares relative impacts on GDP and employment of the Priceclub’s liquidation, the relative figures would indicate that the loss of 400 hundred jobs in Malta (0.1 percent of the population) would compare with the loss of 58,000 (0.1 percent of the population) in Italy. Parmalat employs about 35,000, who have not lost their jobs so far.
The amount owed to Priceclub creditors of about Lm13 million when it folded, would compare to about US$11.5 billion US dollars when taking into consideration Italy’s GDP and population.
Economy Minister Giulio Tremonti said the crisis will cost Italy about 11 billion Euros in terms of impact on the economy, or just under one percent of gross domestic product (GDP). In Malta the Lm13 million Priceclub debts work out at 0.7 percent of the GDP for 2002.
Perhaps more worrying is the fact that the government, read the public, has lost a considerable amount in tax revenue. Assuming the banks recover their money from Priceclub and as is likely the trade creditors do not, the loss in tax revenue would be in the region of Lm3 million, assuming Lm9 million creditors unpaid.
The revelations in Sunday’s MaltaToday on the Price Club saga have opened a can of worms, but public reactions remain muted.
In Italy several high-ranking officials including president Ciampi have called for greater control and responsibilities for company owners and directors. In Malta Prime Minister Eddie Fenech Adami has said that "we do not get involved in private business matters."

MaltaToday published news about the evidence given in court by leading auditor John Zarb in which Zarb states that he was asked to investigate the Priceclub’s financial records, on behalf of his firm PricewaterhouseCoopers. The audit firm was engaged by the liquidator of Priceclub operators, and Zarb carried out a thorough investigation into the company’s accounts.
In his court affidavit, Zarb showed how the Priceclub, despite being in severe financial trouble, decided its stock values without keeping stock records or carrying out substantial stock-takes. Zarb describes how in one instance, Priceclubs auditors, Deloitte, passed a journal entry which was described as: "being the estimated closing stock to give an operating profit before depreciation and inter-company rent of Lm160,000."
Zarb indicated that Priceclub Operators Ltd, the operators of the supermarkets, created a weak company which always left the creditors at greatest risk.
Writing in The Observer about the Parmalat scandal which, unlike the Maltese version, has an international dimension, Will Hutton observed: "what made it possible, as with Enron, is that national and international financial regulation has not kept pace with today's opportunities for fraud and deception by company leaderships minded to take this step."
The Priceclub collapse in Malta has raised a number of questions about the role of auditors in Malta and the effectiveness of Maltese company law to protect the interests of third parties.
MaltaToday’s serialisation of the Priceclub’s collapse continues next Sunday.