Salmonella-hit peanut company files for bankruptcy

NEW YORK (Reuters) - Peanut Corporation of America sought bankruptcy protection on Friday after a salmonella outbreak traced to one of its plants led to one of the biggest product recalls in U.S. history.

The building of the now-closed Peanut Corporation of America plant is pictured in Blakely, Georgia on January 29, 2009. REUTERS/Matthew Bigg

The company filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Western District of Virginia, saying the negative economic effects of the recalls have been “extremely devastating” to its financial condition.

Under Chapter 7 companies liquidate their assets to repay creditors rather than reorganize.

The salmonella outbreak that has sickened 600 people, more than half of them children, and may have killed nine people, has been traced to a plant in Blakely, Georgia operated by Peanut Corporation.

More than 1,800 products have been recalled since mid-January due to the outbreak, either because they were linked to Peanut Corporation or because such links could not be ruled out.

Peanut Corporation is a peanut processing company and maker of peanut butter for bulk distribution to institutions and private label companies.

The owner of Peanut Corporation, Stewart Parnell, refused to answer questions before Congress on Wednesday citing rights under the U.S. Constitution. A Congressman at the hearing displayed internal company e-mails showing Parnell complaining about lost profits while the scare was being investigated.

Federal Bureau of Investigation officials in Atlanta and Virginia said earlier this week they had joined the U.S. Food and Drug Administration in a criminal investigation of the company.

Inspections showed the company not only had several tests that showed salmonella contamination, but also cockroaches, a leaky roof and filthy equipment, the FDA has said.

The company said in court documents that it had hired turnaround firm The Finley Group to initially help it consider Chapter 11 protection, which would have allowed it to reorganize under bankruptcy protection or try to sell parts of its business as a going concern.

Peanut Corporation listed assets in the range of $1 million to $10 million and liabilities in the same range, according to court documents.

The case is In re: Peanut Corporation of America, U.S. Bankruptcy Court, Western District of Virginia, No. 09-60452

Reporting by Phil Wahba and Emily Chasan; Editing by Carol Bishopric and Andre Grenon