Trilon withdraws Royal Oak loan
Creditor cites miner's unauthorized payments
Saturday, March 13, 1999
PAUL WALDIE
The Globe and Mail
Toronto -- An emergency loan to insolvent Royal Oak Mines Ltd. was cut off this week because the company made $1.2-million in unauthorized payments, including nearly $600,000 in life insurance premiums for six company executives.
A lawyer representing Royal Oak said the payments for the six, including president and chief executive officer Margaret Witte, were a mistake and that unless the emergency funding is restored, the company cannot continue to operate.
Vancouver-based Royal Oak obtained court protection from creditors on Feb. 15, citing $600-million in debt. The company has five gold properties, 1,000 employees and assets worth about $250-million, according to one estimate.
As part of the bankruptcy protection, Royal Oak's largest creditor, Trilon Financial Corp., agreed to lend the company $8.4-million to keep it operating for one month while management prepared a restructuring plan. Under the loan, expenditures were supposed to be approved by Trilon and discussed with PricewaterhouseCoopers Inc., the court appointed monitor.
Last week, Royal Oak made three unauthorized payments -- $587,964 for the executive insurance, $468,737 for an employee benefits plan and $181,900 to a Trilon affiliate for equipment leases.
Trilon "has advised the monitor that as a result of [the payments], Trilon considers Royal Oak to be in default of the [emergency loan]," said a report by Pricewaterhouse filed in court yesterday.
Trilon had advanced $4-million to Royal Oak under the loan and immediately cut off any further advances even though Royal Oak has already spent $8.9-million.
Royal Oak agreed to repay the money, but Trilon has refused to provide additional funds unless its loan is placed above all other creditors for repayment.
The issue came up during an Ontario court hearing yesterday on a request by Royal Oak for more emergency funding. The company also wants a four-week extension on Monday's deadline for protection from creditors.
The court was told Royal Oak needs at least another $12-million to keep operating for another four weeks.
During the hearing, Mr. Justice James Farley questioned Royal Oak's lawyers about the payments.
"I'm somewhat puzzled that it ever happened in the first place," he told Patricia Jackson, a lawyer representing Royal Oak.
"It was clearly a mistake. There was a misunderstanding as to what the company could do," she replied. "They made a serious mistake." "Three serious mistakes," Judge Farley shot back.
During the hearing, Ms. Jackson said the extension and extra money are needed or Royal Oak cannot remain operating. Ms. Witte added in an affidavit that the company is preparing a restructuring plan and has sent a draft to some creditors.
Peter Griffin, a lawyer representing Trilon, said the financial institution is prepared to lend more money to the company but only if its loans rank ahead of all other creditors. Part of the loan has been given what's called "super priority" status. However, several creditors oppose extending that designation to any more Trilon loans because it may cut into any repayment they may receive.
"We want to fund this company," he said. But "the priority issue must be sorted out." He added that Trilon also wants more scrutiny of company spending to ensure that no further abuses occur.
One major creditor, Bank of Nova Scotia, argued that Royal Oak should not receive more money or an extension. Instead, lawyers representing the bank said Trilon should be ordered to advance the remaining amount under the initial $8.4-million loan and Royal Oak should spend the next two weeks exploring all options, including receivership.
Sarah Pepall, a lawyer representing the bank, said she does not believe Royal Oak's restructuring will succeed. Scotiabank is owed about $7.3-million and ranks behind Trilon in terms of repayment. Trilon is owed $186-million.
Court protection "may not be the best process under the circumstances," she told the court.
The bank "has no confidence in light of recent events that the [court protection] proceeding is going to be successful," she said, alluding in part to the unauthorized payments.
Ms. Pepall suggested Royal Oak appoint a receiver to keep the mines operating until they can be sold. "Under an operating receivership scenario, [Royal Oak's] jobs will continue," she said.
Royal Oak lawyer Ms. Jackson argued that receivership won't save creditors' money because a receiver will have to spend the same amount of money keeping the mines operating until a buyer is found. Judge Farley is to announce his decision on Monday. |
