Creditors clash on Eastern foreclosure

BANGOR – The official committee of unsecured creditors of bankrupt Eastern Pulp and Paper Co. is objecting to one creditor’s attempt to force the company and its two mills in Lincoln and Brewer into liquidation and closure.

Northborough Capital Partners LLC, the holder of the mortgage on Eastern Pulp’s headquarters in Amherst, Mass., is seeking permission from a U.S. Bankruptcy Court judge to foreclose on the property. If not, then Northborough wants the judge to put Eastern Pulp into Chapter 7 bankruptcy, which would close the mills and put almost 800 people out of work.

A hearing is scheduled for 11 a.m. July 16 at U.S. Bankruptcy Court in Portland.

Under Chapter 7, the mills, Lincoln Pulp and Paper Co. and Eastern Fine Paper Co., would be sold to pay creditors. Currently, Eastern Pulp and the mills are under Chapter 11 bankruptcy protection, which affords the company protection from creditors while it reorganizes its finances and operations.

In court documents filed June 12, Northborough stated that Eastern Pulp owes more than $816,745 on its mortgage. The creditor also stated that Eastern Pulp has been too slow in its efforts to sell the property and too slow in finalizing a plan on how the company will emerge from bankruptcy.

The creditors’ committee, however, disagrees with Northborough’s claims. Robert Keach, a Portland attorney representing the committee, stated in court documents filed Monday evening that Eastern Pulp may be slow in emerging from bankruptcy, but the delay “is not unreasonable in light of the market conditions faced by [Eastern Pulp].”

Keach stated that Eastern Pulp has “aggressively reduced costs and expenses” and is in the process of completing a plan to emerge from bankruptcy. A conversion to Chapter 7 “would not be in the best interest of creditors,” he said.

“When a single creditor moves for conversion, and conversion is opposed by other creditors and-or the official committee of unsecured creditors, courts have been extremely reluctant to find conversion in the best interest of creditors,” Keach stated.

Northborough contends that Lincoln Pulp and Paper, which is named on the mortgage, has “suffered substantial and ongoing losses” during the nearly three-year bankruptcy proceeding and that is reasonable grounds to pursue foreclosure.

But Eastern Pulp disagrees. In court documents filed Monday, the company said Lincoln Pulp has been profitable even though the mill has experienced downtime – or periodic shutdowns because of market-related conditions – during the last couple of months. Combined, Eastern Fine and Lincoln have been unprofitable, according to the court documents.

Doug Walsh, vice president of operations for Eastern Pulp, on Tuesday clarified the amount of downtime experienced at the Lincoln mill. He said numbers reported in Tuesday’s edition of the Bangor Daily News were incorrect.

Between June 1 and June 23, the machines have been down a total of 12 days, and not 17 out of the first 18 days of June as reported Tuesday.

“Market-related conditions have continued to deteriorate,” Walsh said. “May is much worse than April. June is already much worse than May, with one week left to go in the month.”