Kyrgyzstan calls Kumtor Gold’s Chapter 11 case ‘unfortunate sideshow’

By Sarah Lizee

Olympia, Wash., July 19 – The Kyrgyz Republic is seeking dismissal of Kumtor Gold Co. CJSC’s Chapter 11 bankruptcy case, according to a motion filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

The bankruptcy petitions were purportedly authorized by Centerra Gold Inc. in its capacity as sole shareholder of each of the debtors at an extraordinary general shareholders meeting called by Centerra on May 31.

However, the republic said the powers of Centerra as shareholder had already been suspended under Kyrgyz law before the “improper” general meeting occurred and the filing resolutions and petitions were authorized.

The republic also claims that the debtors are not insolvent, as their assets exceed their debt by nearly $1 billion.

“Centerra has abused the filings in an effort to disregard Kyrgyz law, laws to which Centerra and the debtors voluntarily submitted, and to exert maximum leverage over the Kyrgyz Republic in legal matters already commenced by Centerra in Sweden pursuant to an arbitration, and Canada, where Centerra is formed, for substantive relief,” the republic said.

Kyrgyzstan said that, rather than supporting continued operations of the mine, Centerra has taken affirmative steps to undermine and interfere with the ability of the debtors and the external manager to operate the mine, including threatening vendors and suppliers.

“This is contrary to the interests of the debtors, their creditors and employees and evidences Centerra’s bad faith and self-motivation to use the debtors and the Chapter 11 cases to advance its own interests to the detriment of the debtors,” the republic said.

Kyrgyzstan also said the Chapter 11 cases should be dismissed on grounds of abstention under section 305(a) of the bankruptcy code as well as codified and legal precepts of international comity.

“The debtors are Kyrgyz companies centralized in the Kyrgyz Republic and governed by Kyrgyz law. All operations, substantially all assets, substantially all employees, and most creditors of the debtors are located in the Kyrgyz Republic,” the republic said.

Kumtor Gold is the largest private sector employer and taxpayer in the Kyrgyz Republic and accounts for over 10% of its gross domestic product.

“The debtors’ connections to the United States are plainly de minimis and limited to a $50,000 bank account and a small handful of U.S.-based creditors whose claims are less than 0.5% of the total claims pool,” the republic said.

Kyrgyzstan said the insignificant connections between the U.S and the debtors, as well as practical constraints on the court’s ability to fashion enforceable relief by virtue of Kyrgyz law, the Foreign Sovereign Immunities Act and the Act of State doctrine, dismissal is warranted.

“These Chapter 11 cases are an unfortunate sideshow commenced in bad faith and strategically implemented by Centerra in an effort to protect itself, not the debtors, from the consequences of its and the debtors’ serious violations of Krygyz law, including occupational health, environmental, and industrial safety laws,” the republic said.

“This court should no longer countenance being used as an instrument of obstruction by Centerra when venues of appropriate authority and jurisdiction already exist to adjudicate these disputes.”

A hearing is scheduled for Aug. 17.

Bishkek, Kyrgyzstan-based Kumtor Gold is owned by Toronto-based Centerra Gold, a mining and exploration company. The Chapter 11 case number of Kumtor Gold is 21-11051. It filed bankruptcy on May 31.

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