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Kitsumkalum First Nation buys Terrace sawmill, pellet plant

Agreement ends months of uncertainty following court-ordered receivership
Skeena Sawmills and its sister facility, the Skeena Bioenergy pellet plant, have been bought by the Kitsumkalum First Nation. (Staff photo)

The Kitsumkalum First Nation has purchased Skeena Sawmills, the Skeena Bioenergy pellet plant and all relevant assets in a complex sales agreement set out in an April 16 B.C. Supreme Court order.

The $14.05 million purchase, effective April 30, ends an extended period of uncertainty over who would own the entities that were placed in receivership in September 2023.

The Cui family, who bought the sawmill in 2011 and then added the pellet plant in 2019, put more than $135 million into both operations before closing them completely last summer.

The entities owed just over $161 million to various creditors when they went into receivership.

In making his determination, Justice Paul Walker of the B.C. Supreme Court found that the sales agreement between the Kitsumkalum First Nation and court-appointed receiver Alvarez and Marsal “is commercially reasonable.”

“We have a desire and obligation to do things right in our region,” said Kitsumkalum chief councillor Don Roberts of the decision to bid for the entities.

He said Kitsumkalum will manage the forest tenures that are part of the purchase package as an ecological whole and manage the tenures beyond logging for their timber value.

Alvarez and Marsal began looking for purchasers last fall, eventually winnowing down offers. Ultimately the receiver recommended to the court that the existing owners, the Cui family, regain ownership in a deal that would have cleared their debt.

READ MORE: EXCLUSIVE: Skeena Sawmills in Terrace placed under receivership

However, a last-minute amendment to an offer by Kitsumkalum at the end of March persuaded the receiver to recommend the amended offer be accepted instead.

The Cui family bid $13.46 million with more than two-thirds being debt converted into equity and approximately $4 million in cash. The Kitsumkalum offer was all cash.

A portion of the monies paid by Kitsumkalum will go to the City of Terrace for unpaid property taxes and fees for the period up to and including 2023. As owner, Kitsumkalum is also now responsible for property taxes and fees from 2024 onward.

The Cui family will receive more than 90 per cent, approximately $7.4 million plus interest, of a specific debt secured through a promissory note.

Aside from financial obligations, the Kitsumkalum revised offer also addressed long-term contracts between Skeena Sawmills and two logging companies.

The parties had been at odds for years over the contracts which the sawmill said were too expensive and which the Cui family wanted excluded from their proposed sales agreement.

The companies opposed the exclusion and submitted affidavits using data from independent consultants countering the reasons for the proposed exclusion.

Kitsumkalum also wanted the contracts excluded from their sales agreement at first, but the revised offer said while the Nation would not cover any liabilities from the previous owners, future obligations under the contracts would be honoured.

“Kitsumkalum has opened up discussions with the companies and will look forward to forging a new working relationship with each company,” indicated a release from Kitsumkalum April 30.

“The contractors are supportive of the purchase and sale agreement,” noted the receiver in an analysis of the Kitsumkalum offer.

Also put to rest was the matter of the forest licence tenures which the Cui family argued did not need transfer approval by the provincial government because under their proposed agreement, ownership would not change.

That drew objections from Haisla south of Terrace, Gitanyow to the northeast and Kitsumkalum whose traditional territories cover portions of the licences. They said their rights and title interests needed to be represented in any sales agreement and that there was a duty to consult.

In his order approving the sales agreement, Justice Walker noted “nothing in this order shall be construed in any way to prejudice or affect the aboriginal rights of any First Nation, including without limitation the Haisla Nation.”

READ MORE: Sawmill, pellet plant ownership remains unresolved

Kitsumkalum is now filing tenure transfer documents with the provincial forests ministry and anticipates that will happen within six months.

Alvarez and Marsal initially discounted the Kitsumkalum offer because of the need to transfer the tenure.

It said the longer that transfer took, the greater its costs would be of maintaining the sawmill and pellet plant. And because those costs would be deducted from the sales agreement proceeds, there would be less left for creditors.

However, that objection was removed because the Kitsumkalum purchase is not conditional upon the tenure transfer. It means they will take possession of the sawmill and pellet plant much sooner.

A crucial difference between the two bids was the Cui Holdings proposal for a reverse vesting order, a procedure whereby debts and existing obligations would be transferred to a new company and that company then be declared bankrupt, leaving Cui Holdings to own the mill and plant virtually debt-free.

Such an order was not requested in the Kitsumkalum offer and the Cui Holdings proposition resulted in strenuous opposition from the provincial and federal governments and First Nations.

“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,” the province said in an affidavit.

In its analysis of the Kitsumkalum offer, the receiver said it “will address any concerns expressed” through the Cui Holdings proposal.

Alvarez and Marsal added that “no other stakeholder will be materially worse off” under the Kitsumkalum offer as opposed to the one put forward by Cui Holdings.

“In light of the revised Kitsumkalum offer, the receiver is no longer able to recommend that the court grant the reverse vesting order,” the receiver added in its court filing.

“There is now before the court a viable alternative which is both financially superior to the Cui Holdings offer and better addresses the financial or other concerns of many stakeholders.”

Projected re-opening dates for the sawmill and pellet plant have yet to be set.

About the Author: Rod Link

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