Creditors out in the cold

"The wheels of the bus go round and round, round and round, round and round... the wheels of the bus go round and round all day long."

I wish I could say the same thing about the wheels of justice but here, if and when they turn, they, more often than not, do so at the pace of an overweight snail.

In early 2002 I asked the question: "Will the Price Club crash mystery ever be unravelled?" in a contribution I had made to Talking Point and now, five years down the line, I am none the wiser.

Allow me to remind the readers of The Times about some facets of this intriguing saga.

The Price Club Group was formed in 1998 and quickly established itself (how this was done is yet to be determined) as a major player in the supermarket trade, achieving an annual turnover of nearly Lm22 million.

The demise of the Price Club was even more spectacular than its conception. In early 2001, after just three years of trading, the company informed its creditors it was in dire financial straits. The major creditors called in one of Malta's leading auditors who presented a report to all the creditors on May 15, 2001. After some efforts to salvage their company, the inevitable happened and the directors of the Price Club declared voluntary liquidation with debts of Lm8.5 million owing to its trade creditors, an unprecedented failure in recent Maltese history.

Legal proceedings against the owners and directors of the Price Club Group commenced in December 2001 and, as far as I am aware, have continued for the past five years. Isn't this an inordinate length of time for a decision by the courts to declare whether there has been any infringement of the Companies Act 1995?

The creditors of the Price Club have lost millions of liri and realise they have no hope of recovering any of the monies owed to them. But do they not at least deserve a ruling that sends a clear message to the market that wrongful and/or fraudulent trading will not be tolerated and that anybody who falls foul of the Companies Act will have to face the full brunt of the law?

If you will excuse the pun, the only people who "laughed all the way to the bank" were in fact the banks themselves, in this case HSBC Malta. The bank, which is privy to information not known to a trade creditor for at least 18 months from its first day of trading, financed this enterprise.

It was, or at least should have been, aware that this company was under financed. When things went dreadfully wrong, HSBC exercised its hypothecary rights over the company's property and recovered all or most of its debt.

It has since converted the ex-Swatar Supermarket into a call centre and has sold or leased the former Valley Road supermarket to a furniture importer/distributor.

Is this what we call a level-playing field? The banks take a super privileged position over borrowings and in the meantime make extraordinary profits from its operations. I am a firm believer in a free market economy but only when it is not flawed by the absence of real competition.

With all due respect to the APS Bank and Lombard Bank, what we effectively have in Malta is a banking duopoly formed by HSBC and Bank of Valletta. In their last financial year, these two behemoths of the local financial sector made a combined profit (after tax) of Lm50 million, equivalent to Lm125 for every Maltese head of population.

Isn't it about time that legislation is enacted that will somehow dilute the banks' powers and offer some protection to the providers of goods and services that are invariably left to carry the can when things go wrong? Risk is a sine qua non of business but why are the banks given carte blanche to at worst minimise and at best neutralise this risk by using their privileged position?