Peanut Corp. of America files for bankruptcy

ATLANTA -- The peanut processing company at the heart of a national salmonella outbreak is going out of business.

The Lynchburg, Va.-based Peanut Corp. of America filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court in Virginia on Friday, the latest bad news for the company that has been accused of producing tainted peanut products that may have been sent to everyone from poor school children to disaster victims.

"It's regrettable, but it's inevitable with the events of last month," said Andrew S. Goldstein, a bankruptcy lawyer in Roanoke, Va., who filed the petition.

The outbreak was traced to the company's plant in Blakely, Ga., where inspectors found roaches, mold and a leaking roof. A second plant in Plainview, Texas, was shuttered this week after preliminary tests came back positive for possible salmonella contamination. So far, the outbreak has been suspected of sickening more than 630 people and may have caused nine deaths. It also has led to more than 2,000 product recalls, one of the largest in U.S. history.

Companies file Chapter 7 to liquidate their assets and distribute the proceeds to creditors. A trustee is automatically appointed to oversee the wind down, as opposed to a Chapter 11 filing that gives a company breathing room while it tries to reduce its debts and continue in business. The company said in the filing that its debt and assets both ranged between $1 million and $10 million.

The board had considered a Chapter 11 bankruptcy but decided on an outright liquidation. It said in a court filing that the recalls had been "extremely devastating" to the company's financial condition.

"It is in the best interest of creditors that all actions against the company be assembled under one roof," Goldstein said.

The company's problems have multiplied since the link to its Georgia plant.

The government is working on a criminal investigation into the case, and more than a dozen civil lawsuits have been filed. This week, Peanut Corp. president Stewart Parnell repeatedly refused to answer questions before the House Energy and Commerce investigations subcommittee, which is seeking ways to prevent another outbreak. But e-mails surfaced indicating he ordered products the company knew were tainted to be shipped anyway.

Reached by telephone, Parnell said his attorneys had advised him not to talk. "If I could do it, I would," he said.

Food safety lawyers are optimistic that victims and their families can still be compensated. The bankruptcy proceeding could postpone litigation against the company, but lawyers plan to push a judge to allow civil lawsuits to go forward anyway. And many have also filed lawsuits against Solon, Ohio-based King Nut Co. and Battle Creek, Mich.-based Kellogg Co., which they say used the tainted ingredients in their products.

"Even if Peanut Corp. doesn't have enough insurance and enough assets to cover the damages, King Nut and Kellogg will have to step up," said Bill Marler, who has filed seven lawsuits against the company on behalf of more than 40 possible victims.

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Associated Press Writers Vinnee Tong in New York and Sue Lindsey in Roanoke, Va. contributed to this report.