OLD TOWN – Red Shield Environmental LLC, the pulp manufacturing facility, is expected to file for bankruptcy in the very near future, but attorney Robert Keach of Portland said it’s a short-term problem and the facility isn’t expected to close its doors forever.

“I would say that that is highly likely at this point,” Keach said of the company filing for Chapter 11. “It’s a matter of when, not whether.”

He called the period a regrouping to address a short-term cash-flow problem.

Employees did not receive paychecks last week and still hadn’t been paid as of Wednesday despite approval on Tuesday from Chittenden Bank and the Finance Authority of Maine for a $1.3 million loan. Details of that loan weren’t being released Wednesday by FAME.

“We expect [employees] will be paid for existing work promptly,” Keach said. Once the paperwork is filed at U.S. Bankruptcy Court in Bangor, Keach said he will request emergency payment of employees for time already worked.

Red Shield’s future looked bright just two months ago when the company announced it had received a $30 million grant from the U.S. Department of Energy.

That money, however, won’t help with the cash-flow situation or with replenishing the company’s supply of wood chips. The grant was awarded to RSE Pulp & Chemical LLC, a division of Red Shield Environmental, to continue a partnership with the University of Maine and American Process Inc. of Atlanta, Ga., specifically to build a pilot plant for ethanol production at the mill.

The mill, which Red Shield purchased in 2006 when Georgia-Pacific Corp. announced it was going to close the facility, has been shut down temporarily since June 6. While about 160 employees were laid off, nearly 30 continue to work at the mill to keep the operation ready for startup whenever officials give the go-ahead, but Red Shield spokesman Dan Bird said that no specific restart date has been set.

“The company believes strongly, as do I, that these really are short-term problems,” Keach said. “When we’ll be calling everybody back to work, that’s a function of some things that remain to be addressed.”

Recent and significant spikes in material and fuel costs are to blame for the current situation, according to company officials.

“Those are things that are affecting everybody,” Keach said. “Fortunately this company has some attributes that other pulp companies don’t have, which we think gives it a very strong future.”

Officials are considering a number of options, but aren’t looking for new owners.

“We are looking at a refinancing of the existing debt, and we are looking at an additional infusion of equity,” Keach said.

Duane Lugdon, international representative of the United Steelworkers International Union that represents approximately 180 of the local millworkers, said the union is working to protect the interests of Red Shield employees.

“I’m not at liberty to divulge specifics here, but we are reacting to bankruptcy that we know Red Shield is going to file,” Lugdon said Wednesday.

As for the mood of employees, he said they’re obviously nervous.

“Some of them have been out of work for as much as two weeks, and they are obviously very, very concerned here,” Lugdon said. “I can say without question that the union certainly wants to see the Old Town mill restarted, [and] if that means under new ownership, then that’s fine with us, and we’ll do everything we can to assist new owners in making that happen.”

Reporter Jessica Bloch contributed to this story.

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