A creditor of More Supermarkets told a court on Tuesday how his business dealings were dealt a mortal blow when supermarkets boss Ryan Schembri transferred the business to new shareholder Darren Casha.

Further details of the complex series of events leading to the collapse of the supermarket chain emerged on Tuesday when another of the businessman’s creditors took the witness stand in the compilation of evidence against Schembri who is pleading not guilty to fraud and money laundering estimated to run into tens of millions of euros.

Schembri was arrested in Scotland and extradited to Malta in April.   

Edmond Mugliett testified at length about how he was originally introduced to Schembri by Casha in March 2012, recalling how the conversation about the meat trade had steered towards Schembri's supermarket project.

Mugliett, a former businessman, had agreed to provide short-term financing for meat stocks that were already bought and were awaiting transhipment.

Schembri had explained that he needed funds to effect that transhipment, promising to repay the loan upon delivery of the goods.

The mood during that first meeting was “comfortable,” said Mugliett, who agreed to the loan.

From then on, he would provide similar short-term loans whenever Schembri faced cash flow issues and eventually took on a more active role, putting forward suggestions for a business model for the planned supermarket chain.

His proposal was to have a holding company with subsidiaries which would make it easier to sell the business in any future eventuality.

“Cassar and Schembri's accounts were very good and solid. I advised him [Ryan] to work on it,” Mugliett said, adding that he had checked the history of the Ħamrun supermarket and found a profit.

As he put more funds into the supermarket business, he began to involve himself by lending a hand at Schembri’s Birkirkara office alongside KPMG, attending frequent meetings with him.

Over a series of periodic loans, he transferred €2 million from his bank account to that of Cassar and Schembri Marketing Ltd.

Due diligence reveals problems

But doubts set in when he carried out due diligence and realised that the company books were not quite as they should have been.

Schembri had devised a project intended to give his supermarkets “the edge” through a price advantage by importing items under a particular Spanish brand. That brand was so large that it could afford cheap prices on large orders of stock.

Trouble for Mugliett brewed when Schembri signed a share transfer agreement in favour of Casha who, as sole shareholder and director, instructed accountants to sell the assets of Cassar and Schembri to More Supermarkets.

“I immediately realised that my comfort zone had been removed. The carpet was pulled from under my feet,” said Mugliett, explaining how all shares had been transferred to Casha for a fake amount that did not feature on the company accounts.

That share transfer was the “worst moment” which happened at the time of Schembri's hospitalisation.

The move had angered Mugliett who later faced Schembri and his business partner, Etienne Cassar about it.

“Why did you do it?” he asked.

Schembri said he simply wanted to “protect the business from his own personal proceedings.”

As for Cassar, he told Mugliett that he had signed the documentation without knowing what they actually involved.

He claimed that Schembri had once approached his vehicle, placed some papers on the bonnet and told him to sign.

Mugliett had signed a constitution of debt agreement which was signed by Ryan Schembri.

But that document, allegedly backdated by Casha, was subsequently challenged before the civil courts by Casha claiming it was null since it had been signed by Schembri when he was no longer director.

Once Casha took over, he simply turned up at the More Supermarkets office telling Mugliett and financial controller Denis Francalanza that he would “handle creditors from now on.”

New shareholder takes over

When Casha came into the picture after the share transfer, he set up EROM Ltd and “everything changed.”

“If we had one-fifth of the funds in the supermarkets, I assure you that More chain would still be operating in Malta,” the witness said.

Before Ryan Schembri  fled the island in September 2014, the witness said he had faced him after company accounts appeared to indicate “fictitious invoices.”

But Schembri had told him not to worry, attempting to explain away those fictitious invoices.

“I told him to scrap it all because I certainly would not allow such a thing,” said Mugliett.

Before fleeing, Schembri had travelled to Croatia saying that he had a financial problem there.

At the end of June 2014 fixed assets exceeded €5 million, inventories totaled some further €1.8 million and there were some other €100,000 at the bank.

When Casha took over, he even made a ‘fake VAT claim’ and used the refund to pay off a creditor, Copacabana Ltd, which however was not among the list of supermarket creditors, Mugliett said.

Casha’s decision to ‘take’ the money was “the mortal blow.”

During Tuesday’s sitting, another creditor testified about how he was introduced to Schembri by a relative and was lured into investing in the meat business after a first meeting who told him that he would get a 10% gross return.

At the time, the property market was not doing too well and the offer appeared to be “a golden opportunity,” said Chris Delia.

He handed over a first cheque for €80,000 in 2011 and got his promised returns.

Over the next two years, he obtained two equity releases from the banks for €400,000 and €300,000 after Schembri proposed investment in a large consignment of Danish pastries to cruise ships and another investment involving Polish airlines.

Schembri assured him that deals with cruise ships were ongoing and indeed, his cheques were always cashed and declared by Delia in his tax returns.

No initial problems with the banks 

Delia said that he would tell the banks that he needed the money to “do business with Ryan Schembri” and there was no issue.

A manager at Banif Bank had once told him that Ryan was “the biggest depositor” at the time.

Yet those equity releases, signed against security on multiple properties owned by Delia, meant that after trouble broke out and Schembri fled the scene, the banks “pounced” and Delia’s properties, including his matrimonial home, were seized and sold.

Around May 2014 he had invited Ryan on a boat trip to discuss an issue about unpaid cheques and was told that the businessman had a big problem with the Croatian FIAU.

He explained that some €15 million had been frozen after investigations by the FIAU in Croatia, but his lawyers were working to release the funds.

“Ryan even invited me to Libya once. I gave him my passport to get me a visa but the trip never materialised.”

In the end there was an unpaid one million balance representing the capital which Delia used to reinvest in Schembri’s projects.

Delia’s brother, Stephen, who was the last witness on Tuesday, said he had invested some €115,000 in Schembri’s business after selling his a share of property in Sliema.

He originally received his returns but then a second cheque was “referred to drawer.”

The creditor later filed a constitutional case which he won, but meanwhile Schembri had fled.

Now, there is a pending payment of some €30,000, the witness said, explaining that he had kept the rent on a property he rented out for Schembri for some four years.

Schembri’s partner was summoned by the defence to testify for bail purposes.

She explained how she met Schembri in 2016 during a job interview in Dubai and moved with him to London where the couple settled down and had two small kids.

Last year the family moved to Scotland.

Mother and children have since moved to Malta “to support him and settle here,” said the woman, presenting various documents to prove her intentions.

Asked by the prosecution whether she was aware of her partner’s problems, she replied, “yes and no. I was aware he had issues and had left. We were struggling for money. The agenda was to face the music once he earned enough money to pay those debts.”

When making submissions on bail, defence lawyer Roberto Montalto argued that this was possibly more of a case of fraudulent bankruptcy which carried a maximum term of three years.

The charges as formulated carried a maximum 18-year jail term, he argued, insisting that Schembri always intended to come back and pay off his creditors.

The case continues in August.

Superintendent James Grech prosecuted, assisted by AG lawyer Francesco Refalo.

Lawyer Roberto Montalto was defence counsel.

Lawyer Ian Vella Galea assisted Chris and Stephen Delia.