Bre-X files for protection from creditors — Directors resign as three exchanges delist stock

First, the gold project collapsed, then the share price. Now, Bre-X Minerals itself appears to be self-destructing.

Following the damaging revelations of a technical audit on its Busang property in Kalimantan, Indonesia, Bre-X has lost three of its four stock exchange listings and three of its directors, and, facing class-Action lawsuits in both Canada and the U.S, has sought and received protection from its creditors.

Bre-X, together with associated companies Bresea Resources and Bro-X Minerals, made successful applications for protection under the Companies Creditors Arrangement Act and the Alberta and Canadian Business Corporations Acts. The Alberta Court of Queen’s Bench appointed accounting firm Price Waterhouse to monitor the assets and management.

Bre-X Chairman David Walsh said the court order ensured that the companies’ assets would remain in place to satisfy any judgments against it. While the company does not owe any substantial amounts to creditors, the court granted protection because of the large number of lawsuits now lodged against the company.

Securities commissions in both Ontario and Alberta have asked the Commercial Crime Unit of the Royal Canadian Mounted Police to investigate the fraud separately; so has the remaining management of Bre-X, maintaining that the salting fraud took place at a lower level.

The Toronto Stock Exchange delisted Bre-X on May 7, removing it from the TSE 300 composite index at the same time. The exchange said Bre-X no longer met the requirements for a listing on the exchange. Both the Alberta Stock Exchange and the National Association of Securities Dealers Automated Quotation dropped Bre-X as well, while the Montreal Exchange maintained an indefinite suspension, which could give it the power to compel Bre-X to make further disclosures.

Chief Financial Officer Rolando Francisco and directors Hugh Lyons and Paul Kavanagh all resigned from Bre-X and its affiliated companies after the technical audit, completed by Strathcona Mineral Services, was released.

Vice-Chairman John Felderhof, on the other hand, was asked to resign. In a statement released to the press by his solicitors, Felderhof reiterated that he was unaware of any fraud at Busang, stating that, regardless of the revelations of salting, “one does not lose faith in many years of professional work overnight.”

Felderhof has retained the Canadian law firm Heenan Blaikie and will be represented by Joseph Groia, a prominent securities lawyer best known for his tenure at the Ontario Securities Commission. In the U.S., Felderhof engaged the firm of Jenkens and Gilchrist of Houston, Tex. He is still living in the Cayman Islands, where he has applied for permanent residency.

Another class-Action suit has been filed over the Bre-X fraud, this time against investment house Nesbitt Burns (owned by the Bank of Montreal) and Nesbitt gold analyst Egizio Bianchini. The suit was filed in Windsor, Ont., by Gignac, Sutts — the same law firm that filed the first Canadian class-Action suit against Bre-X.