Sanlu Bankrupt, Former Chair May Face Death Sentence

The Chinese government is determined to eliminate the shadow of Sanlu, the lead player in the melamine contaminated milk power scandal that has rocked China and many of its trading partners for the past several months. 

The People’s Intermediate Court of Shijiazhuang, Hebei Province, Sanlu’s home base, has announced that Sanlu Group and its general manager, Tian Wenhua, will stand a public trail starting at 8am, December 31, as they have been charged by public prosecutor of producing and selling counterfeit goods.

According to the article 144 of China’s criminal law, a person who produces or sells poisonous or harmful food, leading to the death of a person or especially serious harm to human health, can be sentenced to death.  The world-known food safety scandal sent thousands of babies in to hospital and caused some deaths.

Sanlu group is already in the bankruptcy clearance process. New Sanlu’s net assets total �.103 billion yuan, indicating a serious insolvency. The court has accepted the company’s bankruptcy application.

Sanlu’s creditors include the families of babies who fell victim to its poisonous milk powder, as well as nationwide dealers. Before launching the bankruptcy process, Sanlu was lent money by the Shijiazhuang government to relieve the compensation problem. 

 

According to the Shijiazhuang government, on October 31 Sanlu’s total assets, total debt, and net assets stood at 1.561 billion yuan, 1.762 billion yuan, and �01 million yuan, respectively. On December 19, Sanlu again borrowed 902 million yuan for the medical treatment of affected babies and compensation to their families.

 

After launching the bankruptcy process, Shijiazhuang’s government signed contracts with Sanlu sellers to guarantee Sanlu’s contracts.

 

Unlike with other bankruptcy cases, the Shijiazhuang government is involved in the whole process of Sanlu’s bankruptcy. It not only lent money to the company, but has also offered guarantees to creditors in ensure the debtor’s contract with sellers will continue being implemented, meaning creditor’s rights of nationwide sellers will be guaranteed.

 

Lawyers for Sanlu victims appealed to launch compensation lawsuits immediately, establish a nationwide fund for compensation aid under the guidance of the central government, and gradually solve the compensation problem and aftermath.

 

"Considering the long-term and complicated compensation process and Sanlu’s potential for reorganization, such as its production capacity and its advantage in market channels, we don’t agree to reorganize Sanlu by bankruptcy clearance. Instead, the reorganization should be done through stock acquisition and the subject of compensation should be maintained," said the lawyers.

 

One potential buyer of Sanlu, Sanyuan Group, said in an announcement that the company would adjust its scheme for the acquisition of Sanlu according to the current situation. Wahaha and Feihe, also rumored to be interested in Sanlu’s assets, have made no clear announcement. Neither has New Zealand-based Fonterra, Sanlu’s second largest shareholder.