Appellate court denies stay in PALCO case
By Nathan Rushton
The Eureka Reporter
July 25, 2008
An appeals court issued a key ruling Thursday in the Pacific Lumber Co. bankruptcy case denying a creditors group’s motion for a stay in the case aimed at delaying a court-approved restructuring plan for PALCO from moving forward.
The ruling came just hours before a temporary stay was set to expire that was put in place by Judge Richard Schmidt who has overseen the 18-month bankruptcy case and certified the reorganization plan he approved for Mendocino Redwood Co. and its partner Marathon Structured Finance on July 15.
While the U.S. Fifth Circuit Court of Appeals did deliver a setback to PALCO’s largest creditor — the Timber Noteholders, who are owed more than $700 million — it did grant a review of its appeal and ordered an expedited appeal and an abbreviated briefing schedule the Noteholders argue effectively prevents MRC from beginning its restructuring of the bankrupt company.
The Noteholders are seeking an appeal because they argue they were denied their right to auction off PALCO’s lands they hold as collateral in an open bidding process to recoup the most money they are owed and are seeking as much as $200 million as part of a superpriority claim resulting from a devaluation of the timberlands during the nearly 2-year bankruptcy proceeding.
The reorganization plan approved by Schmidt allows MRC and Marathon to take over commercial timber operations of Scotia Pacific’s 210,000 acres of timberlands and the town of Scotia, PALCO’s mill and the companies’ other assets.
But as to where the appeal process stood as of Thursday, Timber Noteholders attorney Zack Clement was sparse with comments when reached in Texas.
“We are not in a position to comment to the press with what’s before the Fifth Circuit,” Clement said.
Timber Noteholders lawyers argued in filings to the Fifth Circuit that a stay pending appeal was necessary because if MRC implemented its plan it would effectively make their appeal moot.
An e-mail correspondence obtained on Thursday to various parties in the case from Toby Gerber of the law firm representing the Bank of New York, the Indenture Trustee for the Timber Noteholders, raised more uncertainty how the
“If and when all stays shall have expired, the express terms of the MRC/Marathon plan unequivocally provide that the “effective date” of the plan will nevertheless not occur so long as any appeal from the confirmation order remains pending,” Gerber’s e-mail stated.
Gerber wrote that as long as the confirmation appeal remains pending, the Noteholders would regard any attempt by any entity to consummate the MRC/Marathon plan — such as deeds, bills of sale and other document transfers — as improper and contrary to law.
MRC officials have stated publicly and in court that they would move quickly to implement their plan when all legal hurdles were cleared.
MRC Chairman Sandy Dean reached Thursday via phone from Scotia, where he has been preparing for the transfer of the companies, indicated he was pleased with the ruling and was looking forward to moving past the litigation.
“It is an extremely favorable ruling for our efforts to move ahead with our plan for reorganization,” Dean said.
Consistent with what he said has been MRC’s plans from the beginning, Dean said the company will begin implementing its silviculture and forestry practices immediately, although it might take some time for those changes to be put in place on the ground.Posted in PALCO | Tagged HRC, MRC |