NEW YORK — Avondale Mills, one of the oldest U.S. textile manufacturers, is shutting down operations because of a chlorine gas accident outside one of its plants that killed nine people and mounting foreign competition.

The Monroe, Ga., manufacturer of denim, yarn and other fabrics announced last week that it had reached a $215 million settlement with its insurance company in connection with the train crash that caused the release of gas on Jan. 6, 2005. Avondale and Factory Mutual Insurance differed on the scope of the damages, according to a Securities and Exchange Commission filing. There were no other details of the settlement.

The accident occurred after a 42-car Norfolk Southern train headed to Columbia, S.C., hit a parked train outside Avondale’s Graniteville, S.C., plant. The crash derailed 16 train cars, one of which released its cargo of chlorine gas. Six of the people who died were Avondale employees. About 400 people were working at the facility and more than 200 were sickened.

After announcing the insurance settlement on May 22, the company sent a letter to employees informing them of the impending shutdown of its operations in Alabama, Georgia and South Carolina on July 25. Avondale, which was founded in 1845, employs about 5,000 people.

Stephen Felker Sr., chairman, president and chief executive officer, wrote that despite significant recent investments to modernize and update facilities, the company was unable to overcome the financial damage caused by the accident.

“Avondale has seen changes in international trade coming for a long time and was positioned to meet the challenge,” he wrote. “As a well-equipped, financially strong company with a superior workforce, Avondale was prepared to weather the storm, as we had done in the past.”

Felker pointed to the accident as the primary reason for the decision to close.

“The train disaster and chlorine spill caused more financial and operational damage than our company could withstand,” he wrote. “Chlorine works like a cancer that eats away at metals and electronics and even plastics, both on the surface where you can see and below the surface.”

Avondale posted a loss of $2.6 million in 2005 on sales of $569.2 million, according to the SEC filing.

This story first appeared in the May 30, 2006 issue of WWD. Subscribe Today.