Experts 'advised' Priceclub would make Lm300,000 a year

A director of Priceclub supermarket yesterday told a court that although he suspected the company could run at a loss in the first years he had relied on the advice of his financial and legal advisors who predicted it would make an annual net profit of Lm300,000.

Victor Zammit, who has been in business for 30 years, said that when Priceclub was set up in 1998 he initially thought the company could make a loss in the first years as there was need for restructuring.

Yet, he said, he relied on the advice given to him by experts who projected that, in the first three years, the company would make a yearly profit of Lm300,000 after tax

"What's for sure is that I never appointed an expert to draw up a fancy document so that the company would look good in the eyes of the bank," Mr Zammit said.

He was testifying, under cross examination, in the liquidation proceedings filed by Priceclub Operators Limited liquidator Andrew Borg Cardona.

The proceedings were filed against him and former company directors Chris Gauci and Wallace Fino and Priceclub Holdings Limited.

On taking the witness stand, before Mr Justice Tonio Mallia, Mr Zammit said his role in Priceclub was that of investor and not manager.

He explained that he always insisted that things were done the correct way and it never crossed his mind that Priceclub creditors would not be paid.

In 1998, Priceclub Holdings took a loan of Lm3 million from HSBC and the shareholders obtained an additional loan of Lm900,000 from the same bank.

When asked how he planned to finance the payment of capital and interest on the two loans he said he relied on the advice given to him by financial and legal experts whose expertise he had no reason to doubt.

"One of the experts was John Grech, former BOV chairman and former chairman of Day to Day Supermarket. He was more experienced in the sphere than I was and I felt no reason to doubt his advice," Mr Zammit said.

Asked how he planned to make the loan repayments he said that part was to be paid from rents collected and part from the operation of the supermarket. He added that the difference between rents and loan repayments would be financed from the profits.

He also confirmed that the Lm900,000 loan repayments were made from the money of Priceclub Operators.

The Priceclub Operators Limited liquidator had filed two actions against the former directors: one for a declaration that the directors were guilty of fraudulent trading, and another to declare that they continued to trade when the company was insolvent.

The liquidator also filed two actions against Priceclub Holdings Limited.

In one of the actions, the liquidator is requesting the liquidation of Priceclub Holdings Limited on grounds of insolvency. In the other he is asking the court to "lift the veil" and to find that the whole group of companies was responsible for the insolvency of Priceclub Operators Limited.

The liquidator submitted that it was clear from the results of his investigation that the way the group was set up meant that the revenue-generating company (Priceclub Operators Limited) did not have any significant assets.

This meant that, if the holding and associated companies were not liquidated, any residual value in the assets owned by them would not be applied to the benefit of the creditors, but would go to the shareholders of those companies.

The structure, it appeared, had been created with this effect in mind, the liquidator argued.

Lawyer Henri Mizzi is representing the liquidator.

Lawyers John Cremona, Gianfranco Gauci, Ian Refalo and John Refalo are representing the directors.