Bankruptcy hangs over Estonian wood processing plant

The town administration in Paldiski, Estonia, is threatening to bankrupt a wood-processing plant owned by the TKE Group after it pays 1 million kroons (63,900 euros) in back wages to the plant's workers.

Jaan Molder, acting mayor of Paldiski, said that the town would start bankruptcy proceedings unless the TKE Group finds a new strategic investor by next week.

"We decided to pay the outstanding wages because some employees living in the town had no more money to pay for utilities," said Molder.

According to Molder, most of the plant's workers have not received their salaries since June. In a gesture of good will, the town also canceled fines for delayed utility payments.

The wood-processing plant is the major employer in Paldiski, a struggling port town of 4,000 residents, most of them ethnic Russian, about 40 kilometers west of Tallinn. It provides about 300 jobs, and with a processing capacity of up to 120,000 cubic meters of wood per year, is the largest wood processor in the Baltics.

The $9 million plant opened a year ago amid much hoopla by Nadir Hafiz, a U.S. businessman. Production priority was wood molding for interior and exterior decoration, and it quickly became one of the largest Estonian exporters to the U.S. market. Production of prefabricated houses was also slated to begin.

Also, TKE acquired a former center once used to train Soviet submarine crews which is known among locals as the Pentagon. TKE hopes to develop the area into a shopping, entertainment and hotel complex.

It is unclear as to what caused the plant's cash crunch.

Krediidiinfo, a credit information service, said that the TKE Group owed about 2 million kroons to the national Tax Board and has another 2 million kroons in outstanding debts.

Hafiz told the business daily Aripaev that the company would acquire an additional $11 million to refinance its old loans taken from Uhispank and Hansapank and pay off debts to suppliers and staff.

After paying the plant's workers, money the town can hardly afford, the administration of Paldiski will become the plant's creditor and, in accordance to Estonian laws, will have the right to begin bankruptcy proceedings.

News of the town's ultimatum surprised many. In an interview last month with Aripaev, Hafiz said that the company's plight is at an end, and a Swiss investor was currently undertaking efforts to put together a financial package to rescue the faltering enterprise.