More Supermarkets: Ryan Schembri committed fraud with €3.5 million debt constitution

A civil court has declared that the former boss of More Supermarkets, Ryan Schembri, had fraudulently bound the company with a €3.5m contract for constitution of debt, at a time when he no longer legally represented the supermarket chain.

Schembri, cousin to former OPM chief of staff Keith Schembri, had fled the country in 2014 with a reported €40 million in debts left behind from the More Supermarkets crash. He is believed to have borrowed large sums of money from entrepreneurs, before finding he was unable to pay back the loans, originally intended for an ambitious import-export operation.

The civil lawsuits had been filed against Edmond Mugliett, Alexander Farrugia, Adrian Agius, Cassar and Schembri (Marketing) Ltd, and Schembri and Agius, by More Supermarkets Ltd and More Holdings Ltd.

Both cases had been filed in November 2014, five months after a public deed had been issued, acknowledging a debt of €2m and another debt of €1.5m, representing two loans made by Mugliett and Farrugia to Cassar and Schembri (Marketing) Ltd. More Supermarkets Ltd was included in the debt agreement, along with Cassar and Schembri (Marketing) Ltd, Schembri, and Agius, in their personal capacity. However, it later emerged that Schembri had resigned as director of all More Supermarkets outlets, except the Hamrun branch, in May 2014 and was, therefore, no longer the company’s authorised legal representative.

The supermarket companies had argued that their former bosses, Agius, Mugliett, and Farrugia, had never loaned the monies and that the constitution of debt had been a fabrication. Mugliett and Farrugia countered that the applicants themselves had acted with fraudulent intent, alleging that they were simply trying to avoid repaying the loans. Agius argued that he had acted in good faith and that he was only representing More Supermarkets (Hamrun). He claimed that this lawsuit had been triggered by disagreements between Mugliett and Darren Casha, who had taken over the supermarket chain from Schembri.

In a judgement handed down yesterday, Mr Justice Ian Spiteri Bailey, presiding over the First Hall, Civil Court, upheld Agius’s request to be non-suited in respect of the other supermarkets in view of the fact that he had only been involved in the Hamrun branch.

Ryan Schembri seen in a police car being escorted to court after his arrest

The court also flagged suspicious transactions that took place with the share transfer agreement between Schembri and Darren Casha to the Financial Intelligence Analysis Unit (FIAU). The share transfer agreement had been drawn up at a time when Schembri was already the subject of money laundering investigations in Croatia. The court ruled that the transfer had been a “smokescreen” intended to help Schembri’s supermarket companies avoid being subject to those investigations.

Farrugia had testified to having handed €1m to Schembri in Libya, and said the funds were later transferred to Malta under the pretext of a contract of works in Libya. The court, however, said it could not approve such suspicious transactions, and so also flagged this matter to the FIAU. 

Notary Claire Camilleri, who had drawn up the constitution of debt, was also criticised by the court, which observed that the contract contained a declaration about payment being effected upon the signing of the deed, which declaration had subsequently been found to be false. The judge observed that a notary public was a “public official who has to inspire trust in any party appearing before him as well as in the State itself.” 

Both Mugliett and Farrugia had testified that certain assets belonging to Cassar and Schembri were transferred to the supermarket companies with the express intention of claiming a €300,000 VAT refund. For this reason, the court also flagged the matter to the Tax Commissioner and the Police Commissioner, asking them to investigate and take action if necessary.

The judge ruled that Schembri had acted fraudulently and that he was no longer authorised to represent the supermarket chain when he signed the debt agreement.

The court appointed a notary to draw up a deed rescinding the constitution of debt within four months and ordered the cancellation of the general hypothec, together with its associated bill of exchange.