Yukon Zinc granted creditor protection

Yukon Zinc has received protection from its creditors on $646 million of debt. The Chinese-owned company owns the Wolverine zinc mine, located in southeast Yukon.

Yukon Zinc has received protection from its creditors on $646 million of debt.

The Chinese-owned company owns the Wolverine zinc mine, located in southeast Yukon.

They announced a temporary shut-down of the mine back in January, citing falling mineral prices.

As of a week ago, the company has been appointed a financial monitor by the Supreme Court of British Columbia to oversee its financial affairs.

Protection under the Companies’ Creditors Arrangement Act is a step before bankruptcy that gives a company some relief to restructure its business.

It “presents an opportunity for the company to avoid bankruptcy and allows the creditors to receive some form of payment for amounts owing to them by the company,” according to the website for PwC Canada, the firm that has been appointed to monitor Yukon Zinc.

“The decision to file for CCAA protection was not taken lightly,” according to a letter sent this week from CEO Jingyou Lu to the company’s creditors.

“We filed for CCAA protection to allow for an orderly restructuring of our balance sheet, and to preserve the value of the company’s assets in the long term.”

The company has been granted protection from being sued for its debts until April 10, according of the court’s initial order.

In the meantime, suppliers are required to continue providing services to Yukon Zinc in accordance with their agreements, according to the letter.

“In return, Yukon Zinc will pay suppliers in full for goods and services provided on or after March 13, 2015. Any payment of invoices up to and including March 12, 2015 is stayed by the court and cannot be paid.”

By far the largest portion of the company’s debt is $595 million owed to Jinduicheng Canada Resource Corporation Ltd., which also happens to be Yukon Zinc’s parent company.

More than 50 Yukon companies are listed as debtors.

As of January 30, the company also owed the Yukon government $3 million in mine security for eventual mine closure and reclamation. It has been out of compliance with its mining licence since October for failing to make payments on an agreed upon schedule.

A new court order this week has granted the company permission to borrow up to $1.5 million from Maynards Financial Partnership Ltd., a firm that specializes in high-risk lending to companies in financial trouble, as it continues its efforts at restructuring.

The court-appointed monitor will continue to oversee the company’s finances while it attempts to come up with a plan that will satisfy creditors and the court.

While the company has not yet announced that it will dissolve and divvy up its assets, if it comes to that, it remains to be seen which debts will take priority.

“The big question is, where in the hierarchy does the obligation to the Yukon government security fund, and all the other things fall?” asked Yukon economist Keith Halliday.

Will that debt to the “mother ship” have legal precedence over debts to Yukon companies?

And further, when it comes to a company backed by the Chinese government, will the regular rules of business still apply?

“I wonder what their policy is on it, in terms of not meeting its financial obligations in a foreign country?” said Halliday.

“There’s a difference between legal responsibility and what we would expect from a foreign government. Will they step up and meet their obligations or will they walk away from the company?”

Contact Jacqueline Ronson at

jronson@yukon-news.com

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