A federal judge has accepted a compromise between bankrupt Great Northern Paper and its creditors that sets aside a portion of the expected receipts from the sale of the East Millinocket mill for dozens of unsecured creditors.

In a ruling filed Friday at U.S. District Court in Bangor, Judge Louis H. Kornreich approved a proposal to remove liens from Great Northern Paper’s assets so a sale of the defunct paper mill can go ahead. A “carve out” from the proceeds of the sale will provide funds to the company’s unsecured creditors, including many businesses in the Katahdin region that were never paid for goods and services. Collectively, they are owed $22.6 million.

A “carve out” in bankruptcy cases protects and reserves funds for unsecured creditors, who are otherwise on the bottom of the pecking order once funds are distributed.

In this compromise, attorneys representing unsecured creditors had asked that 30 percent of the proceeds from the sale of the mill and its equipment be set aside.

In return for the carve out, Pasquale “Pat” Perrino Jr., the trustee overseeing the bankruptcy, said he will not pursue claims against the company’s directors and officers for breaching their financial responsibility in running the East Millinocket mill, even though he says he has evidence to support those claims.

He contends the operators of the mill knew they were insolvent or near insolvency and continued to accepts goods and services on credit from vendors and suppliers.

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He also questions the use of $40 million in Maine New Market Tax Credits, a program created in 2012 to provide cash refunds to backers who invest in businesses in designated, low-income areas of Maine.

Perrino opted for a compromise because he determined “that litigating such claims would be complex, expensive, inconvenient, and time-consuming.”

The company filed for Chapter 7 bankruptcy on Sept. 22 to liquidate its assets. Its largest secured creditors, two Louisiana-based financing agencies, are each seeking $20 million.

Perrino has been accepting bids for the mill, for which a minimum of $2.6 million has been established. An auction is set for Dec. 2.

There is hope in the region that a successful bidder might purchase the mill and start making paper again. Founded in 1907, the mill specialized in producing paper for the publishing industry.

Great Northern Paper was managed by New Hampshire-based private equity firm Cate Street Capital. Cate Street acquired the East Millinocket mill in 2011 and operated it until late January, when it idled the paper machines, citing high wood and energy costs. A few weeks later, it laid off more than 200 employees.


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