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I believe it is unlikely that a court would require <br />Sanwa to marshall Coal & Coke's assets before collecting its <br />claim against Resources. Colorado case law is fairly clear on <br />the "common debtor" requirement. <br />With respect to efforts to pierce the corporate veil, <br />whether as part of a marshalling argument or in the manner being <br />attempted by the Colorado Compensation Fund, I do not believe <br />that the corporate veil can be pierced. It appears that <br />corporate formalities were followed, and that Resources was not <br />undercapitalized. In fact, the main feature in the intercompany <br />relationship was that the corporate parent, Minerals, borrowed <br />money from Coal & Coke and loaned the money to Resources. All of <br />the intercompany debt owed by Resources was then written off, $38 <br />million of it in 1990 and $2.8 million of it in 1991. <br />I also believe that Sanwa could demonstrate that a <br />marshalling of Coal & Coke's assets would result in Coal & Coke's <br />liquidation, destroying the going concern value of the company, <br />and thereby causing Sanwa to incur a loss on its loan. Unless <br />unsecured creditors can show by clear and convincing evidence <br />that Sanwa would not be prejudiced by marshalling, the doctrine <br />is unavailable. <br />Coal & Coke's Ability to Repay Sanwa <br />As noted above, Coal & Coke's obligation on all Sanwa <br />loans is about $29.6 million as of May 1992. Sale of the assets <br />of Redstone Corporation could reduce this by $1.5 million, <br />bringing Coal & Coke's liability to about $28 million. <br />The pending lease /sale of Resources' principal assets <br />to Crystal Springs Coal Company, and the sale of certain assets <br />excluded from the Crystal Springs transaction, are likely to net <br />about $5 million after payment of certain priority claims such as <br />taxes and lease cures. This $5 million would be in the form of <br />real property excluded from the Crystal Springs transaction, <br />miscellaneous non - mining assets, and a rental stream to be paid <br />by Crystal Springs over a period of up to 12 years. <br />If all of these funds from the Crystal Springs <br />transaction were applied to Sanwa's loans -- something which the <br />Creditors' Committee would oppose -- Coal & Coke's liability to <br />Sanwa would be reduced to about $23 million. <br />Unless it can be clearly demonstrated that Sanwa can <br />realize more than $23 million from Coal & Coke, marshalling has <br />no application to this case, even if the courts disregarded the <br />"common debtor" requirement. Moreover, unless the value of Coal <br />& Coke's assets exceed $23 million, efforts to pierce the <br />corporate veil to reach Coal & Coke would result in no recovery <br />-6- <br />