GNP bankruptcy change approved Court OKs firm’s move to Chapter 7

BANGOR – Bankrupt Great Northern Paper Inc. headed into court on Thursday and successfully converted its Chapter 11 bankruptcy proceedings to Chapter 7, which will enable GNP to liquidate its remaining assets through a trustee and pay off creditors.

“The purpose of this is that something has to be done with the case now that the [mill] assets have been sold,” said Richard Mikels, attorney for GNP. “The stock reality is that it’s convert or dismiss.”

Lawyers fiercely debated whether the case before U.S. Bankruptcy Judge Louis H. Kornreich should be converted or dismissed. The judge said the bankruptcy code states the court can do either, but is directed to select “whichever is in the best interest of the creditors and the estate.

“There is cause in this case to do either,” he said. “There is cause to dismiss and there is cause to convert. I do conclude that it is in the best interest of creditors to convert this case to Chapter 7.”

A group of 15 lawyers representing both sides of the issue and one creditorfilled the courtroom.

Boeing Capital Corp. of Long Beach, Calif., was Great Northern’s primary lender and will probably benefit from the decision to convert. The $103 million sale of GNP to Toronto-based Brascan Corp. in late April included $63.3 million in cash. Of this, $51.5 million was earmarked for Boeing to pay off a long-term equipment lease. The remaining funds, minus $5.75 million for break-up fees and stalking-horse bidder costs for Belgravia Paper Co. of Vancouver, British Columbia, were moved into GNP’s bankrupt estate.

A large portion of these funds will probably be designated for Boeing, said Mikels, because the company has been funding the bankruptcy process, paid for the CEO, administration and heating costs at GNP since January and contributed to health care costs. Boeing secured a loan for more than $10 million to cover the costs.

“I don’t believe that they should be stuck. I have great respect for people who keep their word,” said Mikels. “Boeing gave the estate the opportunity to get as much money as possible.

“They stood to lose millions and millions if this went another way,” he added. “Boeing should not be slighted. I don’t think it’s appropriate to pull the rug out from underneath them.”

Boeing took out liens on all of GNP’s properties to cover the loan.

Jay Geller, a Lewiston attorney who represents the unsecured creditors’ committee, said the decision is unfair to his constituents.

“On the one hand is an extremely small likelihood of any return for anyone but Boeing, and on the other hand is the likelihood that unsecured creditors are going to receive nothing,” he said. “We think that’s wrong.”

Hundreds of people and businesses are in the unsecured creditors’ group and are owed more than $65 million by GNP, Geller said. Under Chapter 7, the unsecured creditors can be sued for claims against payments made by GNP during the 90 days before the company declared bankruptcy. That money would be returned to creditors by a method determined by the court.

Before his decision, Kornreich asked whether dismissing the case was viable since none of the creditors would receive any funds. “Something is better than nothing,” he said.

“The end game is here and the chance that your constituents might receive a claim is small, but that doesn’t dismiss the fact that we’re here because of BCC,” he said.

Alex Terras, a Chicago lawyer for Boeing Capital Corp., agreed with the judge.

“My analysis is that there will potentially be millions left over after Boeing is paid,” he said.

The next step is for the Office of the U.S. Trustee to appoint a Chapter 7 trustee to oversee the GNP estate. This should take place immediately, said Daniel Bleck, attorney for the defunct company.

“The trustee will review the assets and liability and liquidate assets and pursue any causes of action,” he said. “The bankruptcy court will oversee the process by the Chapter 7 trustee.”

Kornreich concluded, “What I am saying … is the ultimate decision the present parties are pressing for today will be decided at a future date. It may be the trustee is unable to do what he or she would like because of lack of funding and that in itself will be a decision.”