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Struggling specialty paper producer Catalyst Paper Corp. said Tuesday it has decided to file for protection from creditors as it moves to restructure its debt and operations.

The move came a day after workers at Catalyst, which has been struggling to emerge from its financial woes, rejected a new contract that needed to be ratified as part of the company's new refinancing plan to stay alive. It had also failed to secure a second condition, support from two-thirds of the holders of some of its debt.

"Without the new labour agreement, and without two-thirds support of 2014 noteholders, the economics of the previously announced consensual restructuring transaction was undermined," president and chief executive officer Kevin Clarke said in a statement.

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"The board, management and our advisers believe this approach will best facilitate the completion of a recapitalization transaction that delivers the improvements to our liquidity and capital structure which are necessary to put our company on firm financial and competitive footing in the current business and economic environment."

On Monday, one of the unions at its Crofton mill in British Columbia rejected a new contract. The Pulp, Paper and Woodworkers Union of Canada Local 2, workers turned down the offer by a margin of 58 to 42 per cent as 180 voted against the deal and 132 supported it.

Catalyst said its operations will continue business as usual and obligations to employees and it expects to meet its financial obligations during the restructuring process.

Earlier this month, Catalyst received the go-ahead from a court in British Columbia to begin a planned restructuring, while at the same time filing for protection from creditors in the United States.

The company reached an agreement with creditors for a refinancing that will significantly cut its debt, but one of the stipulations required unanimous backing by the company's six union locals for new labour contracts.

The dispute at Catalyst Paper comes as companies across Canada look to their labour agreements for savings.

The year began with lockouts at two major industrial plants in central Canada including an Alcan smelter in Quebec and a locomotive plant in London, Ont.

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Locomotive maker Electro-Motive locked out 420 workers at its plant in London, Ont., while aluminum giant Rio Tinto Alcan locked out 800 workers at its smelter in Alma, Que., after last-ditch contract talks collapsed.

Catalyst Paper manufactures diverse specialty mechanical printing papers, newsprint and pulp and sells to retailers, publishers and commercial printers in North America, Latin America, the Pacific Rim and Europe.

The company has three mills in British Columbia and one in Arizona with a combined annual production capacity of 1.9 million tonnes.

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