A Chinese court has declared dairy giant Sanlu Group, the company at the heart of the melamine contamination scandal, bankrupt.

The Intermediate People's Court of Shijiazhuang, capital of the northern Hebei Province, issued the bankruptcy order at the first meeting of Sanlu's creditors Thursday.

Sanlu Group had failed to repay the outstanding debts, and its debts surpassed its assets. It met the conditions for bankruptcy, according to the court order.

Sanlu Group has 274 creditors, with the largest being Sanlu Business and Trade Company, a wholly-owned subsidiary of the group itself. The other creditors include banks, distributors and suppliers.

On Dec. 19, the group borrowed 902 million yuan (US$132 million) to pay the medical fees of children sickened by its melamine-tainted baby formula and to compensate the victims, which increased its debt to 1.1 billion yuan.

Beijing Sanyuan Foods Co. Ltd., a potential buyer of Sanlu assets, said Thursday it did not know the details of Sanlu's bankruptcy, but was watching developments closely.

"When the auction notice for Sanlu is published, our board of directors will meet to decide whether to bid and discuss related details," Wang Qian, secretary of the board of Sanyuan, told Xinhua.

Sanlu leased its plants to a subsidiary of Beijing Sanyuan Foods Co. Ltd. in December, days after the bankruptcy petition was accepted by the Shijiazhuang Intermediate People's Court.

Sanlu stopped production on Sept. 12, after its melamine-tainted baby milk powder was found to have caused the deaths of at least six children and kidney problems in thousands of others.

Last month, it was fined 49.37 million yuan by the Shijiazhuang court, which also handed down a life sentence to Sanlu chairwoman Tian Wenhua.

(Xinhua News Agency February 12, 2009)