Toon this week: How long before the bubble bursts?

The silence is deafening

The revelations of auditor John Zarb’s 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 at risk.
The damning part of Zarb’s 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 Zarb’s 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 Italy’s case there have been calls for stricter regulation and greater penalties for activities that endanger creditors and investors, very little was heard from Malta’s authorities at the time of the Priceclub crash.
Nobody has suggested, since MaltaToday’s revelation, that the fines imposed on company officials should be upped drastically.
John Zarb’s 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. Zarb’s evidence was not made yesterday, but yet, the silence is still deafening.