European court backs bank in Parmalat dispute

A new European Court of Justice ruling should provide Bank of America with a degree of comfort over its recent travails with Italian dairy giant Parmalat.

The disgraced group wanted to oversee the liquidation of Irish subsidiary Eurofood in order to get documents that could support their $10 billion damages case against the bank.

But the EU's top court ruled this week that a company located in an EU member state should be subjected to that country's insolvency proceedings, even if the company is controlled by a group based elsewhere in the EU.

Parmalat went into administration in December 2003 following the revelation that a key account with Bank of America did not exist. Holes in the firm's accounts hid the fact that the company was a whopping 14 billion in debt.

When the scandal, which has been dubbed 'Europe's Enron', broke, the Italian government appointed Enrico Bondi as administrator. Now chief executive, his strategy for the past few years has been to pursue with vigour allegedly implicated financial institutions in order to recoup the lost billions.

His argument is that a number of financial institutions knew about the fraud, though they maintain that they were fooled.

Bank of America has said that it was little more than a lender to Parmalat, and did not act as a financial adviser to the company.

The Italian dairy group is slowly finding its feet under Bondi's guidance. Parmalat announced at the end of March that its profit before interest and tax rose 18.4 per cent in the first two months of 2006 to € 45 million, with predictions that net debt would remain stable over the year.

The company said that profit was up on sales and as a result of a settlement from Morgan Stanley. Revenue from core businesses was € 613 million for the first two months of the year, 9 per cent ahead of the same period in 2005.

Group net financial debt was also reduced from € 369.3 million to € 541.9 million.

The company also announced yesterday that the protection from creditors available to the Parmalat Group in the US (under art. 304 of the American bankruptcy procedures) has been further extended until 2 June 2006.