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Northern Pulp cried poor while paying parent company nearly $60 million, Nova Scotia officials argue in court documents
CANADA (From news reports) -- The province has accused Northern Pulp of misappropriating taxpayer funds and misrepresenting its financial state to allow it to funnel more money back to its parent company.

The accusations are found in affidavits filed by high-level Nova Scotia government officials in the British Columbia Supreme Court in which they argue Northern Pulp shouldn't be allowed to accept a $50-million loan from Paper Excellence Canada and related company Pacific Harbour North American Resources.

That loan would keep Northern Pulp afloat as it idles its Pictou County kraft pulp mill, pays severance and works toward a replacement effluent treatment plant.

But among its attached strings is a rider that would make its repayment a priority over the $85 million that Northern Pulp and its associated companies owe the province in the event of bankruptcy - something Paper Excellence could precipitate by calling in the loan.

Without the loan, Northern Pulp claims it will run out of money within the next two weeks.

According to Duff MacKay Montgomery, deputy minister at the Department of Labour and Advanced Education, Northern Pulp has soured the well with the province by playing loose with taxpayer funds.

He states in a sworn affidavit that in mid-January, Paper Excellence president Brian Baarda reached out to him through back channels to plan for the mill's imminent closure.

"(Mr. Baarda) said the mill has been a profitable one," Montgomery said in the affidavit.

"He expressed the frustration of Northern Pulp about the Boat Harbour Act but indicated it wished to take care of the environmental liabilities and to hibernate the mill in a safe way. He asserted that the shareholder was serious about wanting to reopen the mill. I told him the province wished for the mill to succeed if it could obtain environmental approvals and reach an accommodation with the (Pictou Landing First Nation)."

The meeting led to a March 17 agreement where the province would pay half of the mill's costs, up to $10 million, preparing for the shutdown of the Boat Harbour effluent treatment facility. Eligible billable costs included trucking and processing leachate, decommissioning of the pipeline, ditches, settling and aeration basins at Boat Harbour.

Baarda then returned to Montgomery, saying the company would provide $50 million to keep Northern Pulp afloat if the province would provide "a backstop" in the event an environmental assessment never got approved for a replacement effluent treatment facility.

The province put together a negotiation team to look at the company's books and its claims that it would need $70 million to keep afloat, idle the mill, pay severance and pension requirements to hundreds of laid-off employees and work toward getting a new effluent treatment plant approved.

Those negotiators saw that in 2018, when Northern Pulp had come to the province crying poor and seeking loan payment deferrals worth about $3 million, it had found $59.9 million to pay Paper Excellence Canada Holdings Corporation.

Montgomery also claims to have learned Northern Pulp placed the $10 million it got from the province in March into its general operations, didn't provide the promised matching funds and used it for costs not approved under the terms of the contribution agreement.

The province decided not to support the mill's plan to borrow from its parent because of the aforementioned discoveries and concerns that it presented insufficient supporting documentation of its finances, no clear plan to reach an environmental approval for a replacement effluent treatment facility and a lack of confidence that mill would ever restart.

But on June 3 the province did offer to defer all interest and principal payments on outstanding loans so long as Northern Pulp was working toward regulatory approval for a new effluent treatment plant.

Northern Pulp responded by seeking and obtaining creditor protection from the British Columbia Supreme Court. Last Friday it asked the court to allow it to take the $50-million loan from its parent company over the objections of the province.

The loan would be paid out in installments that are advances on the following milestones being reached by 2022:

* An environmental approval to build a replacement effluent treatment plant.
* An agreement with the province to help fund its design and construction.
* A court decision or negotiated settlement with the province paying lost profits and damages associated with the idling of the kraft pulp mill.

If the judge doesn't allow the loan, mill general manager Bruce Chapman warned in an affidavit that the company will sue the province for violating the lease agreement to the Boat Harbour Effluent Treatment Facility, which is owned by the province.

"The entire cost of the loan contemplated by the term sheet is to be borne by the province and the end result of the financing is a negotiation with the petitioners or a lawsuit by the petitioners," wrote Montgomery in his affidavit.

"This is not a restructuring plan but rather a proposed course of action to advance a lawsuit or claim against the province."

Last Friday the motion by Northern Pulp was adjourned.

The company and the province will return to British Columbia Supreme Court this coming Friday.

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