Priceclubs turmoil proportionate
to Parmalats financial fiasco
By Julian Manduca
The impact of the collapse of the Priceclub on Malta is probably equal
to or could even be in excess of that of the possible impacts of the
Parmalat scandal, The Malta Financial and Business Times reveals.
The Priceclub turmoil has come to the fore again following revelations
in MaltaToday of the evidence given in court by PricewaterhouseCooperss
If one compares relative impacts on GDP and employment of the Priceclubs
liquidation, the relative figures would indicate that the loss of 400
hundred jobs in Malta (0.1 percent of the population) would compare
with the loss of 58,000 (0.1 percent of the population) in Italy. Parmalat
employs about 35,000, who have not lost their jobs so far.
The amount owed to Priceclub creditors of about Lm13 million when it
folded, would compare to about US$11.5 billion US dollars when taking
into consideration Italys GDP and population.
Economy Minister Giulio Tremonti said the crisis will cost Italy about
11 billion Euros in terms of impact on the economy, or just under one
percent of gross domestic product (GDP). In Malta the Lm13 million Priceclub
debts work out at 0.7 percent of the GDP for 2002.
Perhaps more worrying is the fact that the government, read the public,
has lost a considerable amount in tax revenue. Assuming the banks recover
their money from Priceclub and as is likely the trade creditors do not,
the loss in tax revenue would be in the region of Lm3 million, assuming
Lm9 million creditors unpaid.
The revelations in Sundays MaltaToday on the Price Club saga have
opened a can of worms, but public reactions remain muted.
In Italy several high-ranking officials including president Ciampi have
called for greater control and responsibilities for company owners and
directors. In Malta Prime Minister Eddie Fenech Adami has said that
"we do not get involved in private business matters."
MaltaToday published news about the evidence given in
court by leading auditor John Zarb in which Zarb states that he was
asked to investigate the Priceclubs financial records, on behalf
of his firm PricewaterhouseCoopers. The audit firm was engaged by the
liquidator of Priceclub operators, and Zarb carried out a thorough investigation
into the companys accounts.
In his court affidavit, Zarb showed how the Priceclub, despite being
in severe financial trouble, decided its stock values without keeping
stock records or carrying out substantial stock-takes. Zarb describes
how in one instance, Priceclubs auditors, Deloitte, passed a journal
entry which was described as: "being the estimated closing stock
to give an operating profit before depreciation and inter-company rent
Zarb indicated that Priceclub Operators Ltd, the operators of the supermarkets,
created a weak company which always left the creditors at greatest risk.
Writing in The Observer about the Parmalat scandal which, unlike the
Maltese version, has an international dimension, Will Hutton observed:
"what made it possible, as with Enron, is that national and international
financial regulation has not kept pace with today's opportunities for
fraud and deception by company leaderships minded to take this step."
The Priceclub collapse in Malta has raised a number of questions about
the role of auditors in Malta and the effectiveness of Maltese company
law to protect the interests of third parties.
MaltaTodays serialisation of the Priceclubs collapse continues