Parmalat administrator in dispute with Cayman firms

Sunday, February 1, 2004

MILAN, Italy: According to recent media reports, Parmalat's special administrator Enrico Bondi is gearing up for a titanic contest with Ernst & Young (E&Y) in Cayman, who reportedly have refused to hand over accounting records. It has also emerged that Bondi has dropped long-time Parmalat legal adviser Maples and Calder and replaced them with two-partner Cayman firm Turner & Roulstone.

Bondi, who was appointed as Parmalat's administrator after the Italian dairy giant collapsed in late December, is trying to oust E&Y from the provisional liquidation of three Cayman companies: Food Holdings, Dairy Holdings and Parmalat Capital Finance Limited (PCFL). The battle to control the provisional liquidation of these companies is the first formal procedure outside Italy by the administrator. 

Cayman law firm Walkers successfully petitioned to wind up the three Parmalat subsidiaries in Cayman and install E&Y partners Jim Cleaver and Gordon MacRae as provisional liquidators. 

Of the three companies, PCFL is central to the dispute. PCFL's subsidiary is Bonlat, the Cayman company that triggered the Italian food group to file for bankruptcy protection when it was discovered that $4.9 million, which was supposed to be held in a US account, did not actually exist. 

E&Y's role is now being vigorously contested by Bondi, who is pressing for E&Y to be replaced by partners at PricewaterhouseCoopers. The parties have now flown in two eminent barristers for the case. Michael Crystal QC is advising E&Y, while William Trower QC has been called in for Parmalat.

Meanwhile, PriceWaterhouseCoopers has uncovered 4.3 billion dollars of funds spent by Parmalat Finanziaria on operations "not linked to its commercial activities", the financial daily Il Sole 24 Ore reported Wednesday.

The newspaper cited extracts of the PWC report being prepared by the auditors for Bondi.

The report lists payments over 1997-2003, including 2.14 billion dollars in financial payments described as "not ordinary".

Recipients include six million dollars on the personal account of ex-Parmalat chief Calisto Tanzi, 315 million dollars to the Tanzi family-owned tourist firm Parmatour and 30 million to the law firm Studio Zini and Associates, the report said.

PWC has traced 2.3 billion dollars to PCFL, but has not been able to obtain accounting records because of the refusal of the company's administrator Ernst and Young, it said.

According to the Financial Times, the PWC report also says that a bond issue put together for Parmalat by Credit Suisse First Boston had "anomalous characteristics". The issue in question was a $500 million convertible bond handled by CSFB in January 2002. 

The PwC report is understood to indicate the transaction needs to be examined in greater detail. The issue was partly administered by SCH of Spain, which helped channel half the funds through the Cayman Islands. Neither CSFB nor SCH could comment.

It also emerged on Tuesday that Credit Suisse Asset Management sold most of its equity exposure to Parmalat one year ago, around the time that investors began to worry about Parmalat's continuously rising debt and share began to slide.

Many of the world's largest commercial and investment banks have been questioned by investigators over their roles in Parmalat's finances. Citibank has been asked to explain Buconero, a Luxembourg registered company it set up in 1999 that allowed Parmalat to finance operations while keeping the financing off its balance sheet. The bank has said it has done nothing wrong but said it would no longer offer such a service under new policies adopted after the Enron scandal.

Deutsche Bank has said it is co-operating with investigators regarding its decision to purchase a $360 million private bond placement from Parmalat in September.

Bank of America is under the spotlight over the purchase in 1999 of 18 per cent of Parmalat's main Brazilian unit by two Cayman Islands companies, Dairy Holdings and Food Holdings, that appear to be Parmalat controlled entities. 

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