Café Premier tenants asked for out-of-court settlement

Michael Farrugia on Cafe Premier 'bailout'

Parliamentary secretary for lands Michael Farrugia said he is willing to publish all the necessary paperwork into how government came to a €4.2 million deal to effectively ‘bail out’ a defaulting tenant, once police investigations into allegations of “commissions” are concluded.

In June 2013, just after Labour’s election to power, the Lands Department cancelled court action against Cities Entertainment Ltd to pay up over €200,000 in arrears for its lease at the Café Premier on Old Treasury Street and the ‘Great Siege 1565’ waxworks museum on Old Theatre Street, in Valletta.

By February 2014, the government paid the company €4.2 million on condition that Cities pays back its outstanding rent, income tax and VAT dues, energy bills, and even a €2.5 million commercial loan with Banif Bank.

“The valuation was made by an independent architect,” Farrugia told MaltaToday when questioned on the deal yesterday.

“The assessment was based on a formula currently used in similar cases. It is clear that the value is a realistic one,” he said, referring to the way government expropriates land when it is scheduled property.

“We will publish all contracts at the opportune moment… it’s not something secret.

“What we’re doing now is an investigation into certain accusations that may or may not be justified,” he said, referring to comments by Nationalist MP Jason Azzopardi who questioned whether “commissions” were paid for the deal between government and Cities Entertainment to be brokered.

Farrugia has now confirmed that it was Cities Entertainment Ltd that asked the government whether it could reach an out-of-court settlement.

“We did not want another restaurant under the Biblioteca, and for this very important reason we entered into a commitment to ascertain that the police goes into government’s hands and that it will not be used as a restaurant.”

Originally, the parliamentary secretariat claimed it had learnt that Cities Entertainment were negotiating with third parties to sell the business after it had shut down: according to the original emphyteutical deed this was not permissible.

€4.2 million ‘bailout’

MaltaToday was told that representatives of the company had at one point demanded €3.5 million for the cafeteria from prospective buyers, when debts started mounting for Cities Entertainment. In 2012 they were paying just over €93,000 in annual ground rent for the 65-year emphyteusis.

The government has already declared that it chose not to expropriate Cities Entertainment from Café Premier “forcibly” – which would still have involved some form of compensation – and instead proceed with an “amicable” acquisition.

What is unanswered is why it did not rescind the emphyteutical grant when it learnt that the café had ceased operating. Instead it chose to pay €4.2 million, which payment was conditional on the company repaying €307,346 in arrears to the government property division; €504,000 in capital gains tax; €192,748 in income tax and social security payments; €227,058 in VAT; €130,963 in energy bills; several thousands to creditors and company shareholders; and a further €2.5 million balance on loans taken out with Banif Bank.

Under the ‘bailout’, the government has now acquired Café Premier and its ‘Great Siege 1565’ waxworks attraction on Old Theatre and Old Treasury streets.

Criticism of deal

CEO Tony Zammit Cutajar, of P Cutajar & Co Ltd, has described the €4.2 million bailout as a “wrong message” to the business community and lessees of government property “that they would be better off not paying rent, income tax, VAT and other dues… even wait for government to bail them out once they go bankrupt.”

“This property could and should have reverted to the government at no cost once ground rent to the tune of €200,000 had not been paid,” he wrote last week in The Times.
“The government should not use taxpayers’ money to bail out private enterprise. I am a member of the fourth generation of owners of a family business and never in my wildest dreams would I expect public money to be used to bail our company out if things were to go wrong,” Zammit Cutajar added.