DONGGUAN, CHINA — More than 35 workers from bankrupt American mold maker Feng Ping Tooling & Plastics Mfg. Co. Ltd. were arrested Dec. 23 in Dongguan after they tried to block traffic outside a local Wal-Mart near their factory to protest what they consider an unfair wage settlement.

It's the latest development in the chaotic and sometimes tense collapse of the once fast-growing Feng Ping, which was started by two American brothers in 2007 but which declared bankruptcy on Dec. 16 and shut its doors. It blamed a $4.5 million embezzlement scheme by a former top manager and 18 others.

In another development, Feng Ping is now headed toward liquidating the factory to pay debts of several million U.S. dollars to its landlord and suppliers. But that process is also raising questions about the fate of some of the molds ordered by its customers in the United States and Europe.

Several hundred customer and Feng Ping-owned molds remain inside the factory, where they have been essentially trapped since mid-November because the company's suppliers and vendors have been blockading the factory.

The suppliers have parked their cars in front of the factory gates, preventing shipments in or out, to try to recover money they say Feng Ping owes them, and police have declined to clear them.

That has turned the mold recovery process into a wide-open affair, said Feng Ping managing director James Fiocchi, with customers beginning to negotiate with various former employees and others to secure molds: "It's a free for all."

The worker payout dispute driving the Wal-Mart protest is directly tied into solving the situation with the molds, because under Chinese law, all the workers must sign papers releasing their claims before any other steps in the liquidation process move forward.

For the Feng Ping employees, the key issue driving the protest is getting their six weeks of back pay plus, more importantly from their point of view, one month of severance pay they believe they should receive under Chinese law for each year they've worked at the company.

But the offer from the liquidation committee, which consists of representatives of the company, the government and the landlord, was only to pay the back wages. Several sources said Chinese law does not require the severance payments in a liquidation process.

More than 200 Feng Ping workers had remained inside the factory after it officially closed on Dec. 16, saying they planned to live in their dormitories until they received both the back wages and severance.

"The only purpose we are still here is we should get our salary and [severance] compensation," one worker said in a Dec. 20 interview at the factory. "The top managers hold a whole factory meeting and said we should get our last month's salary on the 18th, December the 18th, but on Monday (Dec. 16) no managers were in the office."

"They promised us to get the money on the 18th and now they tell us in half a year, that's ridiculous," the worker said.

When Plastics News visited the Feng Ping factory on Dec. 20 and Dec. 22, the workers said they had been expecting to receive some offer of back pay on Dec. 23.

But contacted Dec. 23 by telephone, one employee said that when staff was unhappy with the offer, they went to the local government offices to ask for help and then tried to block the road in front of a nearby Wal-Mart. More than 40 workers were taken away by police, the worker said.

Another source familiar with the situation confirmed that about 40 workers were arrested after trying to block traffic in front of the Wal-Mart. Fiocchi also confirmed that some workers were arrested, and said he understood 10 of them will be jailed for 15 days.

Most of those arrested were later released, the worker said. The worker added that it seemed that in the end, most of the more than 200 workers remaining in the factory were accepting the offer of back pay without severance, which required signing forms resigning their jobs and giving up other financial claims.

But other sources said that it's typical that there are holdouts in these processes.

Most workers interviewed in the factory also said the timing of the closure was bad news for them because it meant they would not get their annual Chinese New Year bonuses. Many Chinese factories give one to two month salary for Chinese New Year holiday, which will be in late January.

The workers also said that as the factory's situation worsened, some of them had taken pay cuts of between 400 and 800 Chinese yuan per month beginning in August and September, out of salaries that average about 3,000 yuan (US$490) a month.

One worker inside the factory showed his heavily bandaged hand to a reporter, saying he had broken two fingers in an accident in a Feng Ping lathe in early December.

Feng Ping's bankruptcy has set off a scramble to get access to the molds, with one competitor of Feng Ping, Jade Group International LLC, based in Zhongshan, China, issuing a blanket email through a trade association in the United States offering to help companies secure molds stuck in the Feng Ping factory.

But that prompted a retort from Fiocchi, who said that it would drive up the cost of recovering molds and urged companies to allow the process to play out. Jade President Patrick Smith declined to comment.