U.S. objects to Quebecor World restructuring over taxes and clean air penalties

By Ross Marowits, The Canadian Press

MONTREAL - Quebecor World's (TSX: IQW.TO) effort to restructure the insolvent printer hit a roadblock Thursday after the U.S. government asked a U.S. Bankruptcy judge to deny the plan because of unpaid taxes and environmental penalties.

The government said the plan, which was set to be confirmed Tuesday in New York, improperly lets a wide swath of third parties off the hook for claims and liabilities, including US$150 million in Clean Air Act penalties and more than US$10 million owed to the Internal Revenue Service.

The government objected to two sections of the company's amended plan that would release a "panoply of non-debtors from a broad swath of potential liability."

The list of non-debtors includes the creditors' committee, the syndicate committee, noteholders, debtor-in-possession lenders, directors, financial advisers and investment bankers.

"Because these proposed third-party releases are not essential to the reorganization of the debtors, and because the proposed releases would discharge a wide array of potential liabilities, as to none of which this court has jurisdiction, and as to some of which there exist express statutory bars, the court should not grant the non-debtor releases requested," the government said in its motion filed Wednesday.

The government also said the court lacks the authority to release the non-debtors from liability because it removes the "concurrent" jurisdiction of other courts.

Quebecor World couldn't be reached for comment.

The judge will also consider several other objections, including from the Graphic Communications Conference of the International Brotherhood of Teamsters National Pension Fund.

The government said it is in talks with debtors about the treatment of its tax claims.

None of the "unusual" circumstances the court has identified as potentially justifying third-party releases are present in the Quebecor World plan, the filing added.

The objections were filed two days after Quebecor Word's creditors in Canada and the United States overwhelmingly endorsed the restructuring plan that would transfer some US$3 billion of debt in to a cash disbursement and equity.

The U.S. government also argues the plan would improperly release the government's claims for clean-up costs against individuals responsible for the disposal of hazardous substances and would run afoul of several federal laws.

Federal courts, including the bankruptcy court, has no power to review any pre-enforcement decision by the Environmental Protection Agency, it said in an 11-page filing.

In anticipation of the court's blessing to its restructuring plan, Quebecor World signalled its desire to play an active role in consolidating the printing industry upon exiting bankruptcy protection by appointing rival printer R.R. Donnelley (NYSE: RRD) as its chairman.

Mark Angelson, 57, who led Chicago-based Donnelley between 2003 and 2007, will replace former prime minister Brian Mulroney in mid-July, when Quebecor World expects to exit court protection.

Angelson's appointment was a surprise to industry observers, coming two years after he left Donnelley and weeks after Quebecor World rejected its rival's latest purchase offer totalling US$1.55 billion.

The Montreal-based printer has said it expects to earn a small profit in 2010 after facing more losses this year. Analysts expect the company faces difficult challenges to rebound from the recessionary hit affecting all players in the advertising-related industry.