Two unions have lost a bid to become secured creditors if New Skeena Forest Products Ltd. goes into bankruptcy.
Chief Justice Donald Brenner of the B.C. Supreme Court adjourned applications by Local 404 of the Communications, Energy and Paperworkers (CEP) and Local 4 of the Pulp and Paper Workers of Canada (PPWC) to lift the company’s bankruptcy protection so two arbitration settlements could be filed with the court.
The CEP local is owed about $3.5 million from a ruling by labour mediator Vince Ready that found New Skeena’s Carnaby sawmill in Hazelton, B.C., was permanently closed and its 100 employees entitled to severance benefits.
The PPWC represents workers at the idled Prince Rupert pulp mill who are owed about $600,000 in vacation pay.
The company isn’t contesting the awards, although it is appealing Ready’s original contention Carnaby is permanently shut down.
But Skeena’s lawyers argued that filing the awards with the court would elevate the unions from unsecured to secured creditors in the event New Skeena fails to find a financial saviour and is forced into bankruptcy.
Under provincial labour legislation, the awards would then constitute a lien on the company and put the employees on the same footing or perhaps ahead of other secured creditors.
Brenner adjourned the applications, saying the unions’ rights aren’t prejudiced while the company continues efforts to restructure.
“Whatever rights exist are in place and there is nothing to prevent them from being determined at a later date,” he said.
But lawyer Bill Skelly, acting for the PPWC, said there’s nothing to stop the company from filing for bankruptcy without notice if its latest bid to lure a new investor fails.
That would leave the Prince Rupert and Hazelton workers competing with other unsecured creditors for perhaps pennies on the dollar if New Skeena is liquidated, he said outside court.
Brenner has given New Skeena another extension of its bankruptcy protection to September 20, while it tries to finalize an investment deal with the New York-based Matlin Patterson Global Opportunities Fund.
The privately held equity fund came into the picture after talks between Toronto-based Woodbridge Co. and an unnamed forest company – widely believed to be Montreal-based Tembec – to bail out New Skeena fell apart.
Matlin Patterson needs six weeks to conduct its own due diligence on the assets of New Skeena and will advance up to $1 million in debtor-in-possession financing to keep the lights on.
Partners Dan Veniez and George Petty, New Skeena’s president and chairman, respectively, bought the mothballed Skeena Cellulose Inc. lumber and pulp operation from the B.C. government for $6 million in 2002.
Asset sales and concessionary contracts worked out with unions representing the Prince Rupert pulp mill and Terrace, B.C., sawmill weren’t enough to fund a reopening of the operations.
Several attempts to attract the more than $50 million needed to complete New Skeena’s revival fell through.
Matlin Patterson is a so-called vulture fund, specializing in acquiring distressed companies and then operating them profitably.
Skeena Cellulose was once the linchpin of the northwest B.C. economy, accounting for up to 10,000 direct and indirect jobs. It was forced into bankruptcy protection in 1997 when its Montreal-based parent walked away from the operation after racking up about $500 million in debts.
The B.C. government led a bailout plan that kept Skeena operating, mostly at a loss, while it tried vainly to find a buyer. It finally cut off the cash tap in fall 2001, forcing Skeena back into bankruptcy protection, but not before it had amassed another $500 million in debts.
The eventual fire-sale deal with Veniez and Petty, former top executives of Repap, left taxpayers on the hook for about $400 million. Their plan to revive the company calls for a radically scaled-back operation employing about 1,000 people in all.
