A court yesterday ruled that the directors of Price Club Holdings Ltd are liable to pay damages, estimated to run into millions of liri, due to the fact that they had engaged in fraudulent trading practices.

The court, presided over by Mr Justice Tonio Mallia, ruled in favour of Price Club Operators Limited, represented by liquidator Andrew Borg Cardona. In its judgment, the court said that the limited liability of directors Victor Zammit, Christopher Gauci and Walter Fino was null due to the fact that they had engaged in fraudulent trading and malpractice. As a result, PCO’s liquidators will now have to open a new case to recoup the debts incurred by them as a result of their actions.

In a huge judgement, the court went through the whole sequence of events which led to the bankruptcy of the Price Club Holdings Limited and said that it was clear that the company could never have taken off due to the very low amount of capital that was injected into it when purchased from Francis Gauci.

The court also said that during the six years of operation of the Price Club Group of companies, there were various occasions where the directors, who were also owners, ignored the interests of their creditors and sought only to safeguard their own personal interests. The court said that right from the word go, the way the company was set up was to their (the creditors’) disadvantage. The court said that the structure of the company was unfair because PCO Ltd was to be the company that would deal with suppliers and would in turn be a debtor. However, the court noted, this company had no assets whatsoever.

The court said that there was nothing illegal insomuch, however it showed the directors’ intention of avoiding repossession of their, or their own company’s, assets. The court noted that the company began operations with a technical deficit and with no fixed assets. It said that Price Club Holding Ltd started life by taking an Lm3 million loan to purchase the chain from Francis Gauci, making good for some Lm2.6 million in existing loans.

In addition, a Lm900,000 loan was taken, of which the paltry sum of Lm101,000 was retained as working capital. This, said the court, meant that Price Club Operators Ltd was left with a working capital deficit of Lm1.2 million.

The court also pointed out that Dr John Grech, who was for a time chairman of the company resigned because in his opinion, the company was not being operated prudently.

Mr Justice Mallia said that in its opinion, the company accounts were manipulated. The Judge said that while the accounts might have been correct by accounting standards, they did not give a clear picture of the real situation facing the company. The court said that while accounts should be correct, they should also allow an authorised party to get a clear picture of the situation.

The court also criticised the stock records, saying that these were grossly misrepresented and mismanaged. The court said that by April 1999, the strain was showing and the company had a working capital deficit of Lm2.8 million and commitments amounting to Lm5.2 million. While all this was going on, said the court, the directors continued to paint the picture that everything was rosy and red and until 2001, they were still insisting that they were near to break even point, while debts continued to mount all the while. The court said that the action taken by the directors to safeguard their own interest at the expense of their creditors was tantamount to abuse of the complainants’ funds and was also a case of fraudulent trading.

The court said that it was not within its capacity to fix an amount to which the directors can be held responsible. It declared them to be personally responsible for all debts incurred by the company. The court also ordered the defendants to pay all legal costs related to the case in question. The complainants will now file another civil court case in an attempt to recoup their funds following the ruling.