this week: How long before the bubble bursts?
The silence is deafening
The revelations of auditor John Zarbs court evidence
in the court case instituted by a creditor against Priceclub, should
be a clarion call to our financial authorities and regulators. Our sister
newspaper MaltaToday revealed some of the content of PricewaterhouseCoopers
John Zarb, affidavit in which he indicated that the Priceclub shareholders
and directors did not do their best to save a company that was always
The damning part of Zarbs evidence is that it was clear to him
that those put mostly at risk by the actions of the Priceclub owners
and directors were the creditors.
Malta has seen several individuals set up small companies with minimum
share capital that purposely ran up debts and later folded leaving a
few creditors to pick up the, admittedly few, pieces, but the Priceclub
story, if Zarbs evidence is confirmed and so far nobody has doubted
him, is the first one where the same was done on a grand scale.
As often happens in Malta where one expects uproar there is none. Following
the MaltaToday story there were no pronouncements from any official
bodies to call for greater responsibility on the behalf of business
directors and owners. It is particularly indicative that one court case
being brought against Priceclub is not based on any contravention of
the Companies Act, but was instituted in relation to alleged auditor
negligence. The action is based on English case law that established
that accountants owed their professional duty not only to their clients,
but to any third party to whom their client was going to show the accounts.
The Companies Act does hold officers of companies responsible should
they mislead creditors, conceal company property, make false entries
in the accounting records, or a variety of other offences, but breaking
the law leads to a fine of a mere Lm100,000, or five years imprisonment,
or a combination of both.
The problem is that the trade creditors of the Priceclub collectively
stand to lose Lm10 million between them. The figure might be even higher
should one include the banks who, however, have a better chance of recovering
their loans and overdrafts.
The difference in attitude of the Italian politicians and authorities
in the wake of the Parmalat scandal is clear to see. Perhaps the more
worrying factor is that while in Italys case there have been calls
for stricter regulation and greater penalties for activities that endanger
creditors and investors, very little was heard from Maltas authorities
at the time of the Priceclub crash.
Nobody has suggested, since MaltaTodays revelation, that the fines
imposed on company officials should be upped drastically.
John Zarbs court evidence is a public document and if MaltaToday
could lay its hand on it, one must assume that the MFSC, the ministry
of finance and the authorities that regulate accountants and auditors
were also aware of its contents. Zarbs evidence was not made yesterday,
but yet, the silence is still deafening.