Parmalat ruled insolvent, fraud probe widens

A bankruptcy court declared Parmalat insolvent yesterday and the group's founder was called for questioning as authorities widened a fraud probe into billions of missing euros at Italy's biggest food firm.

The court in the northern city of Parma ruled that Parmalat's main operating arm was insolvent in a decision that will allow the global group to continue operations while restructuring and sorting out debts, judicial sources said.

The court near Parmalat's headquarters took the decision three days after Italy's eighth largest industrial group filed for bankruptcy protection under an emergency government decree.

One of Europe's biggest corporate scandals exploded last week when Parmalat, with 35,000 employees in some 30 countries, revealed a hole in its accounts that investigators said could exceed 10 billion euros.

The crisis has prompted the government to consider a bill that would add muscle to stock market regulator Consob and give it some of the central bank's supervisory responsibilities.

With insolvency status, Parmalat will be able to pay workers and dairy farmers while the Parma court reviews within 120 days the company's debt, the judicial sources said.

Parmalat had stated a six billion euro debt on its books but analysts have doubted the figure.

"We are working, I hope for the best. We will see if it turns out this way," Parmalat's new administrator Enrico Bondi told reporters after outlining the group's financial plight to a Parma bankruptcy judge yesterday.

The scandal has raised questions about the conduct of the food group's managers, auditors and banks, and threatens billions of euros of investments by holders of shares and bonds.

Investigating magistrates have named about 20 people in the fraud probe, including current and former employees of the group as well as unnamed outside auditors.

Investigators said people questioned earlier this week have told of a complex web of offshore shell companies hiding losses for more than a decade.

US auditor Grant Thornton on Friday rejected allegations that it had falsified accounts at a Parmalat unit at the heart of the investigation. Bank of America has filed a criminal suit over the Parmalat case.

Announcing a widening of the probe, Parma's chief prosecutor said Parmalat's founder Calisto Tanzi, under investigation in the probe, has been called for questioning tomorrow.

Police searched Tanzi's home near Parma on Wednesday, and prosecutors had sought to interrogate him that day only to find he had left Italy for an undisclosed foreign country. Judicial sources later said Tanzi was willing to return when needed.

Parma's chief prosecutor Giovanni Panebianco, asked if Tanzi, 65, was expected for questioning tomorrow, told reporters yesterday: "He should show up."

Judicial sources said that with Parmalat declared insolvent, the prosecutor's office in Parma is forced by law to probe for fraudulent bankruptcy, which carries heavier potential penalties than the suspected offences already under investigation.

Bondi is keen to keep Parmalat, one of the world's biggest producers of long-life milk and number three US cookie maker, afloat. He has six months to present a restructuring plan that sources said will take into account all creditors' interests.

If that plan is rejected by the government, the company would be allowed to collapse and its assets would be sold off.

In Paris, French group Danone denied Italian media speculation that it might be interested in buying Parmalat businesses, particularly its cheese and yoghurt activities.

The Italian unlisted dairy company Granarolo could be interested in buying Parmalat's fresh milk business, but only if current anti-trust market share limits were lifted, a spokeswoman for the company said, quoting chairman Luciano Sita.

Granarolo has already reached a 30 per cent limit of fresh milk production in Italy.

Many bondholders fear that under the bankruptcy decree, which shields Parmalat from creditors while it restructures, their interests will come after those of employees, suppliers, equity shareholders and banks.