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September 25, 2017

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Sanlu, company in China milk scandal, declared bankrupt

WELLINGTON, New Zealand -- 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 Wednesday.

New Zealand's Fonterra Group said that a court in Shijiazhuang, in China's Hebei province, 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, 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, the details of which have not been released.

"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."

Citing an anonymous source from Sanlu, the Chinese financial newspaper National Business Daily reported Wednesday that the company's current remaining assets are valued at about 1.6 billion yuan ($230 million).

The source said in the report that under the government's compensation plan Sanlu is likely to pay 900 million yuan ($130 million) to families. The dairy also owes more than 600 million yuan ($88 million) to distributors for goods returned when it recalled its products nationwide in September.

Worried about being left out, nearly a thousand distributors across the country turned up in the city of Shijiazhuang on Tuesday hoping to have Sanlu certify its debts with them, Chinese media reports said.

Repeated calls to the Shijiangzhuang People's Intermediate Court rang unanswered Wednesday.

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

Ferrier said Wednesday that Fonterra had since "elected to write down the full value of our investment in Sanlu."

The receiver would have six months to conclude the sale process, he said.

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

Fonterra, which controls more than 95 percent of New Zealand's milk supply, is the country's largest multinational business, its second-biggest foreign currency earner and accounts for more than 24 percent of the nation's exports.

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