Nationalist Party leadership contender Adrian Delia and the €7.2 million debt to HSBC Bank

For a copy of the actual constitution of debt, see this earlier post.

Mgarr Developments Ltd (company registration number C 38168) was incorporated on 9th March 2006. Its shares are held by Island Developments Ltd (Mark Grech and Joe and Lucy Attard, all of Gozo), which is the majority shareholder, by Plata Charter Ltd (Georg and Audrey Sapiano) and by Adrian Delia and his wife Nickie Vella de Fremeaux in their personal names.

Dr and Mrs Delia’s shareholding is the smallest by far, but he is the company’s legal and judicial representative and company secretary, and also one of its three directors, the others being Mr and Mrs Attard’s son, Fabian, and Mark Grech.

On 20th March 2006, just 11 days after the company came into being, it was granted two loans by HSBC Bank Malta plc, where Dr Delia had worked for some years in the contracts division: one for €8,152,806 and the other for €4,192,872.

That very same day, Mgarr Developments Ltd bought the Mgarr Bay Hotel on Gozo’s Mgarr Harbour, which had been built and operated by the Tumas Group.

The hotel was demolished and the process began to built 80 flats – the basis on which the loans were taken – a number that was at some point reduced to 41.

The bank loans are secured by general hypothecs over the land on which the hotel stood, the flats to be developed, all assets owned by the company in the present and the future, personal guarantees by the shareholders, and a pledge on insurance policies. The hypothecs were registered at the Public Registry in Gozo – numbers 579/2006 and 580/2006.

At some point, Mgarr Developments Ltd stopped making repayments on its loans, and abandoned its payment schedule completely. The last set of accounts for the company, filed at the Companies Registry, is for the financial year ending 31 December 2013. They were filed in March 2016. This means that the most recent publicly available accounts for the company are almost four years old. That year, 2013, the company recorded a loss of €6,741.

In May this year, the auditor – Michael Bailey of Bailey Audit Services Ltd, who is also the auditor for other companies owned by Dr Delia and Dr Sapiano and who has offices in the same Valletta building as their law firm – was removed.

Seven years down the line, Mgarr Developments Ltd still owes €7 million of the original €12 million, and has also accrued more than a quarter of a million euros in unpaid interest. Meanwhile, HSBC Bank has been clamouring to be paid. Two weeks ago the bank obliged all the shareholders – Mark Grech, Joe and Lucy Attard, Georg and Audrey Sapiano, and Adrian Delia and Nickie Vella de Fremeaux – to formalise a constitution of debt.

This is a contractual document – recorded by a notary, making it a public deed – which brings together in one sum the outstanding loan capital and unpaid interest as at the date the document is signed. This is the new debt total and the bank begins charging interest on it at 8% from that date forward.

The aforementioned individuals signed this constitution of debt with HSBC Bank only two weeks ago, on 26th July, for a total of €7,243,462.

The document explains that the bank had called on them in their personal capacity, as “sureties” for the loan made to their company, to pay the outstanding €7 million, “which payment the sureties have to date not effected”, following which they had agreed in terms of this document to constitute themselves “certain, liquid and due debtors in favour of the bank for the sum of €7,243,462″.

All seven of them – three married couples and a single man – are liable jointly and severally (“in solidum”) for the entire outstanding amount, which means that they do not owe a million each, or an amount proportionate to their shareholding, but the entire amount altogether (“jointly”) while the bank can come after any one of them alone for the whole amount (“severally”) if it deems fit. This means that Adrian Delia and his wife are technically liable for the entire €7.2 million on their own, should HSBC Bank decide to pursue them and give up on the others. The other five shareholders are similarly exposed.

The document lays out that HSBC Bank will now begin carrying out regular searches on the “liabilities and transfers” made by the seven individuals in their personal capacity, which means that it will be monitoring any sale or transfer of shares, property and other assets which they may make, and any liabilities they seek to take on, until such a time as they clear their debt to the bank.

The bank has also obliged them to insure their property and to have the bank’s interest in the matter noted on the insurance policy. If they do not pay their insurance premiums punctually, the bank will step in and pay those premiums itself, adding the cost to what they owe the bank already.

Adrian Delia, his wife and their five fellow shareholders have undertaken to give the bank “full details and all information relating to their business and/or financial position” at regular intervals when the bank asks for it, and to give the bank “every facility” to verify the information which they give it.

Background reading

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I rang Adrian Delia with questions on this subject. An edited and cleaned-up version of the angry conversation follows, and in this other post you will find more that was said.

On 26th July, two weeks ago, you were party to a constitution of debt to HSBC Bank, to the amount of €7.2 million. Why have you not informed the public?

The public will be informed.

Yes, by me, though – not by you. I’m going to publish the public deed later on today.

I had already said I would disclose everything to the public.

Oh good. When were you planning on doing that, exactly?

I have already said when. After I become leader – I mean if I become leader – I will disclose everything.

Bit too late then, isn’t it. First they vote to make you Leader of the Opposition, then you break it to them that you and your wife have €7.2 million exposure to HSBC in your personal capacities. So then instead of making sure you don’t become Opposition leader they’ll have to make sure you don’t become Prime Minister. Surely you cannot be serious. The reason you don’t want to tell the public now, or the party members and councillors who are eligible to vote for you, is that you know it will affect your chances. In other words, you intended to cheat them by concealing important information from them.

That’s not how it is at all. I said already that I would reveal everything.

Yes, but only after the leadership contest, and then only if you are elected. How does that help anyone except you? You also said you are planning on divesting yourself of your shareholding in various companies and of your other interests, if you become Opposition leader. How do you plan to do this?

A CIRCULAR EXPLANATION BEGINS.

I’m sorry, I’m going to have to interrupt. Going by this constitution of debt I’m looking at here, it seems to me that you probably can’t even sell your car without the bank’s permission, let alone your shareholding interest in various companies which HSBC Bank might wish to seize should you fail to pay what’s owing on Mgarr Developments Ltd. So quite frankly, this is all just talk and you were counting on nobody finding out about the constitution of debt. The bank is certainly not going to allow you to dispose of your shares in a company which owes it €7.2 million, which is why you had to sign that document only two weeks ago.

OK, so I’ll admit that I can’t dispose of my shares in Mgarr Developments until the debt is paid, but that shouldn’t take longer than 18 months.

Really, how so? You’ve only managed to pay back €5 million in 11 years, and now suddenly you’re going to repay €7.2 million in 18 months?

In 18 months we’re going to finish all the remaining flats, sell them and pay off the bank.

Good luck with that. Sounds like it’s all talk to me. If it were so simple, why haven’t you done it already?

For some years we couldn’t build anything because MEPA (the planning authority) was giving us trouble. We wanted to reduce the number of flats from 80 to, I think, 41 and they hassled us.

They hassled you because you were going to halve the number of flats? And what do you mean when you say you think the number of flats is 41. Do you expect me to believe that you don’t even know how many flats you’re building? How much are you selling the flats for?

I’m not really involved, that’s why. I only have a 9% shareholding. I don’t really know how much they cost. I suppose upwards of half a million. I’ll have to ask Georg and get back to you.

You’re one of just three directors and you are also the company’s legal and judicial representative and company secretary. And you had a loan of €12 million on that project and still owe €7.2 million, so I suggest you take a sharp interest in how many flats you’re building and what price you’re selling them for, unless you’re just pretending not to know because you’d rather not tell me. I can always phone Georg myself, but I’m not interested in the price of the flats. I’m only interested in what kind of answers you give me.

I’m told that the value of the property at Mgarr exceeds the amount we owe to the bank, so I am not concerned because when we sell the flats we are covered.

You’re told? Shouldn’t you know? In any case, I can’t assess whether this is correct because you haven’t told me how many flats are still left to be offloaded on the market. The constitution of debt indicates that there’s a lot more that’s hypothecated.

So then in 18 months we’ll have paid back the loan by selling all the remaining flats, and then I will be able to sell my shares in the company.

Exactly what would be the point of doing so then? The company was set up to build and sell that particular block of flats. Once they are all built and sold, and the debts paid, the shares are worthless and companies set up for that kind of specific purpose are dissolved.

The profits will be left.

How much profit are you expecting after you have paid the bank? In any case, won’t you be wanting the profit? So just to be clear, you intend to spend your first 18 months as Opposition leader building and selling flats at Mgarr Bay in an effort at paying off a €7.2 million debt. And if you don’t succeed in 18 months, you will have to go on as long as it takes because you have no choice. Is this appropriate behaviour, do you think? And should Malta have an Opposition leader whose every personal transaction is policed by the country’s largest bank, under his constitution of debt? I find it incredible that you were planning on not disclosing this to the public.

I told you several times already that I said I would disclose everything as soon as I am in public life.

You are in public life already. In any case, people in public life are not obliged to disclose this sort of thing to the public. People running for high public office are, or those who are hold high public office already.