BANGOR – The trustee of Great Northern Paper Inc.’s bankrupt estate has settled a federal lawsuit against the defunct papermaker’s owners, board of directors and insurance company for more than $3.6 million.

The settlement was tentatively reached in early February but its terms were not known until late last week.

The trustee, Bangor lawyer Gary Growe, filed a lawsuit in November 2003 in U.S. District Court in Bangor alleging that Great Northern’s owners and board of directors mismanaged the paper company. Growe sought at least $7.7 million in damages, and the money would come from insurance policies on the owners and board.

In the lawsuit, Growe stated that Great Northern became financially insolvent moments after it was sold from Bowater Inc. to Inexcon Maine in 1999. After the sale closed, new owners Lambert Bedard and Joseph Kass allegedly transferred $9 million from GNP to Inexcon Maine, causing the insolvency, according to the lawsuit.

The $9 million transfer from Great Northern to Inexcon Maine, which was incorporated in Delaware, allegedly was classified as a dividend that failed to meet payment definitions under Delaware corporate law, according to the lawsuit.

Great Northern’s board of directors was named in the lawsuit for its June 2001 decision to transfer paper company property to Bedard and Inexcon Maine. The properties were used as collateral to secure a series of loans totaling $3 million from Katahdin Federal Credit Union in Millinocket to Bedard and Inexcon Maine, and the money then was transferred to Great Northern for use in the upgrade of its No. 11 paper machine and other expenses.

Terms of the lawsuit’s settlement will need to be approved by a federal bankruptcy judge. A hearing is scheduled for March 4. After approval, the trustee and Great Northern’s owners and board will have until the end of the month to file formal settlement papers in U.S. District Court.

The owners and board of directors faced a similar lawsuit from Great Northern’s primary creditor, Boeing Capital Corp. of Long Beach, Calif. In its lawsuit, BCC claims that the owners and the board of directors allegedly did not fully disclose Great Northern’s financial woes when BCC loaned the paper company $50 million. A tentative settlement has been reached in BCC’s lawsuit. Terms are not available, but they should be filed in U.S. District Court by the end of the month.

Any money collected in lawsuit settlements will be used to pay BCC, which was Great Northern’s primary secured creditor and still is owed $9 million. In bankruptcy cases, secured creditors typically are paid first.

In the meantime, Katahdin Federal Credit Union continues to pursue payment of the loans it gave Bedard and Inexcon Maine prior to Great Northern’s going bankrupt in January 2003. BCC is trying to stop the credit union from receiving the payments. A trial to resolve the matter is set to begin March 7 in U.S. Bankruptcy Court, although Katahdin Federal and BCC recently have been engaging in settlement talks.