BANGOR, Maine — A U.S. Bankruptcy Court judge on Friday approved setting Dec. 2 as the date for an auction to sell the former Great Northern Paper mill in East Millinocket, which is now shuttered.
Judge Louis Kornreich also allowed $180,000 to be spent to winterize the mill buildings and keep its wastewater treatment facility operating.
The money includes a loan of $100,000 from GNP Acquisition LLC, a firm that submitted a stalking horse bid Thursday for the mill, plus $80,000 from the two companies that now own the mill assets.
Stalking horse is the term for a bidder who is chosen before an actual auction to ensure there’s a starting bid and a willing buyer if no better bids are received.
An online search revealed that one of the principals who signed the asset-purchase agreement on behalf of GNP Acquisition, William Firestone, is president of Capital Recovery Group, an auction and appraisal firm, according to its website, crgauction.com.
The mill is owned by two separate entities, both of which have filed for Chapter 7 bankruptcy. GNP East Inc. owns the land and buildings at the shuttered mill. GNP Maine Holdings LLC owns the mill’s papermaking equipment.
There are at least a dozen potential bidders for the mill and the property, attorney D. Sam Anderson of Portland told Kornreich. Anderson represents Millinocket and East Millinocket, which are owed hundreds of thousands of dollars in back taxes from the bankrupt GNP companies.
He said that eight bidders would dismantle the mill, but four are potential operators. None of the potential bidders were named in court.
The bid process approved Friday will require potential buyers to submit a minimum bid of $2.9 million — to surpass the stalking horse bid — and provide a $500,000 deposit by Dec. 1. A provision also requires the successful bidder close the deal by Dec. 4.
“There is hope on the horizon [for restarting the mill],” Mark Scally, chairman of the East Millinocket Board of Selectmen, said outside the Margaret Chase Smith Federal Building after the hearing. Scally was elected to the board on Nov. 4.
In addition to finding a buyer that would provide jobs in the community, there are two priorities of equal importance to the town, Scally said. One is collecting the back taxes owed the town by the mill’s owner. The other is the operation of the wastewater treatment plant that is on mill property and run by the mill but used by residents.
“It’s important for the survival of the town, because otherwise we don’t flush,” Scally said. “We need to solve that problem first and foremost.
“Several entities use the wastewater facility,” he said. “The state uses the facility because leachate from the landfill goes into that facility. When the mill was running, their water went through that facility and the town’s wastewater goes through that facility. It’s a gigantic facility but it’s antiquated.”
Scally said that without the facility, the town would have to build a new treatment plant, which most likely would be cost prohibitive.
The town is owed $886,691 in real estate and personal property taxes for the 2013-14 and 2014-15 fiscal years, according to court documents. The mill is the town’s largest taxpayer.
As a secured creditor, the town would be one of the first in line to be paid under bankruptcy law. A proposed settlement motion filed Friday would allow the hundreds of unsecured creditors to recover some portion of what they are owed, if approved by the judge.
Portland attorney Jeremy Fischer was hired by trustee Pasquale “Pat” J. Perrino to investigate how the mill was run by GNP.
“What usually happens in these kinds of bankruptcy cases is that we investigate, negotiate, then litigate,” Fischer said Friday afternoon. “By presenting the settlement, we avoid litigation.”
Fischer wrote in the proposed settlement that the trustee could claim GNP Maine Holdings’ managers made decisions that violated their fiduciary duty to act in the interest of the company’s investors.
Those claims included operating the company close to insolvency and continuing to take on additional debts and “overpaying significantly” for the acquisition of personal property assets from GNP East. That, Fischer wrote, could constitute breaches of duty of care and breaches of the duty of loyalty, respectively.
Fischer said in the proposed settlement that the bankrupt companies’ directors and officers have disputed those charges and said that all of their decisions “were well-informed, and were taken in the best interest of the debtors, their creditors, and their employees.”
Perrino would not assert those claims in a lawsuit if the judge approves the settlement as proposed.
In recommending the release of those claims, Fischer said the trustee is seeking to avoid litigation that “would be complex, expensive, inconvenient, and time-consuming.”
Fisher said Friday that the settlement provided for 30 percent of the sale price to be set aside for unsecured creditors, who are are owed $22.6 million, he said. If the sale price is higher, there would be more money to pay unsecured creditors, many of which are businesses located in Maine, according to Fischer.
How much secured lenders Enhanced Capital New Market Development Fund X LLC and Stonehenge Community Development LXI LLC, both out-of-state firms that invested in the mill, are able to recoup depends on, among other things, how much the mill is sold for, Fischer said.
A hearing on the settlement motion could be held as early as Nov. 21.