NEWS | Tuesday, 16 October 2007

Long hunt for Priceclub Lm8m debts starts

Matthew Vella

The long-suffering creditors of the former Priceclub supermarket chain may have secured an important victory last week when a Court found three directors responsible for over Lm8 million in debts.
But the long hunt for the money starts now, and it is a process that can be expected to take years – with an uncertain outcome to boot.
Liquidator Andrew Borg Cardona will now take charge of the exercise to locate all assets which can be liquidated and partitioned to the numerous creditors which were left hanging when the Priceclub chain went belly-up.
Last week, Mr Justice Tonio Mallia, sitting in the First Hall of the Civil Court, concluded that Victor Zammit, Christopher Gauci and Wallace Fino had committed fraudulent and wrongful trading in connection with Priceclub Operators (PCO) and the company’s creditors and declared the three directors to be personally and unlimitedly responsible for the debts incurred PCO.
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 where 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.
“The next step is to take legal advice on what I can do at law,” Borg Cardona says. “In the meantime, researches on property movements, with the companies registry over movements on shares, and if need be seizures of personal property are all possible ways of how these assets will be monitored.”
But the process can also take even longer than expected, where an appeal on the judgement might possibly take a further two years to conclude.
Last week, the Court declared that fraudulent trading existed when during the six years the Priceclub group of companies had operated, the directors-shareholders ignored creditors’ interests and looked after their own personal interests.
PCO, which operated the supermarkets, had no assets, while it paid off debts to third parties incurred by PCH and other subsidiaries while accumulating its own debts from suppliers.
PCH owned all the group’s assets, while PCO had incurred debts with trade suppliers when it had no means to repay these debts. Instead the directors made use of PCO’s creditors to finance the group’s expansion.
Pricelub took over the operation of Priceclub supermarket from Frans Gauci (Christopher Gauci’s father), starting off with a working capital deficit of Lm1.2 million and other rent it had pay for its other supermarkets.
In his harsh judgement, Mr Justice Mallia said that from the very start the directors knew the business had to be restructured but they had taken no steps to do so.
They used money from PCO to pay off Lm450,000 over the purchase of the Day To Day supermarket which should have been paid back to PCO. Instead, part of the sum was paid Zammit’s company Biochemicals International as payment for products that would, in the future, be sold to PCO. Another part of this sum was set off against debts owed by Day To Day supermarkets to Taormina Holdings Ltd, a company owned by Gauci’s parents.
PCO also started operations with a deficit and without a capital base, while directors ignored the creditors’ plight as they proceeded with an unsustainable expansion of the supermarket chain.
In a separate judgment, Tonio Mallia however declined to find Biochemicals International Ltd and 2000 Holdings Ltd, shareholders in PCO, unlimitedly liable in this case.
Andrew Borg Cardona, liquidator of PCO, claimed all defendant companies had abused of the privilege of limited liability, and that they were, therefore, unlimitedly liable towards PCO.
All defendant companies, save for Biochemicals International and 2000 Holdings were the owners of the various properties and assets forming part, of the Priceclub group.
The two companies belonged to Victor Zammit’s family but no proof of their abuse of responsibility had been shown.