Parmalat creditors' legal moves gather pace

Wednesday, May 26, 2004

Five months after Italian food giant Parmalat's plunge into insolvency, a U.S. judge has named the leaders of a class action suit, the latest step in creditors' bid to use the courts to recover their money, Reuters reports.

The judge in the U.S. District Court in Manhattan last Friday appointed British pension fund Hermes and European shareholder rights group Deminor to head up a $10 billion class action suit against auditors and creditor banks.

"The action is for $10 billion damages against the previous directors of the company, and also against previous auditors Deloitte & Touche and Grant Thornton, as well as Bank of America and Citigroup ," said Umberto Mosetti, a partner at Deminor.

Parmalat went bust on December 24 in one of Europe's biggest-ever bankruptcies after the discovery that a massive fraud had drilled a multi-billion dollar hole in its accounts.

Parmalat has debts of around 18 billion dollars, vastly in excess of its assets. In March its administrator, Enrico Bondi, proposed that creditors cancel much debt in exchange for equity in a new company.

A final version of Bondi's turnaround plan for Parmalat is due to be presented to Industry Minister Antonio Marzano as expected, but the date for Bondi's next meeting with creditors has yet to be set, a source close to Bondi said on Monday.

"The date of the creditor meeting still has to be set but it will take place," the source said.

But some creditors are taking matters into their own hands, seeking redress through courts in New York, Rome and Dublin.

In the New York case "the institutions are charging the defendants with fraudulent activity and giving misleading information", said Mosetti.

"I expect Bank of America and Citigroup will feel more the pressure of a U.S. than an Italian court," he added.

The Manhattan case is the first where U.S. courts have appointed European institutions to represent a whole class, said Mosetti.

"U.S. courts are now saying 'we're there for European investors'," he said. "It's an additional tool for European investors seeking justice."

Deminor is representing Parmalat bondholders, while Hermes is the largest private shareholder in Parmalat, with a holding exceeding two percent, Mosetti added.

"It's a means to increase their (creditors') recoveries," said a source close to the situation. "It's better going after deep pockets as Parmalat doesn't have any money."

In Dublin the high court is hearing this week Parmalat's appeal against the appointment by creditors of the liquidators of Parmalat's Irish unit, Eurofood.

The creditors have appointed their own liquidator to take control of Eurofood's assets and this is opposed by Bondi.

And on June 10 a Rome court will hear a suit from various creditors opposing Bondi's control of the group as a whole.

In the Cayman Islands, bondholders have already successfully appointed their own liquidators of Parmalat's Cayman Islands assets, giving these creditors access to Parmalat accounts.

As a result they have established they have claims on Parmalat assets around the world, giving them leverage over the future sales of such assets, a source close to the Cayman Islands bondholders said on Monday.

"The (restructuring) plan cannot work without the consent of Cayman Islands bondholders," the source said.

"Cayman Islands should get a higher recovery reflecting these claims in the operating companies," he added.

The strength of the Cayman Islands case will depend on their proving the validity of accounts, said the source close to the situation.

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