October 28, 2020 – The Court hearing the Klausner Lumber Two case has extended the periods during which the Debtor has an exclusive right to file a Chapter 11 Plan and solicit acceptances thereof, through and including February 8, 2021 and April 7, 2021, respectively [Docket No. 361]. Absent the relief, the Plan filing and solicitation periods were scheduled to expire on October 8, 2020 and December 7, 2020, respectively.

According to the Debtors' requesting motion, "no party in interest is ready to submit a plan for this chapter 11 case," largely because efforts to reach a settlement between the Debtor, Halifax County, North Carolina (the “County”) and the Debtor's prepetition lender, Carolina Sawmill, L.P., related to a November 1, 2012 Economic Development Agreement (the "EDA") between the County and the Debtor have stalled. The Debtor said the settlement "impasse" is also holding up its plans to sell its assets as a going concern.

As part of the EDA, the County conveyed approximately 430 acres of land that it acquired for a sawmill site to the Debtor on January 6, 2014. The Debtor was not required to pay the County for the Real Property, but the County retained a "right of entry or power of termination," which the County may exercise if the Debtor does not complete construction or launch operations at the sawmill by a specified deadline.

The sawmill was shut down on April 9, 2020 "as a result of various financial and social hurdles (including the COVID-19 pandemic)," the motion stated, and the County exercised its rights under the EDA. The County also filed a lawsuit against the Debtor and the lender that asked the North Carolina State Court to rule that neither the Debtor nor the lender had an interest in the Real Property.

The extension motion explains [Docket No. 296], “Both before and after the Petition Date, the Debtor and the County engaged in discussions regarding a settlement of the disputes between the Debtor and the County to enable the Debtor to sell the Real Property along with the rest of its assets, as part of a value maximizing going-concern sale, which would also fulfill the original objections of the EDA to bring jobs to the County. The ultimate terms of this settlement were memorialized in that certain Release and Settlement Agreement between the Debtor and the County dated July 28, 2020 (the 'County Settlement')…. Following an all-day mediation session with former Bankruptcy Judge Kevin Gross on September 9, 2020, the Debtor, Carolina Sawmills, the County and the Creditors’ Committee reached an agreement, in principal, which would allow the County Settlement to be approved and the Debtor to proceed with selling its assets as a going-concern. However, certain issues regarding the structure of the settlement in light of the EB5 Immigrant Investor Program have arisen, and documentation of the settlement negotiations is currently at an impasse…Cause exists to extend the Exclusive Periods in this chapter 11 case. First, the Debtor and its professionals have made significant progress in moving the case toward a successful completion, including spending considerable time addressing numerous issues involving creditors and other parties in interest. Notably, since the Petition Date, the Debtor has, among other things: (a) procured post-petition financing; (b) prepared and filed its Schedules of Assets and Liabilities and Statement of Financial Affairs (see D.I. 76, 77); (c) obtained Court orders to retain critical professionals and establish procedures for the interim compensation of professionals; (d) solicited third-party purchasers for the sale of the Debtor’s assets; (e) negotiated extensively with the County and Carolina Sawmills to resolve various issues, including with respect to the Real Property, which would enable to the Debtor to pursue a going concern sale of its assets; and (f) begun to simultaneously pursue litigation against Carolina Sawmills for a judicial determination that Carolina Sawmills has no liens or security interests in the Real Property or any of the Debtor’s personal property assets, which would similarly enable the Debtor to move forward with a going-concern sale.

As a result, the Debtor submits that no party in interest is ready to submit a plan for this chapter 11 case, and the Debtor should have sufficient time to resolve or litigate the issues regarding Carolina Sawmills’ asserted liens, and thereafter, pursue a value-maximizing sale of its assets. The extension request is reasonable and is consistent with the efficient prosecution of the chapter 11 cases in that it will provide the Debtor with additional time to sell its assets, establish a bar date and thereafter draft and file a plan and solicit acceptances thereof. Consequently, the relief requested herein is necessary. Allowing the Exclusive Periods to lapse now would defeat the very purpose of section 1121 and deprive the Debtor and its creditors of the benefit of a meaningful and reasonable opportunity to negotiate and confirm a consensual plan. Third, creditors will not be harmed by extending exclusivity at this time. This Motion is the Debtor’s first motion to extend the Exclusive Periods. The Debtor intends to use the extended Exclusive Periods to, among other things, resolve the asserted claims and liens of Carolina Sawmills and pursue a going-concern asset sale which will maximize recovery for the Debtor’s estate. As such, the Debtor submits that creditors will not be prejudiced by an extension of the Exclusive Periods.”

About the Debtor

The Debtor is a subsidiary of Klausner Trading USA, Inc. (KTU) which was established in 2006 and operates as distribution company with headquarters located in Myrtle Beach, SC. The company is the sole distributor of products from Klausner US worldwide and Europe sold in North America.

Klausner Lumber One (KL1) and Klausner Lumber Two (KL2) are the two state-of-the-art Southern Yellow Pine (SYP) sawmills currently under construction in the USA. Klausner Lumber One (KL1) is located in Suwanee County, Florida near the town of Live Oak and Klausner Lumber Two (KL2) in North Carolina in an area located in Halifax County near the town of Enfield.

The Klausner Group was founded in 1991, when Austrian Fritz Klausner built his mill in former East Germany as a green field investment. The company and sales management office, Klausner Trading International, is headquartered in Oberndorf, Austria, in close vicinity to the Klausner family’s first sawmill founded in 1918 (closed in 1996).

Read more Bankruptcy News