Page last updated at 18:47 GMT, Wednesday, 5 April 2006 19:47 UK

Italian court favours Parmalat

Parmalat logo
Parmalat collapsed under 4bn euros debt in 2003

Italy's constitutional court has ruled dairy firm Parmalat can claim 7.5bn euros (5.2bn) from certain creditors.

The company launched suits against banks it claimed had been aware it was in a poor financial state, yet kept earning money through commissions.

Under Italian law, a firm can claw back money from banks which knew it was financially weak before going bankrupt.

Parmalat was swamped in 14bn euros of undisclosed debt in December 2003, but was not actually declared bankrupt.

It was, however, placed under emergency administration.

A group of 20 banks, which was led by Monte dei Paschi di Siena BMPS and included HSBC, had brought a case against Parmalat.

They questioned the legitimacy of applying the so-called claw back rule in the case of Parmalat, because it came into effect after Parmalat's demise.

Parmalat had subsequently brought a case against the group of banks.

Italy's constitutional court, which has the final word in such matters, ruled there were no foundations for questioning the legitimacy of the claims in Parmalat's case.

Party time

Parmalat had been suspended by Milan's stock exchange pending the release of a statement from the company.

But shares in the company rose on Wednesday by more than 7% following the court's ruling.

"Its a party out there with the shares. Volumes are very high. Over 17 million have changed hands and before the suspension only two million had traded," said one trader.

Parmalat is also seeking 13bn euros in damages from banks, claiming that they aggravated its insolvency.

Among those Parmalat has sued are parts of Citigroup, Union Bank of Switzerland, Deutsche Bank and Morgan Stanley

The banks are denying all accusations of wrongdoing.

SEE ALSO
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