Parmalat – The Fall of a Dairy Giant

Parmalat – The Fall of a Dairy Giant

Examine the implications of the collapse of the company to the economy in which it operated

The case deals with the financial scandal at Parmalat, one of the biggest companies in Italy. Parmalat was among the largest food-based companies in the world, and had a presence in a variety of product categories. Towards the end of 2003, it was revealed that the company had been resorting to fraudulent accounting practices from the late-1980s and had been in the habit of transferring large amounts of money from the Parmalat group to several other overseas subsidiaries or companies owned by the Tanzi family. The scandal came to light only in December 2003, when Parmalat was not in a position to honor a bond payment that had become due, but analysts had been doubtful about the company’s accounting practices since 2002.      Investigations revealed that Parmalat created assets where none existed and transferred money to its various subsidiaries around the world in a series of complicated derivative transactions. In late December 2003, Parmalat went into controlled administration under the supervision of turnaround expert, Enrico Bondi, and analysts were confident that, under Bondi, the company would manage to turnaround. The Parmalat case was one of the biggest scandals to hit Europe and many analysts took to calling Parmalat ‘Europe’s Enron’.

Issues:

» Analyze the accounting scandal at a large business group. The reasons behind the scandal and the way in which the fraud was committed

» Examine the implications of the collapse of the company to the economy in which it operated

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