Thu, Dec 25, 2008 - Page 1 News List

Chinese firm in tainted milk scandal declares bankruptcy

RECEIVER APPOINTED The New Zealand farmer-owned cooperative that owns 43 percent of Sanlu said the order by a Hebei Province court came as no surprise to it

AP , WELLINGTON

A Chinese court has declared bankrupt the company at the center of a scandal over tainted milk — blamed for killing six children and sickening almost 300,000 more — one of the company’s owners said yesterday.

New Zealand’s Fonterra Group said that a court in Shijiazhuang, Hebei Province, had issued a bankruptcy order against Sanlu Group Co in response to a petition from a creditor.

“Sanlu will now be managed by a court-appointed receiver who will assume responsibility for an orderly sale of the company’s assets and payment of creditors,” Fonterra chief executive Andrew Ferrier said in a statement.

Sanlu was one of 22 Chinese dairy companies whose products were found to contain high levels of the industrial chemical melamine, leading to the deaths of six babies and causing 294,000 others to suffer urinary problems.

Fonterra, a New Zealand farmer-owned cooperative, owns 43 percent of Sanlu.

At least a dozen individual lawsuits have been filed against state-owned Sanlu in China, but they are in legal limbo because the courts have neither accepted nor refused the cases — a sign of the scandal’s political sensitivity.

The scandal has been met with public anger in China, particularly among parents whose children were sickened from drinking infant formula authorities had certified as safe. The government has promised free medical treatment to those children, plus unspecified compensation to them and families of the dead.

The Health Ministry said earlier this month that some Chinese dairy companies would likely have to pay for a compensation plan.

“By now, it has been made clear how much Sanlu owes the distributors and creditors, but not the victims’ families,” Beijing-based lawyer Xu Zhiyong, who represents dozens of families with sickened children, said in a telephone interview.

“In theory, those who were physically harmed should get compensation first,” Xu said. “But our concern right now is that ... the creditor bank or banks will collude with the local government to make Sanlu’s assets go to compensating themselves first.”

Fonterra was responsible for alerting Chinese authorities to the scandal in August, and by late September had slashed the value of its investment in the Chinese dairy group by US$139 million to an estimated US$62 million.

Ferrier said yesterday that Fonterra had since “elected to write down the full value of our investment in Sanlu.”

“This bankruptcy order is not a surprise to us,” he said. “We were aware that Sanlu was in a very difficult situation and faced mounting debts as a result of the melamine contamination crisis.”

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