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Talvivaara Sotkamo coffers emptied one day before bankruptcy filing

Talvivaara’s embattled Sotkamo mining company handed over nearly one million euros to the parent company just one day before it filed for bankruptcy. The bankruptcy estate has only recovered part of the funds and is now taking the matter to court.

Kaivosyhtiö Talvivaaran kipsisakka-altaan ja uraanilaitoksen portti.
Image: Heikki Rönty / Yle

Talvivaara’s mining subsidiary in Sotkamo made an extraordinary transfer of funds to the parent company in November 2014, on the eve of filing for bankruptcy.  CEO Pekka Perä headed up both companies.

The transfer of funds between the debt-ridden companies began on November 4, 2014, shortly after paid 1.2 million euros to the Sotkamo mining business.

The subsidiary then handed over 700,000 euros to Talvivaara Mining Ltd, the parent company in three transactions over a period of two days. When the Sotkamo operation eventually filed for bankruptcy on November 6, it had just 50,000 euros on the books.

The companies explained the transfers by saying that they represented payments of long overdue bills owed to the parent company for services, rental of a limestone plant and management services.

Public administrator of the bankruptcy estate Jari Salminen said that other outstanding debts didn’t receive anywhere near the same level of attention – and the company had big debts. During the year-long debt restructuring process the mining outfit had accumulated more than 34 million euros of debt. The bankruptcy proceedings totted up total debt at more than 1.4 billion euros.

Receiver: A deliberate choice

The accounting firm Tuokko Ltd was the first to flag the dubious money transfers during a special audit. According to Salminen the payments were inappropriately made just before the bankruptcy filing, when both companies knew that Talvivaara Sotkamo was on the verge of filing.

"It’s clear that the companies knew that the payments blatantly favoured one close creditor at the expense of others. The companies have made a deliberate choice to pay to a group company on the brink of the filing," Salminen told the Espoo district court in his court application.

The court document also references the observations about the close relationship between the companies observed during the audit.

"The companies’ juridical independence and responsibilities are effectively blurred and Sotkamo’s management was not treated in a way that would promote the companies’ juridical independence,” the audit report stated.

Talvivaara agrees to return some money

Public administrator Salminen eventually opted to try and recover the funds via the courts. Previously he attempted to negotiate the matter directly with Talvivaara.

However the stock-listed company didn’t initially think it was necessary to pay back the money. It based its position on the idea that it would not be possible to use the funds to pay portions to other debtors. However Salminen dismissed these claims.

The parent company Talvivaara Mining referred to the case in financial statements released Monday. It claimed to have agreed a payback settlement with the bankruptcy estate in December.

Yle asked CEO Pekka Perä to comment on the money transfers but he directed them to attorney Pekka Jaatinen, who is responsible for fielding queries about the companies’ debt restructuring programme.

Company lawyer: All above board

According to Jaatinen the agreement was "very reasonable". He pointed out that the company only promised to pay back part of the money. He said the settlement came about because court cases can be long and unpredictable processes.

The legal representative pointed out that the parent company is the bankruptcy estate’s biggest creditor. According to Jaatinen the money transfers and recovery claims have all been "perfectly normal" actions.

Asked whether the company had given any thought to the position of other creditors, Jaatinen insisted that all was above board.

"Nowhere is it stated that this was a criminal act. They have been normal payments and on Talvivaara’s scale we’re not talking about any large sums," Jaatinen remarked.

When asked why Talvivaara wanted the money if the amount was not significant, the attorney responded,

"It may have been needed to take care of bills for chemicals or something else," he conjectured.

13:24: Pekka Perä is still CEO of the Talvivaara Mining Company. We tried several times to confirm whether he is still CEO of Talvivaara Sotkamo Ltd, but there was no answer at the Talvivaara headquarters switchboard or by email on Wednesday.

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