Parmalat 'falsified its accounts'

Parmalat may need protection from its creditors

An Italian prosecutor has accused food giant Parmalat of falsifying accounts as company executives meet with bankers to hammer out a rescue plan.

"The cases of false accounting are pretty obvious," prosecutor Angelo Curto told Reutuers.

Parmalat is on the brink of being forced into administration after a 4bn euro (£2.8bn; $5bn) black hole was discovered in its accounts on Friday.

The scandal is growing rapidly and has been described as "Europe's Enron".

Investigation

Calisto Tanzi, Parmalat's founder who resigned as chief executive last week, is one of four men being investigated, according to Italian news reports.

PARMALAT: KEY FACTS Founded in 1961 by Calisto Tanzi Tanzi family still main shareholders Employs 36,400 workers in 30 countries Owns Parma football club in Italy, and Palmeiras in Brazil Why Parmalat's muddy finances have worried the markets

Parmalat's new management team, meanwhile, is meeting with bankers on Monday in an effort to put in place financing needed to keep the company afloat.

Parmalat owes the second instalment in a payment to Brazilian business partners, having missed the first payment last week.

According to media reports, the company is likely to be put into "controlled administration" - which offers up to two years' protection from creditors.

Bail out

On Saturday, the Italian Government said it would bail Parmalat out, in order to safeguard its 36,400 jobs.

But no concrete government plan has yet been detailed.

The company's intention to declare itself in administration exploits Italy's favourable insolvency laws, which offer a provision similar to US Chapter 11 bankruptcy.

If Parmalat opts for this, it will be given a limited period - probably two years - of protection from creditors, during which it is expected to sort out its finances.

The move would forestall any attempt by creditors to declare the firm insolvent, a genuine prospect given the millions of euros of payments due in coming weeks,

Speculation mounts

Over the weekend, reports have suggested that Parmalat's plight may even be worse than some had feared.

Parmalat originally claimed that 4bn euros of its money was temporarily stranded in Cayman Islands banks.

The Italian cabinet is to discuss Parmalat on Tuesday

But the Bank of America said key papers were false, casting doubt on whether the money actually existed.

Newspaper Corriere della Sera accused Parmalat of not having bought back 2.9bn euros of bonds - something that would push total debt to almost 9bn euros, 50% more than what is recorded on its balance sheet.

The newspaper said that US investment group Blackstone Capital Partners had proposed a buyout in early December, but walked away when it saw the state of Parmalat's accounts.

The Financial Times, too, said that the hole in Parmalat's accounts could be bigger than the 4bn stranded in the Caymans.

Italian prosecutors are investigating allegations of fraud and providing false financial information, and took boxes of documents from auditors Grant Thornton and Deloitte & Touche on Saturday.