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Led by finance: nash lakha AGMA, CGMA, chairman of dairy company parmalat canada, was CFO when a giant fraud was detected at its italian parent. He describes how the subsidiary survived--and prospered--as a separate entity.

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THE BACKGROUND We were in a precarious situation when details of the multi-billion-euro fraud at corporate level were revealed in December 2003. We were renegotiating some of our recurring debt obligations at the time, and a lot of cross defaults were created by our parent company. In addition, we were entering Q1, when our requirement for working capital is always at its peak.

THE PLAN I needed to ensure that we weren't cut off by anyone--vital in a concentrated market such as Canada, where our 10 biggest customers are worth Bo per cent of our revenues. My main objective was to protect the company from any further fall-out from the scandal in Italy.

THE PROCESS I explained to lenders, customers and suppliers--often in person--that we were in good shape. We also appointed independent local directors with solid reputations in the Canadian financial community as non-executive directors. We then recapitalised the business and sold non-core assets. Fortunately, I was close enough to the business to maintain a strong work ethic across the company as events unravelled. Even so, we curbed all discretionary and capital expenditure apart from those ensuring quality and safety. Several US suppliers placed us on collect-on-delivery (COD) terms and there was a significant decrease in accounts payable. Fortunately for us, suppliers in Canada are relatively good at maintaining historical payment terms. A small fine for late tax payments was a small price for us to pay at this stage.

THE RESULT Understanding the drivers of liquidity was vital, but a big issue we had to deal with was a transaction...

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