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Kingsport researching effect of bankruptcy on Quebecor's gift of property to city

Sharon Caskey Hayes • Jan 22, 2008 at 12:00 AM

Employees' vehicles line Roller Street at the Quebecor plant in this file photo.


KINGSPORT — City officials are researching just how Quebecor World’s bankruptcy filing will impact the company’s gift of property to the city in downtown Kingsport.

Quebecor World announced earlier this week it has filed for protection under the Companies Creditors Arrangement Act (CCAA) in Canada. A number of Quebecor World’s U.S. subsidiaries are also covered by the filing in Canada as well as in the United States under Chapter 11 of the U.S. Bankruptcy Code.

According to U.S. bankruptcy law, a court can look back at property conveyed by the bankrupt organization within the past two years before the bankruptcy filing. The court could decide to nullify the conveyance and seize the property in the bankruptcy process.

In December, Quebecor World donated its downtown book manufacturing operation to the city of Kingsport. The company shut the plant down in 2006, leaving vacant approximately 1 million square feet, with 54 separate buildings on more than 20 acres bordered by West Center, Clinchfield, Sullivan and Roller streets.

The city has been exploring ways to redevelop the property and make it a viable part of the downtown district once again.

On Tuesday, city spokesman Tim Whaley said Kingsport would be monitoring the situation closely. Whaley said Kingsport’s position is Quebecor deeded the property to the city legally.

“It appears that they filed for the Canadian version of Chapter 11 reorganization, which means that they are attempting to get financing to pay their creditors and stay a going concern,” Whaley said. “Obviously the Canadian laws are probably a good bit different from American laws, so we’re going to research that.”

Whaley said another unknown is whether or not the bankruptcy applies to the corporation that deeded the downtown property to the city.

“We received the deed from Quebecor World Inc. of Kingsport, which is a California company. So there is a lot still in question,” Whaley said.

City Attorney Mike Billingsley said he thinks the property is safe.

“I think it’s (safe). It’s always a problem any time you take a piece of property or any time you make a deal with somebody,” Billingsley said, noting that the filing in Canada appears similar to Chapter 11 proceedings in the United States. “As I understand, it has to do with giving them a reprieve from their creditors while they get together their financing, which is somewhat like we do under a Chapter 11 here.

“Normally, in a Chapter 11 (filing), you wouldn’t go back on (property) transfers right away.”

A local attorney specializing in bankruptcy law said that if Quebecor World successfully reorganizes while in bankruptcy, the courts and creditors may not challenge the company’s donation to the city.

He said the question then becomes one of intent. Put simply, the court would consider what Quebecor’s intent was when it deeded the property to Kingsport.

“I would argue if I was representing the city, that yes, while the transfer was made, it is what the bankruptcy code would consider a burdensome asset, and they got rid of it because it was not worth keeping,” the attorney said.

Times-News staff writer Matthew Lane contributed to this report.

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