Parmalat case adjourned

A liquidation matter that began nearly two years ago in Grand Court concerning companies affiliated with the Italian dairy and juice company Parmalat adjourned until February after a request of the petitioner on Tuesday.

The three Parmalat subsidiary petitioners, Food Holdings Ltd., Dairy Holdings Ltd. and Parmalat Capital Finance Limited have all been placed in provisional liquidation, with Jim Cleaver and Gordon McRae of Kroll (Cayman) Limited acting as joint provisional liquidators.

The petition, filed by the law firm Walkers, seeks to have the two men appointed joint official liquidators.

However, the sole director of Parmalat Capital Finance and several creditor companies, all represented by attorney Alan Turner of Turner & Roulstone, are objecting to the appointment of Mr. McRae and Mr. Cleaver.

They seek instead to have Chris Johnson and Russell Smith of Chris Johnson Associates installed as joint official liquidators.

Parmalat Capital Finance’s sole director is Enrico Bondi, the special administrator who was originally appointed by the Italian courts to oversee Parmalat SpA’s affairs after its spectacular collapse when auditors found it had more than $17 billion of debt.

Parmalat collapsed when it was discovered that another Cayman company called Bonlat, which was entirely owned by Parmalat Capital Finance Ltd., did not actually hold as it had stated some US$4.9 billion in a Bank of America account in the U.S.

The original provisional liquidation order for the three Cayman Parmalat subsidiaries was made shortly thereafter in December 2003.

Subsequent court proceedings have yet to resolve even the basic issue of whether the petitioner has standing to bring the petition.

Justice Henderson noted that standing was a threshold issue and needed to be dealt with before the substantive issues.

Mr. Turner argued the petitioner’s claim was for unliquidated amounts that were not sum certain, so that under Cayman law, the petitioner had not standing.

Mrs. Corbett said calculations quantifying the indebtedness had been proved and admitted in an Italian court. Those figures showed Food Holdings was owed more than $270 million and Dairy Holdings the exact figure of $245,999,252.12.

Mr. Turner also argued that it was not Food Holdings and Dairy Holdings that were owed the debts in the first place, and that it was actually owed to the trustees of a security and trust agreement. drafted under New York State laws.

An expert legal opinion with someone versed in New York State law had been obtained and submitted into Grand Cayman court by Mr. Turner.

However, Mrs. Corbett said the document had only been served two clear days before the hearing instead of the proscribed seven days. As a result, the petitioners had been unable to obtain an affidavit to reply to the affidavit filed by Mr. Turner.

On another point, Mrs. Corbett said that if the petitioner was found not to have standing, other creditors could be substituted.

It was suggested that Bank of America could be one such creditor, but Quin & Hampson’s Kenneth Farrow, who represented Bank of America in support of the petition at the hearing, had no instructions on the question.

Mrs. Corbett was prepared to list other reasons it was appropriate for an adjournment, but Justice Henderson said he did not think she needed to go beyond the late service issue, especially when it pertained to an important piece of evidence.

Mr. Turner argued against the adjournment, noting that it was the Petitioner who had set the Court date in the first place. He said the Petitioner should have known to get an opinion on the standing issue.

‘719 days after obtaining an ex parte order, they still haven’t addressed the standing issue under New York law,’ he said.

To address the standing issue, Mr. Turner said he had an expert on New York State law in Court that day who could be cross-examined and asked questions by the Justice.

Beyond that, Mr. Turner said there was some urgency with the matter, and it should not be adjourned.

He said the creditors were being disadvantaged by the delays. He noted that with such a long provisional liquidation, as opposed to an official liquidation, the creditors were not represented by such safeguards as a creditors’ committee.

Mr. Turner also said that of $4.35 million collected by the provisional liquidators, only some $300,000 was left, with approximately $2.5 million having gone to professional fees and expenses.

Pointing to civil law suits seeking almost $1 billion filed in the United States by the joint provisional liquidators recently against Bank of America, Grant Thornton International and Deloitte Touche Tohmatsu, Mr. Turner asked how those actions would be funded.

‘There is litigation on going against Bank of America, and the creditors have no idea of the retainer arrangement,’ he said.

While Justice Henderson expressed some concerns for what seemed to be a lack of cooperation from the joint provisional liquidators in keeping the creditors informed, he said he was still minded to grant the request for the adjournment.

After adjourning the matter generally until the first available date after 7 February, Mr. Henderson issued several directions: that Mrs. Corbett inform Mr. Turner at least seven days before the next hearing if she had a potential substitute creditor; that the potential substitute creditor file an affidavit of substance and standing; that the joint provisional liquidators not pay any professional fees or expenses without approval of the court; that the joint provisional liquidators provide Mr. Bondi with monthly detailed statements of their financial activities; and that the JPL’s provide Mr. Bondi with a detailed statement of the professional fees and expenses spent to date within 14 days.

Mr. Turner also requested a direction for full disclosure of a transaction conducted by the JPLs between Parmalat Capital Finance and Food Holdings.

‘Wearing the hats of Food Holdings and wearing the hat of Parmalat Capital Finance, they entered into a commercial agreement without the knowledge of the creditors that seems beneficial to the creditors of Food Holdings,’ Mr. Turner said.

Justice Henderson was not inclined to make such an order, but said he wanted to ensure there is co-operation between the parties.

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