Eastern’s debt, sale a legal transition

BANGOR – A Portland attorney who for 31/2 years represented the businesses to which Eastern Pulp and Paper Corp. owed $40 million soon may represent the company’s prospective buyers, whose offer does not include money to pay those creditors.

Attorney Robert Keach confirmed Wednesday that the two Connecticut men interested in purchasing Eastern Pulp’s two mills have been conducting negotiations with him to retain his services. John Wissmann and Keith Van Scotter, partners at Fisher International of South Norwalk, Conn., on Tuesday reached an agreement in principle with the state to purchase the mills for an undisclosed amount.

The deal isn’t completed yet. Negotiations to complete the terms of the deal and have them submitted in U.S. Bankruptcy Court by the end of the day Friday are continuing, according to Gov. John Baldacci on Tuesday.

“We haven’t signed an engagement letter yet,” said Keach, who acknowledged that one could be signed by the end of the week.

Eastern Pulp entered Chapter 11 bankruptcy protection in September 2000, and Keach then was appointed by the U.S. Bankruptcy Court to represent the company’s unsecured creditors and ensure that their debts were paid even a nominal amount of money. Under bankruptcy laws, the unsecured creditors are represented by what’s called an official committee of creditors, which includes a handful of the hundreds of businesses that are owed money from a bankrupt company plus an attorney.

As head of the creditors committee, Keach was instrumental in pressuring Eastern Pulp to come up with a court-required plan to reorganize and get out of bankruptcy. He stated repeatedly in court over a three-year period that Eastern Pulp was taking too long trying to stabilize its finances.

The reorganization plan presented in bankruptcy court last July was subject to negotiations. Under the original plan, unsecured creditors were to be paid 10 percent of their total debt over a five-year period.

In the five months that followed, Keach said he was able to negotiate a higher payment plan for the unsecured creditors, something that was not publicized. The new plan was never presented in bankruptcy court because Eastern Pulp failed twice in January and February to secure more loans to fund operations while the plan was completed.

The final, eventually unsuccessful, loan negotiations in early February included discussion that Fisher be hired by Eastern Pulp to sell the mills in Lincoln and Brewer, a role that Keach and the creditors committee didn’t oppose.

On Feb. 4, a federal bankruptcy judge ordered that Eastern Pulp be liquidated after the company’s attorney stated that it could not get the loans and that the company had accumulated more than $10 million in new debt, which is not allowed when under Chapter 11.

Keach said that when Eastern Pulp was converted to liquidation, the creditors committee immediately dissolved.

“It no longer exists,” he said.

Even though technically Keach no longer has a client in the creditors committee, his appearance as attorney for the prospective buyers could be perceived as a conflict. Keach said he was aware that his pending retention by Wissmann and Van Scotter could be viewed as a slap in the face to unsecured creditors, but different circumstances surround Eastern’s dire situation.

One other offer has been made and withdrawn for Eastern’s assets, and the $8.5 million price did not include any money for unsecured creditors. Keach, who has not seen the Wissmann-Van Scotter offer, said it is doubtful that their bid does either.

“Given the dollar amounts being discussed, there’s no money for the unsecured creditors,” Keach said. “There is no chance at this point in time that any acquisition would come within 100 miles of paying the unsecured creditors.”

Keach said he and other attorneys at his law firm discussed whether accepting Wissmann and Van Scotter as clients could pose a conflict, and they checked bankruptcy codes of conduct before agreeing to negotiate terms of retention.

“We did not make [the decision] lightly,” Keach said. “We concluded this was a representation we could accept.”

Keach said members of Baldacci’s staff and Cianbro Corp., one of the state’s largest employers owed money by Eastern Pulp, gave Wissmann and Van Scotter his name. Keach said he would be able to navigate a deal quickly through the bankruptcy court because he is familiar with the case.

Baldacci’s spokesman, Lee Umphrey, could not be reached for comment Wednesday evening.

A sale is in the best interest of unsecured creditors even though their $40 million in debt isn’t paid, Keach said. What the businesses will get is a customer again, Keach said.

Curtis Kimball, a Bangor attorney representing individually a number of unsecured creditors owed millions of dollars, said Keach’s pending retention by Wissmann and Van Scotter is interesting on the surface, but probably not a conflict of interest.

“Technically, I don’t think it is a conflict, but politically, it certainly would be sensitive,” Kimball said. “One of the reasons I’m sure he [Keach] was recommended is because he is a good attorney.”

In Lincoln, Scott and Alan Smith, owners of Fastco Fabrications, question whether Wissmann and Van Scotter should hire Keach.

“It’s hard for us to determine whether there’s a conflict,” said Scott Smith, whose company is owed $506,000. “If there is no conflict, and there’s a chance of recovering some money, it’s fine with us. To have this kind of debt out there, there’s got to be a chance of collecting it.”