On Wednesday, it was announced a court in Shijiazhuang, China, had issued a bankruptcy order against Sanlu in response to a petition by a creditor.
Fonterra had earlier written-off $139 million of its 43% stake in the company, which was at the centre of a melamine contamination outbreak in September, after causing the deaths of many children and sickness among thousands of others.
Chairman Henry van der Heyden said recently that the company was likely to write off Sanlu's remaining $62 million book value.
In a statement, Fonterra chief executive Andrew Ferrier said Sanlu would be managed by a court appointed receiver who, the company assumed, would prepare it over the next six months for an orderly sale of assets and the payment of creditors.
He said he was not surprised the company faced bankruptcy.
"We were aware that Sanlu was in a very difficult situation and faced mounting debts as a result of the melamine contamination crisis.
"We have been aware of this commercial reality and that was the reason we elected to write down the full value of our investment in Sanlu."
The embattled dairy giant however also received some good news on Wednesday, with the Commerce Commission saying its tactical milk pricing was a legitimate response to competition.
Fonterra had responded to new milk processing competitors by paying more for milk in catchments such as South Canterbury, where it faced competition, leading to claims it had breached the Commerce Act.
It argued that those farmers were important because or their size, proximity to processing plants and milk quality. The Commerce Commission agreed.
"In the commission's view, Fonterra's tactical pricing scheme is unlikely to breach the Commerce Act," the commission's director of competition, Deborah Battell, said.
She said that while Fonterra was likely to have had substantial power in the raw milk market, the prices it paid were no higher than its competitors' and in some cases were lower.
"In this instance, the commission considers that Fonterra's behaviour is consistent with what can be expected in competitive markets," she said.
Fonterra welcomed the ruling, with general counsel David Matthews saying no company would sit back and let competition take its market share.
"Even though there's been a lot of noise from other milk processors, we've never been in any doubt about our approach. This is simply a case of Fonterra taking a commercial approach in a competitive environment and acting in the best interests of all our farmer-shareholders," he said.
Fonterra's Chilean subsidiary Soprole has been named in a survey of 4000 consumers as having the country's top corporate reputation.
The survey took into account products, social responsibility, management, working environment, financial performance and innovation.
