The embarrassing news of Farmland's bankruptcy will not hinder the demolition of the old plant abandoned since the July 2001 fire.

Albert Lea City Manager Paul Sparks said the city has escrowed $2.2 million from insurance proceeds paid to Farmland last week. The Kansas City-based company filed Chapter 11 bankruptcy protection after the transaction.

The funds were taken from $9 million in insurance money for lost equipment, according to Sparks. The city has issued Farmland an order for removal of the damaged plant, and state law allows the city to hold up to 25 percent of an insurance payment with which it can vacate a condemned private property.

"People may think the city is going to be stuck by the bankruptcy," Sparks said. "But, no, we are not."

The city will continue retaining future insurance proceeds until the amount in the escrow account hits the estimated $5 million demolition cost. The escrowed money will be returned to Farmland if the company vacates the plant by itself or builds a new plant in Albert Lea -- which it has promised to do if it can reach a favorable insurance settlement.

The city issued the removal order on Jan. 15, saying the condition of the building is dangerous and beyond the possibility of economical repair.

The district court denied the insurers' request for a temporary restraining order to freeze the demolition process. Farmland is now obligated to vacate the plant by Oct.15, or the city can carry out the demolition.

Under and offer the city has made to Farmland, the company would be completely freed up from the costly demolition if it builds a new plant in the Habben Industrial Park. If that happens, the city will direct tax proceeds from the new plant to the cleanup of the old site.

Farmland CEO Bob Terry indicated that packaged meat production would be a core business when the depleted company recovers, and the Albert Lea plant plan is not dead, pending the final settlement on insurance.

Though the insurers have so far paid $15 million -- $6 million for cleanup and $9 million for equipment -- the sides still can't agree on how much should be paid for structural damage.

The day before it filed for bankruptcy, Farmland had a meeting with the insurers. "There was a progress, but we did not reach a resolution," said Sherlyn Manson, Farmland's corporate communications director.

In a court hearing where the insurance companies contested the city's demolition order, the firms insisted the burned-down plant could be restored, while Farmland claimed a total loss.

Another twist for the chance of new plant is a concern that Farmland might get rid of the meat business.

Just before filing the bankruptcy, Farmland turned down a purchase offer from meat-processing giant Smithfield Foods of Virginia.

"Since our announcement Friday, we have personally spoken with all our hog suppliers. Each and every one has agreed to deliver us hogs today and on a continuing basis, ensuring that our Farmland Foods operations will continue uninterrupted," Vice President of Livestock Production Jerry Leeper said in a statement Monday.

But Terry said the company would be open to future negotiations with Smithfield.

Sparks thinks there would be no problem for the city to offer the same incentive it applied to Farmland to Smithfield or any other buyers.

Besides the takeover of cleanup and new plant site in the industrial park, the city managed to secure state legislation for a sales-tax exemption for the new plant construction and the designation of a tax-increment-financing district for the old and new sites.