BANGOR – Hundreds of Great Northern Paper Inc.’s suppliers are being asked to prove they did not receive preferential treatment when paid by the company in the three months before its Jan. 9 bankruptcy filing.
In the last couple of weeks, Gary Growe, the trustee of Great Northern’s bankrupt estate, mailed letters to suppliers nationwide who received payments of $5,000 or more during the 90 days before the bankruptcy.
People or businesses that were paid less than $5,000 during those 90 days were not on the mailing list, Growe said, because the administrative cost of pursuing that money might end up being more than the amount eventually collected from the suppliers.
Also, a number of suppliers who were identified as being unlikely recipients for preferential treatment were not sent a letter.
In all, Great Northern paid $46.6 million to suppliers in the 90 days before bankruptcy. The letters sent out to suppliers have amounts totaling $4.5 million.
Growe said Tuesday that the letters were not demands for the money to be sent back, but rather requests for suppliers to show him documentation that payments were received from normal business transactions. Growe said if he believes the suppliers were given preferential treatment, he will want the money sent to him.
“We don’t have any desire to collect money that was paid in the normal course of business,” Growe said. “They’re entitled to that. They’re not entitled to preference payments.”
Under bankruptcy law, a trustee is allowed to demand the return of payments received by suppliers in the 90 days before bankruptcy, and to go after any money received by company “insiders” or top executives in a 12-month period before bankruptcy.
Growe said “insider” payments are going to be treated differently from supplier payments, but he would not elaborate as to how. During those 90 days, Great Northern paid $300,000 in total bonuses to former chief financial officer Timothy Morgan and Eldon Doody, the former company president, according to court documents.The intended purpose behind the preferential payment recall is to collect the money, put it into a pool, and distribute it in an equitable way to other creditors with claims against the company, according to bankruptcy attorneys.
How much is collected in preference payments during each bankruptcy case in Maine is not known because each case has its own set of unique financial circumstances, according to one attorney.
Great Northern’s unsecured creditors are owed at least $70 million, and its former employees and retirees are owed more than $6 million. An agreement reached between Growe and Great Northern’s primary creditor, Boeing Capital Corp. of Long Beach, Calif., ensures that $600,000 will be set aside to pay former employees and retirees at least a portion of their claims.
Bankruptcy law specifies that former employees are entitled to at the most $4,000 apiece if the money is available.
Great Northern’s assets were sold to Brascan Corp. of Toronto in late April in a $103 million deal. About $63 million of that was actual cash and the money was used to pay several secured creditors who received approval from the U.S. Bankruptcy Court to be compensated, such as Cianbro Corp. of Pittsfield and attorneys and other professionals.
So far, attorneys have filed legal bills with the bankruptcy court totaling more than $1.5 million.
About $53 million of the cash from the sale went to Boeing, which had liens on just about all of Great Northern’s property and equipment. Boeing still is owed about $12 million that it lent the company to heat its facilities while the bankruptcy case proceeded through the court.
Not all of Great Northern’s assets were sold, and the trustee has downplayed how much he expects to collect from them if and when they are sold. Estimates have been between zero and $16 million. Most of the money likely will go to Boeing, which is first in line to be paid.
Another $3.6 million of the cash from the sale was set aside in an escrow account by U.S. Bankruptcy Judge Louis H. Kornreich that might be used to settle claims actions filed by four businesses.
Katahdin Federal Credit Union of Millinocket, which gave three loans totaling $3 million to Great Northern’s previous owners, wants to be paid back. In April, Katahdin was forced to return property used as collateral on those loans to Great Northern.
The other three creditors, PSP Wood Recovery Services of Millinocket, Sullivan and Merritt Inc. of Millinocket and Chemipulp Process Inc., collectively are owed more than $600,000 in mechanic’s liens.
Boeing already is fighting Katahdin Federal’s payment pursuit, arguing in court documents that if anything the credit union should be paid only $775,000 because that’s all the properties used as collateral are worth.
Earlier this week, Boeing filed a lawsuit against PSP Wood Recovery, Sullivan and Merritt and Chemipulp, stating that they received their liens after Boeing and therefore should not be paid from the escrow account. Instead, Boeing stated in the lawsuit that it should get the money.
U.S. Bankruptcy Judge Louis H. Kornreich ruled Thursday that the lawsuit can proceed and the three creditors can pursue their efforts to prove they have legitimate liens against Great Northern in bankruptcy court.
In the meantime, Great Northern’s creditors and employees should have received a claims notice earlier this month with instructions on how to file a claim, Growe said. Governmental units have 180 days from Jan. 9 to file a proof of claim against the bankrupt estate, and all other creditor claims are due by Oct. 6.
Earlier this month, Growe said the employees would not receive the money if they did not file a claim, and they might not receive all that is owed to them if enough isn’t collected.
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