Italy's government paved the way yesterday for Parmalat to rush into bankruptcy protection while prosecutors widened a probe into an accounting hole at the food group now estimated at seven billion euros.
In a bid to stem one of Europe's biggest ever corporate crises, the cabinet approved a decree setting out new rules for rescuing big firms that will take effect on Wednesday.
"The goal of the decree is not to save the controlling shareholder or managers, but small savers, ... suppliers, the integrity and the Italian nature of the firm," Industry Minister Antonio Marzano told reporters.
Parmalat's Chairman and Chief Executive Enrico Bondi, a veteran turnaround expert brought in last week to rescue the group, will be made government-appointed commissioner of the company by Christmas Day, a farmers group said.
Parmalat's board began meeting yesterday evening and was widely expected to announce it would file for protection from creditors under the new rules.
Italy's eighth-biggest industrial group had been teetering on the brink of a default on its bonds for weeks before last week's bombshell announcement of accounting irregularities, which raised fears it might collapse.
Parmalat's crisis exploded last Friday week when it said that Bank of America had rejected as false a document purporting to certify that a Cayman Islands unit of the group, Bonlat Financing Corp, held €3.95 billion of securities and cash.
That hole is now estimated at about seven billion euros, a judicial source said yesterday, confirming media reports that the group's previous management apparently did not buy back €2.9 billion of Parmalat's own bonds as stated in its accounts.
Parmalat officials could not be reached for comment. Newspapers have said the accounting hole could turn out to be as big as 10 billion euros.
Under existing administration procedure, Bondi and his team would have up to two years protection from creditors, who are owed at least six billion euros by the food group.
Details of the new procedure were not immediately available but were expected to be published by Wednesday morning.
Parmalat has 35,000 employees in 30 countries and buys up eight percent of the Italy's milk production.
Underscoring the high political stakes, Prime Minister Silvio Berlusconi said over the weekend the government would save Parmalat's business operations and jobs.
The government yesterday also said it would ask the EU Commission for permission to help Italy's dairy industry after farmers said Parmalat owed them €120 million for unpaid milk bills.
In Milan, public prosecutors stepped up their investigation into suspected fraud. Bank of America said yesterday it had filed a criminal complaint in Italy regarding the Parmalat case.
Prosecutors told Reuters that a scanning machine had been used to forge Bank of America documents that were then sent to auditors who certified the Bonlat unit's accounts.
One of roughly 20 people named in the probe told prosecutors that Bonlat was "an empty box", a judicial source said.
On Monday, Parmalat's founder Calisto Tanzi and three former finance directors of the company - known around the world for its long-life milk - were named in the criminal probe.
Also included were Tanzi's brother and son, former members of the firm's board and outside auditors, judicial sources said.