1994-02-06_GENERAL DOCUMENTS - C1981017

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Priority of reclamation claims. Even with such cost- saving measures, the Debtor believes that the cost of reclamation will be greater than the value of the Rockdust Plant securing such reclamation costs. This gives rise to several issues pertaining to the priority of the Division's reclamation claims relative to secured and unsecured creditors of the estate. Obligations to perform environmental cleanups have been found to constitute claims in bankruptcy cases. Some courts have treated environmental claims as administrative expense priorities, while other courts have treated such claims as general unsecured claims. Generally, for an obligation to be treated as an administrative expense, the obligation must arise in the post- petition operation of a debtor's business. The Debtor's reclamation plan and the Mine activity which gave rise to the need for reclamation both occurred pre-petition; the Mine has not been operated post-petition. The Debtor is unaware of any post-petition occurrences that could give rise to a post-petition environmental claim. On the other hand, the Debtor's obligation to reclaim its mined property could be viewed as an ongoing obligation which carries over into the administration of Resources' bankruptcy estate. If claims for reclamation of the Debtor's Mine are entitled to be treated as administrative priorities, they would be paid ahead of junior priorities (such as tax claims) and general unsecured claims (such as trade vendors) . However, administrative priority claims do not take precedence over secured claims. The relative priority of reclamation claims to Sanwa's secured claim presents different issues. Again, different courts have reached varying conclusions. However, there is some authority to support the proposition that costs of cleaning up the Mine might be capable of being surcharged against Sanwa, at least to the extent that Sanwa benefited from the expenditure. It is reasonable to assume that the Mine site is unmarketable without an environmental cleanup, or at least that the value of the real property would be enhanced as a result of cleanup. However, it is difficult to predict whether cleanup costs would enhance the sale price of the Mine site dollar for dollar. Moreover, even if all costs could be surcharged against the secured creditor, that does not make funds available to perform the cleanup in the first instance. Resolution under the Plan. The Plan sidesteps the legal controversies and essentially offers a compromise between the posit__ns that might be taken by environmental authorities, secured creditors, and unsecured creditors. The Plan permits the environmental agencies to foreclose on the Rockdust Plant, or, in the alternative, permits the Rockdust Plant to be sold under the Plan, with the proceeds of the plant to be paid directly to the 16