Small businesses at bottom of PCA’s compensation list

By Caroline Scott-Thomas

- Last updated on GMT

Related tags: Bankruptcy

The Peanut Corporation of America’s bankruptcy proceedings are due to begin in Virginia on Thursday, but small businesses caught up in the salmonella scandal are unlikely to receive compensation, according to news reports.

The PCA filed for Chapter 7 bankruptcy last month after the FDA found it had knowingly shipped peanut products tainted with a salmonella strain that has so far caused 677 reported illnesses and been linked to at least nine deaths, according to the Centers for Disease Control and Prevention.

Official court documents filed on Friday listed more than 475 businesses with claims against the PCA, including processors, manufacturers and growers, far more than the company’s own estimate of 100-199 creditors when it filed for bankruptcy on February 12.

Limited funds

However, chapter 7 bankruptcy protects a company by stipulating that all money used to pay off debts must come from its insurance and liquidated assets, and secured creditors will come first.

Unsecured creditors – most likely to be smaller companies – are therefore less likely to be successful in their claims, after employee wages and pensions are settled, and secured creditors have taken their slice.

Many of these smaller companies are already struggling, according to a report in the New York Times, ​as they are also less likely to have had other strategies in place for coping with the recall, such as crisis management teams or specialized product recall insurance.

The court papers detailed $11.3m worth of company assets, including $2m for the Georgia plant at the center of the scandal and its surrounding land, and over $7m in insurance. It also listed $4.8m in debts.

The PCA is under criminal investigation, and the company’s statement of financial affairs listed $100,000 for corporate criminal

legal representation.

PCA protection

Commenting on the PCA’s bankruptcy filing, Jean Halloran, director of food policy initiatives at Consumers Union, said it would protect the company from potential lawsuits.

She said: “It is unacceptable for corporations to put consumers' health at risk, and then simply declare bankruptcy and go out of business when they get caught. We must have an FDA that can oversee food processors so that unscrupulous behavior can be detected, prevented and deterred.”

Personal injury lawsuits

In addition, more than a dozen lawsuits were listed against the company in Friday’s court documents, despite not being covered under chapter 7, making it uncertain whether consumers will receive compensation from the company. But there is further provision for those sickened or killed by the outbreak in the PCA’s personal injury insurance, which is separate from the assets tied to its product insurance.

However, personal injury claims could become more complicated as one of PCA’s insurers, Hartford Casualty Insurance, has disputed whether it should be required to pay damages associated with the outbreak.

The US Trustee’s Office has said that the process could take up to a year.

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