Café Premier owners get €4.2 million in amicable ‘bailout’

A multi-million 'bailout' for the owners of a closed-down cafeteria in the heart of Valletta was brokered in January 2014, when the government allowed the Lands Department to buy Café Premiere and its lacklustre 'Great Siege 1565' waxworks attraction.

The government is saying that its "amicable acquisition" was a decision to remove any hazard that the catering establishments in the area could pose to the treasures housed in the Biblioteca, above Pjazza Regina.

But taxpayers had to fork out the unprecedented sum of €4.2 million to pay back the café's outstanding €2.5 million bank loan, their income tax and VAT arrears, energy bills, ground rents and other creditors of the owners of the Café Premier - in a highly controversial decision to buy back a 65-year emphyteusis from the owners.

The government is claiming that even if it appropriated the cafeteria forcibly for the protection of the scheduled Biblioteca, it would have had to pay out some form compensation.

But it has also admitted that the café had ceased operating, and that the owners were negotiating with third parties to sell the business, something that is illegal according to the original emphyteutical deed: indeed, the deed forbade the owners from ceasing operations, something that would have led to a breach of the emphyteutical grant and given the government the right to take back the café.

MaltaToday has read the contents of the €4.2 million deal which took place on 29 January 2014, after the Commissioner for Lands cancelled court action filed against owners Cities Entertainment Limited, to pay up over €200,000 in arrears they owed to the government.

According to company records, Cities Entertainment was valued at €6.9 million in share capital, but wracked with mounting debts and losses.

Matters got worse when in December 2012, the Lands Department hauled Cities Entertainment to court to pay their arrears on the 65-year emphyteusis for the premises on Old Treasury Street, where Café Premier had its business. The café was then paying just over €93,000 in annual ground rent.

In July 2013, lawyers from both Cities Entertainment and the Commissioner for Lands told the courts that agreement had been reached to cease all court action.

This agreement, reached just after the change in government, was a prelude to the acquisition by the Lands Department of Café Premier and its 'Great Siege' waxworks attraction.

For the owners of Cities Entertainment, who had been running Café Premiere and the adjoining Old Theatre Street waxworks since 1998, the deal was nothing short of a timely bailout: the government was buying all the cafeteria's machinery and furniture and the waxworks museum, but the cash had to be used to pay back all their outstanding debts with the government and release them from a 65-year concession.

Instead of forging ahead with its court action to recoup the arrears, or even dissolve the emphyteutical grant - as the government was empowered to - the Lands Department paid Cities Entertainment €4.2 million to pay the government back on arrears and taxes, rather than having them pay the money they owed from their own reserves.

Of the total sum, the owners had to pay back: €307,346 to settle outstanding arrears with the government property division and €504,000 in capital gains tax owed on the land; then the sum of €192,748 to the Inland Revenue Department to settle income tax and social security payments, €227,058 to the VAT Department on outstanding dues and legal procedures against the company, and €130,963 in energy bills for ARMS; and also €210,000 to the company's own shareholders M&A Investments and €3,265 to creditors Golden Harvest.

Finally, another €2,560,800 was paid to Banif Bank, in settlement of the outstanding bank loans that Cities Entertainment held with the bank, payable in four instalments.

The government has told MaltaToday that it stepped in to buy back to the cafeteria when it "found out" that Cities Entertainment "was negotiating with third parties to sell the business" - but the original deed states clearly that the company cannot transfer or sub-lease, or enter into third party 'partnerships, management, or franchise agreements' without government permission.

The government will now retain all objects and movable property inside the cafeteria and the Great Siege experience, a collection of waxworks and audio-visual equipment.

The deal also cancels out all arrears and court action that various government departments filed against its shareholders and directors. The shareholders are Cabellero Entertainments Ltd (Neville Curmi and David Curmi), Daneta Limited, Impact Limited (Christopher Grima) and Jamco Limited and M&A Investments (partly owned by Mario Camilleri).

'Amicable' not forced acquisition

The government has told MaltaToday that the acquisition of the remaining period of the emphyteutical grant was a decision intended to "eliminate once and for all any hazard that a catering establishment could pose to the treasures housed in the Biblioteca."

"In fact all other tenants of government-owned properties housed within the Biblioteca block have been informed in writing that the government will not accept any future requests for catering establishments," a spokesperson for the parliamentary secretariat for planning, said, referring to neighbouring restaurants.

The government also said it intends constructing an elevator to the Biblioteca's first storey, currently only accessible through the grand staircase from the main door.

"Once government found out that Café Premier had ceased operating and the company was negotiating with third parties to sell the business, the timing was considered ideal to step in and arrive at a negotiated agreement with it," the spokesperson said.

When asked why the government did not proceed to expropriate the premises, given that this was intended for a historical or cultural purpose, the government replied that the acquisition would still have had to include some form of compensation.

"Expropriation is nothing more than a forced acquisition. Government commissioned an architect in its employ to estimate the value of the remaining period of emphyteusis, which value would have been offered to Cities Entertainment had expropriation proceedings been carried out in accordance with Chapter 88," the spokesperson said, referring to the law governing land acquisition by the State.

"Once the final agreed price was below this value, government decided to carry on with an amicable acquisition. It is pertinent to point out that the final agreed value is also much lower than the value originally requested by Cities Entertainment."

How much for Café Premier?

Under the 1998 concession, Cities Entertainment Limited were asked to pay an annual ground rent of Lm40,010 (€93,433), but this was 'administratively reduced' to Lm20,000 for the first two years, then Lm25,000 for the next two years, Lm30,000 for the next two years, and Lm35,000 for another two years before reaching Lm40,010 in the ninth year (in 2007).

The sum would then be revised by 20% of the ground rent every five years, reaching a total of Lm7.2 million over 65 years, or €16.8 million in today's prices.

Originally, the directors of Cities Entertainment - Michael Bianchi, Joe A. Grima, and Michael Zammit Tabona (all of whom later resigned) - also had to pay out the café's former tenants, amongst them Joseph Pace of the former Magic Kiosk café in Sliema.

The company paid Lm850,000 (€1.98 million) of which Lm100,000 was a goodwill payment, Lm500,000 in the form of "improvements" that took place inside the cafeteria, and Lm250,000 for furniture and fittings.

On their part, the tenants had to pay back the sum of Lm85,000 to the Commissioner of Lands, Lm35,000 in provisional capital gains tax, Lm50,000 to Bank of Valletta and another Lm50,000 to Mid Med Bank owed by Joseph Pace, and Lm26,541 to the Commissioner of Lands for arrears owed by Pace on the former Magic Kiosk café.

Cities Entertainment also bound itself to carry out Lm350,000 (€815,000) in improvements inside the café and its Old Treasury Street extension over the next five years.

Up until 2012, the company would have paid a total of just over €1 million rents, apart from the €815,000 in improvements, and the €1.98 million to the former tenants.

The government was also within its right to dissolve the agreement if the company fell behind by two years in emphyteutical payments.