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Matthew Vella
Entrepreneur Victor Zammit, the director of the failed Priceclub supermarket chain, faced an onslaught from Dr Henri Mizzi on Friday in the case brought against the company by liquidator Andrew Borg Cardona, over Priceclub’s financial status when it was haemorrhaging badly.
Mizzi accused Zammit, the president of Birkirkara FC, of being dishonest in his relations with his main creditors by presenting a positive picture of the company, at a time when Priceclub was facing losses and a burgeoning debt.
Zammit was testifying under cross examination in the liquidation proceedings filed by Priceclub Operators Ltd liquidator Andrew Borg Cardona. The proceedings were filed against him and former directors Chris Gauci and Wallace Fino and Priceclub Holdings Limited. Borg Cardona has filed two actions against the directors, one for a declaration that they were guilty of fraudulent trading, and another to declare that they continued to trade when the company was insolvent.
Priceclub Operators made cumulative losses of Lm1.13 million by September 2000, when creditors were already asking Zammit about the precarious situation of the discount supermarket chain. Six months later, losses had increased to Lm1.55 million.
“Are you going to insist that, according to the accounts that you were shown at the time, your company was on its way to breakeven?” Mizzi asked Zammit about the director’s assurances to creditors at the time.
“You have to consider the systems employed to improve the situation. For months our consultant would tell us our performance would improve,” Zammit said, his insistent defence being that his accountants and consultants told him Priceclub would be soon out of the doldrums.
But it was clear that by September 2000, Zammit was facing pressure in justifying the company’s performance. Priceclub’s main creditor, Alf Mizzi & Sons, had met with Zammit at the end of the year to discuss the company’s situation. In November, Alec Mizzi wrote to Zammit informing him of the Lm713,000 credit balance with Alf Mizzi & Sons, saying Priceclub’s accounts for 1999 were “a deep concern” due to the company’s “enormous credit exposure”.
The company had registered pre-tax losses of Lm260,000 in 1999 when it had registered a turnover of Lm21 million, the result of the takeover of two supermarkets, Carter’s and Save On.
“The increase in turnover was not as a result of sales but because you had amalgamated these two operations,” Henri Mizzi said in court. “You gave the impression that this did had not been as a result of the merger. You said directors were confident of a better performance when losses had in fact tripled.”
So what did Victor Zammi show Alec Mizzi in November 2000 to have his Lm713,000 credit increased to Lm800,000?
“You’re not saying the truth,” Henri Mizzi told Zammit. “You just told Mizzi what you were doing to improve the situation. Mizzi was deeply concerned with the losses of Lm260,000, and then the losses of Lm844,000 by September 2000… and you managed to get more credit from Mizzi. So which sort of accounts did you show him?”
By 2001, Zammit was telling creditors the supermarket was heading towards breakeven. That same year Priceclub crashed, leaving creditors chasing for their monies in court. Its suppliers had already stopped advancing any more credit, as the supermarket lost the support of its creditors.
A month later, Priceclub’s directors – Victor Zammit, Wallace Fino and Chris Gauci – produced a 20 per cent investment proposal to creditors, which in liquidator Andrew Borg Cardona’s previous testimony has been 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…”
Alec Mizzi had also written to Zammit over the fact that Priceclub Operators, the company which ran the supermarket, did not even own its stores. These were in fact the property of another associated company which held all the company’s assets.
When Priceclub crashed, its shareholders lost their Lm101,000 investment, but creditors were left with Lm8 million unpaid. This was the set-up for Priceclub, separating its revenue-generating company Priceclub Operators Ltd and its Lm101,000 capital from the other associated companies which held the supermarket’s significant assets. That way, the liquidation of Priceclub Operators would not affect the assets in the other companies, unless these too were also liquidated.
Borg Cardona has filed two actions against Priceclub Holdings Ltd, requesting the company’s liquidation, and asking the court to “lift the veil” and find the whole group of companies responsible for the insolvency of Priceclub Operators Limited.
When Zammit wrote back to Alec Mizzi, taking umbrage at the letter, he used the Priceclub Operators letterhead to tell Mizzi the company owned its stores. But in court Zammit said he was speaking in the name of Price Club Group.
“But the debtor was Priceclub Operators,” lawyer Henri Mizzi retorted. “What sort of guarantee could you give to Mizzi, with capital spread over different companies… the Lm713,000 credit limit increased, when you hid the company’s negative results in 2000 and gave a good picture of the company.”
mvella@mediatoday.com.mt
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