The Price Club crash - the final act?

Much to the relief of the creditors who are collectively owed some Lm8 million, it appears that the final act in this sad saga is about to unfold.

As is common knowledge, the company trading under the name Price Club Operators Ltd went into liquidation in November, 2001 after having found itself in financial difficulties.

Last year the court appointed a liquidator whose main responsibility is the protection of the company's property as well as all the rights to which he has cause to believe the company was entitled to. He will ultimately dispose of any realisable assets and distribute the receipts to the company's creditors. The liquidator has recently filed legal proceedings against the company's directors.

His brief also covers the investigation of any possible infringements of the Companies Act 1995. The act gives him the power to ascertain if the directors knowingly allowed the company to continue trading when it was in fact insolvent. The act unequivocally states that a company is insolvent if it is unable to pay its debts.

Another area subject to the liquidator's close scrutiny is whether the company kept proper accounting records throughout the period of two years prior to liquidation. He will also determine whether the company's audited accounts gave a true and fair view of the company. One of the many questions being asked relates to the last valuation of stock made by the company.

Directors of a company can be guilty of an offence under the act for what is described as wrongful trading. This situation arises if the directors continued to trade when they knew or ought to have known that there was no reasonable prospect that the company could avoid insolvency.

Directors cannot allow their company to trade when they know that the company cannot honour its debts. In this particular case, did the directors reassure their creditors a few months before the collapse that there was no cause for alarm when they knew that their financial position indicated otherwise?

If they did, they could be found guilty of wrongful or fraudulent trading and may be held personally liable without limitation of liability for all or any of the debts of the company as the court might direct.

Maltese entrepreneurs must realise that although risk is a sine qua non of their existence, business must be conducted in a serious and honest manner.

The creditors of the Price Club have lost millions of liri. The chances of any recovery are minimal at best.

What many of the creditors are hoping for is that a clear message is sent to the commercial community that wrongful or fraudulent trading will not be tolerated and that those persons who fall foul of the Companies Act will have to face the full brunt of the law.