CORPORATE GOVERNANCE

BMFM 33132
TITLE : BANKRUPTCY OF PARMALAT COMPANY
GROUP MEMBER: NO NAME ID
1. CHONG CHIAH MIN B14091184
2. HONG YEE TIEN B14091165
3. LEE HUI JYE B14091099
4. NABILAH B14091170
5. TAN JOEAAN B14091116

LECTURER: DR.SAMI
BACKGROUND OF PARMALAT
In 1961, Calisto Tanzi, a 22-year-old college dropout, opened a small
pasteurisation plant in Parma. Two decades later, the company had
grown into a multinational corporation diversifying into milk, dairy,
beverage, bakery, and other product lines
in the 1980s, becoming listed on the Milan stock exchange in 1990,
and expanding further in the 1990s.
By 22 April 2002, Parmalat's share price had reached a record and the
company was valued at 3.7bn, employing over 30,000 people in 30
countries..
The new Parmalat S.p.A. has been listed on the Italian Stock
Exchange since October 6, 2005
The history of Parmalat can be divided into four main
periods:
The period of the old Parmalat which started in 1961 and ended in
December 2003 with the outbreak of the financial scandal.

Starting from December 2003, Parmalat and numerous other companies of

the old Group are admitted to the Extraordinary Administration
procedures. During this period the Restructuring Plan of the Parmalat
Group and the Composition with Creditors, which was an integral part of
the Plan, have been prepared. The Composition with Creditors established
a separate legal entity, the "new" Parmalat S.p.A., in which starting from
October 1, 2005 are included 16 companies of the former Parmalat Group.
 The new Parmalat S.p.A. has been listed on the Italian
Stock Exchange since October 6, 2005.

Since July 15, 2011 Parmalat S.p.A. is controlled by the

Lactalis Group which at the time of the takeover bid
owned about 83% of the companys share capital.
 GLORY TIME OF PARMALAT
Parma, Italy, is not only the home of fine Italian cheese and ham, but also Parmalat
Finanziaria SpA, a diversified, international food company and one of the world's largest
dairy processors.
The company is best known for its revolutionary, ultra-high temperature (UHT) milk,
which can sit unopened on an unrefrigerated shelf for six or more months without
spoiling or souring.
Parmalat also produces, distributes, and markets an ever-growing range of other food
products, including dairy products.
Annual sales have exceeded US$6 billion, with roughly one-third made in each of Europe,
North and Central America, and South America, and with remaining sales made in Africa,
Asia, and Australia.
The founding Tanzi family remains an important part of the decades-old Parmalat,
owning 51 percent of the company.
 GLORY TIME OF PARMALAT TIMELINE
The 1960s from cold cuts to riches. Formation of Parmalat company
The 1970s and 1980s :expanding in Italy and Abroad.
The 1990s and beyond: Capturing the American Market and Others. Parmalat was
already selling its products in more than 30 countries. Dairy sales in the United States,
for example, ballooned from US$5 million in 1992 to US$650 million by 1999.
In 1993, Parmalat introduced its UHT milk to the U.S. market, to lukewarm reviews, at
best. Sales of the product that year reached a disappointing US$27 million.
By 1997, Parmalat consisted of 62 companies, 84 plants, and 14,000 employees in 22
countries. Sales reached almost $5 billion that year. Sixty percent of its revenue came
from North and South America, with U.S. sales reaching $400 million.
During 2000, Parmalat established new operations in the United Kingdom
and Botswana.
The company also made significant investments in e-commerce and e-
marketing that same year, buying a 22 percent stake in NetGrocer.com and
a $6 million stake in Transora.com.
Parmalat also acquired two well-known U.S. cookie companies, Mother's
Cake & Cookie Co. and Archway Cookies for $250 million.
The company also introduced three new milks to the U.S. market: Milk-E,
Lactose-Free Plus, and Skim Plus.
In 2001, Parmalat also introduced its Omega3 milk.
In 2002, introduced an organic version of its signature shelf-stable whole
milk. The new "functional" milks were promoted as healthful products.
COUNTRIES OF OPERATING

Parmalat in the world:

in blue direct presence, in green presence under license.
 PARMALAT SCANDAL
The scandal began to uncover because of the Italian law stating companies need to
change auditors every nine years.
Tanzi withdrew about $630 million for personal use. He set up fake companies to
display fake profits for Parmalat. He as well forged the Bank of America letterhead to
change documents which was used to record that the bank accounts balance was
$498 billion with the help of Luca Sala.
The scandal went wrong due to the assets overstated, debts understated, losses were
hidden and a great amount of money was distributed towards the Tanzi family and its
subsidiaries.
The main players of this scandal are Calisto Tanzi, the CEO and founder of the
company, Fausto Tonna, Luciano Del Soldato and Luca Sala.
 PARMALAT SCANDAL TIMELINE
19972001: Parmalat begins using derivative transactions to hide losses at its recently
acquired non-dairy subsidiaries.
1999: In accordance with Italian regulations, Parmalat changes its primary auditor from Grant
Thornton to Deloitte & Touche. The company simultaneously shuts down all its offshore
subsidiaries in the Dutch Antilles and sets up a new batch of companies (Bonlat and
others) in the Cayman Islands, ensuring the oversight of its fraudulent accounts now in
the Caymans remains in the hands of secondary auditor Grant Thornton.
1999: Parmalat enters into billions of euros worth of interest rate swap contracts through its
Bonlat subsidiary. Parmalat also issued bonds to generate cash, using Bonlats (fake)
assets as collateral.
March 2003: CFO Fausto Tonna announces a 300 million bond issue. The announcement
takes founder and CEO Calisto Tanzi by surprise, and he fires Tonna, replacing
him with Alberto Ferraris.
2003: Finance Director Alberto Ferraris resigns, and the 300 million bond issue is
abandoned in September.
11 November 2003: Deloitte & Touche refuses to sign off on Parmalats half-year
financial statements.
8 December 2003: Parmalat defaults on a 150 million eurobond despite having reported
more than 4 billion in cash and short-term assets on its financial
statements. Parmalat claims a customer has not paid its bills, but it is
later revealed that the customer is owned by Parmalat.
15 December 2003: CEO Calisto Tanzi steps down as the Parmalat board hires turnaround
expert Enrico Bondi to resolve the crisis.
December 2003: Parmalat shares delisted from stock exchange in Milan.
22 December 2003: The Italian government pushes for a quick bankruptcy settlement to
protect industrial operations.
27 December 2003: Parmalat is officially declared insolvent, and former CEO Calisto Tanzi is
indicted for fraud and arrested.
 CONSEQUENCES OF SCANDAL
In 2008, Fausto Tonna is given a two and a half year jail
sentence as the mastermind of a complex web of offshore
subsidiaries to disguise the companys parlous position.
Calisto Tanzi, who admitted to taking over $630 million for
himself and his other businesses, was jailed 18 years in prison
(at the age of 72)
more than 36,000 workers in 139 workplaces worldwide was
loss their job.
Hundreds of thousands of investors lost their money and
would never recover it.
 CONCLUSION AND RECOMMENDATION
Conclusion of lack of Corporate Governance

a) Lack of Independence of Non-executive directors

b) Chairman and CEO positions and roles were not separated
c) Disregard of compliance with Italys corporate governance
code
d) Failure to implement and adequate and effective
monitoring system
Recommendation of Corporate
Governance
a) Principle 1- Establish clear roles and responsibilities.
Tanzi should understand his roles and responsibilities as a CEO that is
to secure the shareholders benefits and put shareholders interest as
first not own interest as first.
b) Principle 3 Reinforce independence
The Parmalat Company, Tanzi hold the position as Chairman and
CEO, he should just hold one position instead of both to make the
company transparent in managing.
c) Principle 5 Uphold integrity in financial reporting
Parmalat company should prepare a transparent financial report and
not to default the amount in the financial statement to deceive the
investors and potential investors.
d) Principle 7 Ensure timely and high quality disclosure
Parmalat Company should ensure timely and high quality disclosure
of their financial statement and the board should ensure the
company has appropriate corporate disclosure policies and
procedures