On June 5, a U.S. bankruptcy court in Butte is set to determine the next turn of the screw — probably a defining one — in the unusually long-running, increasingly contentious case of Montana Tunnels Mining Inc. (MTMI)
Montana Tunnels, which owns dormant but potentially operable gold mines outside Jefferson City and in Broadwater County, has failed to make tens of millions of dollars in payments, stipulated by its bankruptcy plan, to the state’s Department of Environmental Quality (DEQ), Jefferson County and other creditors.
The question: What’s happens now?
Documents filed with the court in advance of the hearing offer some clues. In a May 21 brief, Gregory M. Garvin, the acting U.S. Trustee overseeing the proceedings, reiterated the logic for his office’s earlier motion to dismiss or convert the case to a Chapter 7 liquidation, arguing that MTMI’s failure to fulfill its obligations to creditors required that the reorganization of the company’s debts under Chapter 11 of the bankruptcy code be abandoned.
But the Trustee noted that conversion of the case to Chapter 7, which requires that a company’s assets be liquidated to pay off creditors — as opposed to dismissal, which simply shifts the company out of the court’s protection — “is in the best interest of the estate,” especially given what appears to be the serious interest of a potential buyer, Florida-based Mooney Group, in acquiring the mines.
That preference was in alignment with a brief filed May 20 by DEQ’s attorney, Steven Johnson, who had previously made no secret of the state’ desire for turning the MTMI case into Chapter 7.
The DEQ brief noted that Goldfields Funding Partners, LLC, a separate company also controlled by Montana Tunnels CEO Patrick Imeson, had served a Notice that a Tax Deed may be Issued to it on the holdings of MTMI. That notice, which hinges on $6.64 million of property taxes, interest, and other costs owed Jefferson County, was published in The Monitor on May 15.
DEQ fears that, if the bankruptcy case is dismissed, Imeson will use the tax deed to transfer the Montana Tunnels assets to Goldfields, which is solvent. However, because MTMI has failed to fully pay a bond to DEQ to cover potential environmental liabilities, Imeson would by state law not be permitted to operate the mines, even under a different corporate entity.
Jefferson County likewise is concerned that the tax deed issuance will put the mining assets in limbo, further postponing any possibility that it could collect any of the money it is owed by MTMI. “It certainly would be cumbersome,” County Attorney Steve Hadden told The Monitor in April.
Montana Tunnels, not surprisingly, says it wants the court to dismiss its case — most likely because, under a Chapter 7 bankruptcy, it would be subject to a trustee’s decisions on the disposition of its assets. In its own brief, the company noted that its plan for reorganization specifically called for dismissal in the event of its default. “The creditors are bound to adhere to the relief specified in the Confirmed Plan, wrote MTMI’s attorney, James A. Patten.
It’s unclear how these conflicting views of the case will be resolved. But Benjamin P. Hursh, the Bankruptcy Court judge overseeing the case, has previously indicated his frustration with the U.S. Trustee’s calls for dismissal — and his support for a resolution that will most efficiently return funds to MTMI’s creditors.
The court may also receive an update from Mooney Group, which visited the MTMI mines in April and said it was “very interested in pursuing a transaction” to purchase the assets. It noted, however, that complete due diligence would take an additional 90 to 120 days, indicating that a decision to invest, or not, would come no earlier than July.
