The founder and former head of Parmalat was detained on Saturday by Italian authorities investigating how billions of euros went missing at the insolvent global food group, judicial sources said.

Calisto Tanzi was detained on a street in Italy's financial capital on the order of prosecutors probing for fraud at Parmalat, engulfed in one of Europe's biggest corporate scandals after revealing a multi-billion-euro hole in its accounts.

The scandal has raised far-reaching questions about the conduct of the group's managers, auditors and banks. It threatens billions of euros of investments by holders of shares and bonds, as well as some two billion more of bank loans.

The judicial sources said finance police seized the 65-year-old Tanzi, who stepped down as Parmalat CEO earlier this month days before the crisis erupted, in the center of Milan.

Detained hours after Parmalat was declared insolvent, Tanzi was held on suspicion of criminal association and fraudulent bankruptcy, but he was not charged, the sources said. The charges carry a penalty of up to 10 years in jail.

Magistrates searched Tanzi's home near Parma on Wednesday and tried to question him the same day, only to find he had left Italy for an undisclosed foreign country.

Authorities decided to detain him after he returned to Italy as he could leave again, judicial sources said.

They said the media-shy Tanzi would spend the night in custody in Milan's San Vittore prison and be questioned in Milan on Sunday by investigators from both Milan and Parma.

Tanzi who took over a dairy plant in 1961 and built it into a global brand was the first person held in the investigation into fraudulent bankruptcy, fraud, false accounting and market rigging.

Although Tanzi no longer heads Parmalat, his family's holding company Coloniale controls the group.

DECLARED INSOLVENT

The scandal exploded last week when Parmalat, with 35,000 employees in some 30 countries, revealed a hole in its accounts that investigators said could exceed 10 billion euros.

Public prosecutors have named about 20 people in the fraud probe, including current and former employees of the group as well as unnamed outside auditors.

Parmalat was declared insolvent earlier on Saturday, three days after the government rushed into effect an emergency decree shielding Italy's eighth largest industrial group from creditors while a new administrator drafts a restructuring plan.

A bankruptcy court in Parma ruled that Parmalat's main operating arm was insolvent in a move that will allow the global group to continue operations while restructuring and sorting out debts, judicial sources said.

Parmalat says it has six billion euros ($7.46 billion) of debt on its books but some analysts say the figure could be higher.

"We are working, I hope for the best. We will see if it turns out this way," Parmalat's new administrator Enrico Bondi told reporters on Saturday.

Investigators said people questioned earlier this week have toldof a complex web of offshore shell companies hiding losses for more than a decade and overseen by senior executives.

U.S. auditor Grant Thornton has rejected allegations it had falsified accounts at a Parmalat unit at the heart of the investigation. Bank of America has filed a criminal suit over the Parmalat case.

Judicial sources said investigators were probing whether Parmalat funds had been misappropriated by the Tanzi family. Authorities sealed off the family's holding company, Coloniale, this week.

Bondi is keen to keep Parmalat, one of the world's biggest producers of long-life milk and number three U.S. cookie maker, afloat. He has six months to present a restructuring plan that sources said will take into account all creditors' interests.

If that plan is rejected by the government, the company would be allowed to collapse and its assets would be sold off.

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