Peanut Corp. of America files Chapter 7 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 reached everyone from poor schoolchildren 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 salmonella 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 recalls 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.

“We kicked the tires on trying to reorganize, but the fact of the matter is they’ve absolutely closed down,” Goldstein said. “They’re prevented from carrying on business. There didn’t seem like there would be any prospects.”

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.