A Vancouver courtroom has been the scene of presentations concerning the ownership of Skeena Sawmills and the Skeena Bioenergy pellet plant. Both are in receivership. (Staff photo)

A complex legal case continues in a Vancouver Supreme Court courtroom to decide the ownership of Skeena Sawmills and the adjacent Skeena Bioenergy pellet plant.

The two businesses were placed into receivership last fall after amassing debts they could not pay.

Over a number of hearing dates, the court has been asked to approve a pathway to restore the two facilities to the owners, the Cui family, who asked for them to be placed in receivership in the first place.

That pathway involves creating a new company into which unwanted debts and other obligations would be placed.

That company would then be declared bankrupt and those debts and obligations wiped out, returning the sawmill and pellet plant to the Cui family under an agreement made with receiver Alvarez and Marsal Canada.

The entity would be debt-free following commitments made to pay debts considered vital such as property taxes and stumpage payments.

Alvarez and Marsal Canada determined that after reviewing other purchase offers, the Cui family’s bid was the only one to have the likelihood of reopening the mill and pellet plant as a whole package.

The offer was for $13.46 million with just over half in the form of a credit bid. That’s a mechanism whereby a creditor can convert a debt into a credit to take control of assets.

The cash portion would cover those debts considered vital – property taxes to the city and stumpage payments to the province for logging.

The sales agreement “provides the highest and best value for the property as the other definitive bids were of significantly less value,” the receiver noted in a court filing.

Crucially, the deal would include continued ownership by the Cuis of three wood licences to the south, west and north of Terrace.

The Cui family says that since ownership of the licences would remain with them, there would be no transfer of ownership and because of that, no requirement for a review by the forests minister as otherwise required.

But the agreement presented to the court has drawn opposition from creditors, businesses, First Nations and the provincial and federal governments.

This was not supposed to happen

The Cui family, backed by family assets in China, was welcomed in 2011 when it bought Skeena Sawmills from West Fraser and made promises to modernize a facility that had been closed for several years.

By the latter part of the last decade, the Cuis were pouring tens of millions into the operation. The sawmill began citing high operating costs, soft markets and the high expense of getting wood to the mill.

Temporary closures become more frequent.

Skeena Bioenergy, a $20 million state-of-the-art pellet plant opened in 2019, was intended to take chips, sawdust and waste from the sawmill to generate a separate income stream, but even that was not sufficient.

Both places closed for good in the summer of 2023 and the Cui family asked for the receivership in September, saying it was owed more than $135 million.

Together with other debts, the total unpaid tally reached just over $161 million.

Bill 13

Two companies, Timber Baron and Terrace Timber, are contracted to provide wood to Skeena Sawmills from three provincial wood licences.

This is done through what are called Bill 13 contracts, which are meant to provide certainty to cover the costs of the companies and certainty of supply for the licence holder. They can be renewed every five years.

After several years of negotiations to reach new contract agreements, Skeena Sawmills says the two companies want more than market logging rates, something it says it cannot afford. It seeks approval to put what they owe Terrace Timber and Timber Baron into the company it wants created and declared bankrupt.

That process would include separating the Bill 13 contracts from the wood licences.

Terrace Timber and Timber Baron say they would lose millions in anticipated revenue and monies already spent to sustain their operations.

First Nations

The Haisla, the Kitsumkalum and the Gitanyow have asserted title over the lands containing the three wood licences held by Skeena Sawmills.

The Gitanyow, who hope to have their title and rights affirmed through an upcoming court case, makes its position very clear in a filing opposing the claim that a wood licence review is not needed because there is no change of ownership.

“The courts have long recognized social stakeholders in Companies’ Creditors Arrangement Act proceedings, including First Nations interests in respect of Aboriginal and treaty rights,” the Gitanyow stated

“If the receiver had proceeded with either a transfer or an amalgamation/change of control, the (forests) minister would have to consider the public interest, which would necessarily encompass interests of affected First Nations.”

The Kitsumkalum offer

The receiver may have judged the Cui family’s offer to be the best, but one other one remains active and it is from the Kitsumkalum First Nation.

It is offering $14.15 million in cash compared to the Cui offer of $13.46 million, half of which is in the form of a credit bid.

Like the Cui offer, the Kitsumkalum offer, as first submitted, called for excluding the Bill 13 contracts.

The receiver rejected the Kitsumkalum offer on two grounds, the first being opening the wood licences to review because of an ownership transfer. “There is no assurance that all of the tenures (if any) will be approved for transfer, which could jeopardize the closing of the transaction,” the receiver stated.

And although the Kitsumkalum offer is worth more than the Cui family’s, the difference would be eaten up in ongoing costs to maintain the properties while waiting for a licence transfer to take place, the receiver adds.

“It is the receiver’s conclusion that after deducting the ongoing cost of administration while the transfer process is concluded, the Kitsumkalum offer is inferior,” stated Alvarez and Marsal in a filing.

In response, the Kitsumkalum First Nation says there is no evidence of risk in a licence transfer.

Order in the court

The core of the Cui family offer as favoured by the receiver rests with what is called a reverse vesting order. This allows the creation of a company into which unwanted debts and other obligations would be placed. That company would then be declared bankrupt, leaving the successful purchaser with a fresh start by acquiring a virtually debt-free collection of assets.

“What can confidently be established is that the evolving jurisprudence on reverse vesting orders includes findings that this court has the jurisdiction to use a reverse vesting order to vest off contracts and liabilities including those liabilities imposed by legislation,” lawyers for the Cui family stated in a filing.

“Cui Holdings is investing in the (sales) agreement with a view to returning the business to a fully operational status,” the lawyers added in the same filing as a reason a reverse vesting order is needed.

But through 32 pages the provincial government opposes a reverse vesting order, saying the court has no jurisdiction to issue one and even if it did, it should not.

“This is not the exceptional case which might justify a reverse vesting order. Unlike in the vast majority of cases where a reverse vesting order has been employed, a restructuring attempt has not preceded this receivership,” provincial lawyers wrote in a filing.

The lawyers also zeroed in on the matter of the transfer of the wood licences by concluding that a reverse vesting order “would usurp the province’s role in regulating the forestry industry and thus guarding the public interest.

“On the receiver’s own assertions, it appears that a Skeena Reverse Vesting Order is a deliberate attempt to avoid triggering statutory requirements and obligations.”https://www.terracestandard.com/news/sawmill-pellet-plant-ownership-remains-unresolved-7343803