A Melbourne council has dropped all charges against a family-owned catering business which was shut down and accused of having a slug in its kitchen.

Key points: The council accused I Cook Foods of 48 breaches of the Food Act, including one relating to a slug

The council accused I Cook Foods of 48 breaches of the Food Act, including one relating to a slug Greater Dandenong Council said the business had since made its kitchen compliant with food laws

Greater Dandenong Council said the business had since made its kitchen compliant with food laws The health department said it stood by its decision to shut down the business in February

I Cook Foods was shut down in February by health officials who claimed it was linked to a listeria-related death of an elderly woman in hospital.

The closure has cost the business $26 million and 41 people have lost their jobs.

Following audits of the company's factory, inspectors for the City of Greater Dandenong charged I Cook Foods with 48 breaches of food laws including the presence of a slug in the kitchen.

As reported by the ABC, tests showed acceptable levels of listeria in the business, which also had a good food standards record.

I Cook Foods chief executive Ian Cook (left), and production manager, Michael Cook (right) have denied the charges. ( ABC News: Patrick Rocca )

The owners of I Cook Foods, which supplies food to Meals on Wheels services, hospitals and nursing homes, have consistently maintained their innocence and alleged the slug had been planted as part of a campaign to close them.

After previously promising to fight all charges in court prosecutors today dropped all charges.

No reason was given in court for why the charges were dropped.

Lawyers for I Cook Foods were seeking a series of subpoenas from the council over the case.

The owners of the company have previously flagged suing the council and health department.

The acting chief executive of the City of Greater Dandenong, Jody Bosman, said it was council's responsibility to ensure that all food-related premises complied with the Food Act.

"I Cook Foods has now invested in bringing their premises into compliance with the Food Act and any future operations will be subject to standard monitoring procedures, as would any other business,'' Mr Bosman said.

"After discussion between the two parties and noting their compliance, Council will not be proceeding with the prosecution of this matter under the Food Act.

"Both parties have agreed to go forward on a mutually non-disparaging basis."

A spokesman for the Victorian Department of Health and Human Services said it was a matter for the Dandenong Council but stood by its decision to authorise the closure order in February for "the protection of the broader community after a woman's listeria death was laboratory linked to the facility".

"We stand by that decision and we're glad I Cook Foods has since taken steps to address the issues that forced us to act," the spokesman said.

Speaking outside court, former employee Lisa Hodges said she had stuck by the company's chief executive Ian Cook and his family for months and was "wild inside" when she heard the charges had been dropped.

"I started crying and shaking. They put the company though this for seven months and 'boom,' the charges are dropped," she said.

"I feel great but I feel sad for what Ian and I Cook Foods have gone through, for what the council have done to them, [it] devastated the business of thirty years. How can they do that?"

Ms Hodges worked for Mr Cook for 15 years and said she believed the council dropped the charges because "they didn't believe in their own evidence".

In July, a former health inspector at the council said council staff appeared intent on shutting down the business.

Documents showed council officers knew within days of the closure in February that levels of listeria found at the factory were within a safe range, but they did not allow I Cook Foods to reopen.

By the time it was allowed to reopen a month later, I Cook Foods had lost all its clients, with some signing contracts with catering company Community Chef, which was partly owned by the council.

Kim Rogerson was the Dandenong council health inspector who collected the initial samples from I Cook Foods at the time of the listeria scare.

In July, Ms Rogerson said she had "never seen Dandenong council go after a business with such ferocity".

"It was full-on. Absolutely full-on. It shouldn't have been that way."