The long-running bankruptcy case of Montana Tunnels Mining Inc. (MTMI) remained in limbo after a U.S. Bankruptcy Court ruled Apr. 30 to extend the proceedings until June 5, effectively overruling the U.S. Trustee overseeing the Chapter 11 case.
In his order, Judge Benjamin Hursh basically deferred resolution based on a technicality, arguing that he had improperly changed a status call set to a hearing without providing enough notice for the parties to prepare. That left room for a potential buyer to further investigate MTMI’s mining operations, including those in Jefferson County, which have been dormant since 2008.
The non-decision capped a tumultuous hearing four days earlier — and a busy two weeks before that. In the court’s last session, on Apr. 12, Hursh had granted the parties a small window to explore the feasibility of a sale of the mines’ assets to Mooney Group, a Florida company that had emerged more or less at the last minute.
On Apr. 26, Marcus Helt, an attorney for Mooney, reported that Mooney representatives had conducted visits to MTMI mines in Jefferson City and Broadwater County, meeting with MTMI CEO Patrick Imeson.
“We learned a lot about the mines, and since that visit we’ve been continuing due diligence,” Helt told the court. “At this point, we still are very interested in pursuing a transaction. We aren’t ready to represent to your honor that we will do a transaction, but we’re very interested.” He indicated that full due diligence could require an additional 90 to 120 days.
That tantalizing possibility set off a fractious debate between the creditors, who argued for more time to let Mooney’s investigations play out; and the U.S. Trustee overseeing the bankruptcy proceedings, who refused to support an extension of the Chapter 11 case.
Under the U.S. Bankruptcy Code, noted the Trustee’s attorney, Brett R. Cahoon, when cause is established, the court must either dismiss a case or convert it to a Chapter 7 liquidation, unless “unusual circumstances” suggest that dismissal or conversion is not in the best interests of debtors. In this case, cause was established when MTMI failed to make a $1.5 million payment due Dec. 31 to Montana’s Department of Environmental Quality (DEQ), toward meeting a $41 million bond required to cover potential environmental liabilities from its mines.
Cahoon said: “The only way to cure the default is to immediately dismiss the case. The code requires it, and I don’t see a way around it.” Cahoon suggested that the Trustee was annoyed that DEQ and Jefferson County had basically gone around its office in requesting that a hearing to dismiss MTMI’s case be deferred in the wake of Mooney’s interest.
MTMI’s creditors oppose dismissing the case, which they fear could send the company’s liabilities, including back property taxes, into a complex tax lien process that could take years to resolve. They say they would prefer a Chapter 7 liquidation, but that option would introduce its own uncertainties and delays — potentially including a new trustee unfamiliar with the intricacies of mining and its associated environmental liability.
Keeping the case in Chapter 11 for now, they argued, represented a simpler path with greater promise to compensate creditors and other stakeholders. MTMI itself seemed to agree: “There’s a fly in the water, and there’s a fish looking at the fly,” said its attorney James A. Patten. “It’s not the time to pull the fly out.”
Hursh seemed to side with MTMI and its creditors, appearing to grow increasingly frustrated with Cahoon’s refusal to consent to continuing the Chapter 11 case.
“I’m not understanding why, given everything you’ve heard today, you wouldn’t consent to a delay,” Hursh told Cahoon. “None of [the creditors] are complaining about [the prospect of] an additional delay.”
The final hearing, at which Hursh is set to decide on the U.S. Trustee’s motion, is scheduled for 9 a.m. on June 5 in Butte.
