Many factors can force a person or business into bankruptcy. A recent Chapter 7 filing involving a Kentucky-based food manufacturer highlights this fact and provides a devastating irony: the seller of a peanut-free peanut butter called “I. M. Healthy” has been forced to file a business bankruptcy under Chapter 7 because its product has been found to be contaminated with the bacillus E. coli

SoyNut Butter Co. markets a brand of soy nut butter that is advertised as “peanut free.” The company purchases the product in bulk from Dixie Dew Products, a firm located in Kentucky. On March 30, 2017, the United States Food & Drug Administration suspended the registration of Dixie Dew because an inspection of its manufacturing facility showed “insanitary [sic] conditions that could lead to contamination with E. Coli.”

SoyNut filed a petition under Chapter 7 of the Bankruptcy Act seeking protection from lawsuits brought by thirty-two persons who claim that they were sickened by eating its contaminated soy nut butter. According to a report from the Centers for Disease Control and Prevention, 26 of the persons infected were children, and 12 persons required hospitalization. Soynut’s bankruptcy petition states that the company had $2.8 million in revenue in 2016 but that it now faces liabilities between $1 million and $10 million stemming from the lawsuits. The company states that it has assets valued at less than $50,000 and that it has 100 to 199 creditors. Lawyers for some of the existing plaintiffs were also expecting Dixie Dew to file a bankruptcy petition in the next few months.

Filing bankruptcy is a common strategy for companies that face an unexpected flood of claims from an allegedly defective product. Any businessperson who faces a similar problem may wish to consider consulting a knowledgeable bankruptcy attorney about the wisdom of filing a bankruptcy petition and other strategies for minimizing the impact of the claims.

Source: Glenview Patch, “After E. Coli Outbreak Glenview-Based SoyNut Butter Files For Bankruptcy,” Jonah Meadows, May 18, 2017