Chinese dairy is bankrupt after tainted milk scandal

BEIJING -- The dairy at the center of China's deadly tainted milk scandal has been declared bankrupt by a court, one of the firm's owners said Wednesday — a development lawyers say adds to concerns about how and when those sickened by the doctored products will be compensated.

A court in Shijiazhuang issued a bankruptcy order against Sanlu Group in response to a petition from a creditor, according to New Zealand's Fonterra Group, which owns 43% of Sanlu.

The official Xinhua News Agency said the court in Hebei province accepted the filing. Xinhua, citing a spokesman for the company, also said Sanlu confirmed its bankruptcy. Phones rang unanswered at the company and the court on Wednesday.

Sanlu, like a number of major Chinese dairies, had long been exempt from government inspections because it was deemed to have superior quality controls — until high levels of the industrial chemical melamine were found in its baby formula and other products earlier this year. Several more dairies were also found to have doctored their goods in a scandal blamed for killing six babies and sickening 294,000 children.

Thousands of parents — angered by what they say was the government's breech of their trust — have been demanding compensation.

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

A lawyer representing dozens of families with children sickened by tainted milk said that the bankruptcy order raised concerns that his clients might be outmaneuvered by the dairy's creditors.

"In theory, those who were physically harmed should get compensation first," Beijing-based lawyer Xu Zhiyong said in a telephone interview. "But our concern right now is that they might act in a brazen way, namely that the creditor bank or banks will collude with the local government to make Sanlu's assets go to compensating themselves first."