Over €1.6 million is so far being claimed by 17 companies owed money by More Supermarkets, in a case which the Malta Association of Credit Management believes should never have happened.

“This is the fourth case involving a supermarket that the MACM has dealt with. First we had Price Club, then Supermaster and Nicholsons and now More,” director general Josef Busuttil said.

“Suppliers do not seem to be learning any lessons from the past!”

The 17 companies – including ARMS – are claiming the money in a variety of ways, ranging from judicial letters to court cases.

Alf. Mizzi is claiming over €600,000 – the largest amount being claimed – while Farsons Group companies are claiming over €300,000. The amounts are owed by five different entities behind the More Supermarkets chain, which closed last autumn. The association believes that the actual amount is much higher as there would be many other creditors who have simply given up, and opted not to pursue their legal options. There may also be others who have not yet instituted legal action.

Once suppliers start seeing red flags, they are reluctant to pull out and stop supplying the supermarket

The court last week approved a garnishee order for €3.5 million in favour of Alexander Farrugia and Edmond Mugliette, who had lent money to the supermarket owner Ryan Schembri, who fled Malta last September.

The MACM called its first meeting on the More Supermarkets case in May, after suppliers were notified that director Darren Casha had taken over as owner. It was somewhat concerned as the new owner did not have any track record in supermarkets. The suppliers met Mr Casha and Mr Schembri and left quite satisfied. The plans were to keep two of the five outlets open – Żebbuġ and Mosta – and the credit-ors were to be paid over a five-year period.

But then everything changed and payments were missed, with the new owners claiming that they were having problems because of staff wages and utility bills. Żebbuġ was then closed and a new company was opened which took over Mosta, “apparently with all of its stocks, even those which had not been paid for,” Mr Busuttil said.

“Is this right? Did the owners of More have a right to sell stocks they had not paid for to the new owner? This would never happen elsewhere!”

Mr Busuttil admitted that the situation in Malta was very challenging for suppliers, who were operating in a very competitive and complex market. However, he said, once they started seeing red flags, they were reluctant to pull out and stop supplying the supermarket.

One of the problems is that suppliers grant a long credit period which does not make sense for a cash business like supermarkets, which sell fast-moving consumer goods. By the time the supermarket is in arrears, the arrears will have already accumulated to substantial amounts, meaning that the supplier is tempted to throw good money after bad in an attempt to recoup some of his losses.

Solutions for better credit controls

The solution is keeping tighter control on credit periods.

“The probability is that by the time they realise what is happening, it is too late,” he said.

“Credit terms should be related to the turnover of the product. If the turnover is less than 30 days, why should you want a 60-day or even a 120-day credit period? We are not talking about machinery which has to be installed and commissioned, with staff training and so on,” he said.

Mr Busuttil also said that ­suppliers should start asking questions as soon as a payment was missed.

“Their sales force is out there and they know the market. They talk to their peers from other suppliers. They see empty shelves. Whose products are they? Why were the supplies not restocked? But do we gather that knowledge, let alone heed it?”

Apart from information on legal procedures, the MACM gathers default reports from its clients – who he said are also very ready to talk to each other.

“They all understand that if you are a victim, then it is likely that they will be too. This is why ­reciprocity of information is so important.”