The former managing director of a company that used to run fitness centres at the Jerma Palace Hotel and the Mistra Village, has been declared responsible for fraudulent trading and ordered to pay €72,471 to two of his creditors.

Catherine and Frank Buhagiar filed proceedings before the Civil Court in its Commercial Jurisdiction against Claudio Caruana as director of CNJ International Ltd, formerly operating the gym at the Jerma Palace before the hotel closed its doors in March 2007.

The couple were on friendly terms with Mr Caruana who regularly purchased items from the stationery store run by Ms Buhagiar, offering him their garage for the purpose of storing boats which he imported for resale.

In September 2004, the couple handed over to Mr Caruana Lm10,000 (€23,293) by way of a loan intended to settle his debts, signing a private writing to that effect.

After that first loan, Mr Caruana, enticed the couple to join him on a fresh business venture involving the importation of goods from China, urging them to secure a bank loan of Lm30,000 (€69,881).

The couple duly agreed, securing the loan by mortgaging their matrimonial home in favour of the Bank.

In 2005 Mr Caruana and Ms Buhagiar traveled to Taiwan so as to explore the Asian market, all expenses covered by the latter upon an understanding that her debtor would reimburse the funds at a 10 per cent profit.

However, payments were neither fixed nor regular, until Mr Caruana finally began to default claiming that he lacked the necessary funds.

Following the closing down of the Jerma Palace, the gym director relocated his business interests to Tunisia, allegedly setting up a joint venture with a local entrepreneur and inviting the applicants to the inauguration of his new showroom in Tunis.

However, trouble began to brew when Ms Buhagiar got a whiff of other creditors allegedly chasing Mr Caruana, prompting the couple to take active measures to secure repayment of the money loaned to the businessman.

A deed of constitution of debt was signed by CNJ International Ltd in favour of the Buhagiar spouses for €107,150.

However, after 2010 no further payments were effected and all communication between the parties ceased.

All throughout their interaction, the spouses had been left in the dark as to their debtor’s financial state, never being told why he lacked money to repay the loan.

In a 59-page long judgment, Mr Justice Joseph Zammit McKeon, presiding over the Commercial Court, observed that the respondent’s company had never owned immovable property, always operating “on the brink” and only managing to purchase merchandise thanks to money borrowed from creditors.

Defining Mr Caruana’s method of operation as “weak”, the court observed that in spite of his “fragile” situation, the director kept borrowing funds, knowing fully well that it would be very difficult for him to effect repayment.

Such a lack of diligence indicated “actual dishonesty” on his part which was tantamount to an intention to prejudice his creditors’ rights, the court said, referring to the time when Mr Caruana had insisted on exploring the Asian market, safe in the knowledge that the applicants would foot the bill.

His manner of operation had clearly been unstable even before the Jerma Palace closed down, the court went on, stating that the respondent had no well thought-out investments and had always operated a faulty “business model” based upon loans and functioning at a deficit with no effective controls.

Allowing debts to spiral upwards was not merely a risk but an abusive act on the part of Mr Caruana who had never endeavoured to keep audited accounts in order and took no precautions to minimize harm to his creditors, the court noted, even years before the applicants had entered the scene.

In the light of such clear evidence, the court upheld the applicants’ request, declaring the respondent responsible for fraudulent trading, also declaring him personally responsible for debts incurred by CNJ International Ltd in respect of the applicants and ordering him to pay them the sum of €72,471.

Lawyer Rosemarie Farrugia assisted the applicants.