The Italian dairy giant Parmalat filed for bankruptcy protection on Wednesday to deal with a cash crunch amid allegations of accounting irregularities.
Meanwhile, prosecutors looking into the scandal ordered a search of the founder’s home.
The Parmalat scandal exploded last week when the company acknowledged a multibillion dollar hole in its balance sheet. The tangled case has expanded as prosecutors look into whether fraud was committed on a massive scale.
Parmalat said in a statement that it had approached the Industry Ministry to enter the government’s new bankruptcy-protection plan. Hoping to rescue the company, Italy’s Cabinet issued a decree Tuesday that set up a streamlined bankruptcy-protection system.
The move was widely expected.
Also Wednesday, news reports said company founder Calisto Tanzi and his son Stefano may have left the country. However, Stefano Tanzi’s lawyer later said his client was in Milan, although he didn’t know where the elder Tanzi was.
Stefano Tanzi “knows his father is not in Parma, but hasn’t had communication with him for some days,” lawyer Sergio Ravaglia said by phone.
Some have dubbed the case “Europe’s Enron,” and a feared collapse could have widespread effects. Parmalat, long a model of northern Italian industrial success, employs 36,000 people in 29 countries.
The scandal may also bring major changes to Italian business oversight. Premier Silvio Berlusconi’s Cabinet promised reforms in the regulatory framework.
The scandal erupted Friday when Parmalat revealed that Bank of America Corp. did not have about euro3.95 billion ($4.9 billion) of its money, as the Italian company had reported in September. The bank says the letter guaranteeing the funds was fake, and prosecutors are investigating whether any crimes were committed.
The ANSA news agency said prosecutors now believe the total hole in Parmalat’s balance sheet may be almost euro7 billion (about $8.5 billion), after the discovery of euro2.9 billion ($3.6 billion) in bonds Parmalat said it had bought back but had not. They are also investigating whether a scanning machine was used to falsify Bank of America documents, it said.
Authorities have been questioning former Parmalat chief financial officer Fausto Tonna. Business daily Il Sole-24 Ore said Tonna disclosed to prosecutors that there had been systematic falsifying of accounts at Parmalat for 15 years and that he’d been taking orders from his superiors.
Giuliano Panizzi, a consultant who worked with Parmalat for more than 15 years, told Il Sole-24 Ore in an interview that the false accounting was probably done to cover up industrial and financial losses, not to extract money from the company.
“If what is emerging is all true, the hole has huge, unthinkable dimensions,” he said.
The government’s rescue plan would involve the appointment of a special commissioner to draw up a restructuring plan, which must then be approved by the Industry Ministry. The government said it will choose Enrico Bondi, recently appointed Parmalat CEO after Tanzi was ousted, for the commissioner post.
Industry Minister Antonio Marzano indicated that the commissioner should avoid a wholesale sell-off. “The main brief of the commissioner is to overhaul the company, and not to sell the company’s assets,” he said.
Tanzi founded the company in 1961 and ran it until earlier this month, when he was replaced by Bondi. Shortly thereafter, Parmalat’s financial woes were revealed.
The company, which has annual sales of around euro7.5 billion ($9.2 billion), produces and sells milk, yogurt, juice and other food products in Europe, the United States and around the world. It is based in Parma, about 250 miles northwest of Rome.
Parmalat grew to success as a family run enterprise and became one of the emblems of northern Italy’s business prosperity. Other northern Italian companies run by families include the Fiat automaker in Turin, Benetton apparel in Treviso, and Berlusconi’s Mediaset in Milan.
The government also said Tuesday it would ask the European Union Commission to grant “crisis” status to the nation’s dairy industry — a move aimed at injecting fresh cash into the sector.
In Brussels, spokesman Thorsten Muench said the Commission’s agriculture unit would ask the Italian government to explain the type and amount of aid planned. Italy must “explain who’s being affected” by the subsidies so officials can determine whether the measures distort the EU milk market, he said.
Meanwhile, The Charlotte Observer newspaper reported Wednesday that Bank of America Corp. has filed a criminal complaint with Italian authorities in connection with the Parmalat investigation.
In a statement, the bank, which is based in Charlotte, N.C., said it met with Italian prosecutors Tuesday before filing a complaint “in accordance with Italian law,” the paper said.
The bank also said it was cooperating with U.S. and other legal and regulatory authorities.
Bank of America, the nation’s No. 3 bank in assets, has done extensive business with Parmalat over the past six years, including making loans and assisting with bond offerings.
Last week, Parmalat nearly defaulted on an euro150 million ($186.5 million) bond.
The ratings agency Standard & Poor’s, alleging that Parmalat misled investors and was in default on a Brazilian deal, downgraded its debt to D, its lowest rating.
Parmalat must make more than euro100 million ($124.4 million) in bond payments in January and February.