If bsr is declared bankrupt, there is no need for new management or directors.
Saturday, November 1, 1997
Bankruptcy beckons for Bre-X
Busang camp had a 'salting shack:' book
By CLAUDIA CATTANEO
Calgary Bureau Chief The Financial Post
Bre-X Minerals Ltd. will almost certainly be pushed into bankruptcy on Wednesday and if a group
of Alberta and British Columbia investors have their way, so will its affiliate Bresea Resources Ltd.
Separate bankruptcy motions - one from Ontario investors and one from those in B.C. and Alberta
- will be heard Wednesday by Alberta Court of Queen's Bench Judge Robert Cairns.
Both want what's left of Bre-X put in the hands of a court-appointed trustee and away from
management. The Alberta and B.C. investors also want Bresea declared bankrupt so they can tap
into its bigger assets. Investors lost billions of dollars last spring when Bre-X's Indonesian gold find
was found to be a fraud.
The two shareholder groups have different views about how the bankruptcy should be handled and
who should be appointed trustee.
Cairns attempted to deal with the "power struggle" in a hearing Friday by giving both teams equal
status in Wednesday's proceedings. He will decide which bankruptcy proposal to support. A
combination of the two is also possible.
"I am surprised there is contention when everyone is trying to push the wagon
to the end of the same trail," Cairns told the hearing.
The Alberta and B.C. investors want to wipe out a side deal they say was
"cooked up" without their involvement late Thursday by Bre-X president David Walsh and the
Ontario investors. Walsh owns 14% of Bresea.
The agreement would keep Bresea's current management in charge for up to 120 days. "There is no
reason to leave Bresea out there, with $26 million [in cash] sitting in the courthouse. The creditors
will be better served if Bre-X and Bresea go into bankruptcy," said lawyer Brian O'Leary, who
represents the Alberta and B.C. group.
"The effect of pushing Bresea into bankruptcy will annul the deal, and that's what we will be
seeking" on Wednesday, said lawyer Clint Docken, who teamed up with O'Leary to represent
Alberta and B.C. investors. The group has 115 shareholders from Alberta and 148 from B.C. "It's
safe to assume that, one way or another, Bre-X will be bankrupt as of Wednesday," Docken said.
The side deal has Bre-X agreeing to go bankrupt, but Bresea would continue to operate for up to
120 days. In that period, Bresea would call a shareholders meeting and elect a new board of
directors. No current officers or directors would stand for re-election.
Under the agreement, Bresea would continue to operate with three employees and pay office
expenses of up to $25,000 a month. Another $20,000 would be earmarked for the cost of the
shareholders' meeting and $50,000 for liquidating its subsidiary in the Netherlands.
The deal was struck to give Bresea a chance to let its shareholders take control of its assets and
determine its own destiny, said lawyer Larry Robinson, representing the Ontario group.
Once the company or companies are put into bankruptcy, the trustee will liquidate the assets and
distribute money to investors. "There could be early distribution of the cash assets that are already in
court. The trustee will then pursue claims against the insiders from insider trading, and that process
will take longer," Docken said.
Bresea's assets include $26 million in cash, now in the hands of the court, assets in Indonesia, a
building in Calgary and subsidiaries in the Netherlands. Bre-X has a US$5-million indemnity fund. At
its peak, it had a market capitalization of $6 billion.
Investors are seeking to recover assets through proceedings under way in Houston, in which
Docken has joined Texas attorneys Paul Yetter and Lee Godfrey. "We have always taken the
position that the best interest of the investors, as far as recovery, is in the U.S. class action," he said.
Under that suit, investors are pursuing much larger claims against Bre-X principals, present and
former directors, advisers, underwriters of stock issues and SNC-Lavalin Group Inc.
Meanwhile, a lawyer representing thousands of Bre-X investors in B.C. says he now believes the
Texas lawsuit poses shareholders' best chance at recouping their losses. David Klein said he has
decided to align himself with the consortium of law firms being led by Yetter.
Klein said he made his decision after reading an affidavit sworn by Ontario lawyer Harvey
Strosberg, the lead lawyer in an Ontario-based action against Bre-X. Strosberg appears to argue
the U.S. offers a superior legal climate for the pursuit of class action cases. Strosberg, however, has
denied the views expressed in the affidavit apply to the Bre-X case.
- with files from Paul Bagnall/FP
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