The 4th Circuit Court of Appeals in Baltimore reversed the federal court in Spartanburg, S.C., and said liquidation of all assets of the mill's parent company, Spartan International, must take place in bankruptcy court.

The appeals court also stayed all proceedings in any other court after May 31, the date the employees filed the involuntary bankruptcy petition in an effort to continue their health-insurance benefits for 60 days.

About 300 King Mill employees lost their jobs, insurance and retirement money without the 60 days' notice required by law when the plant shut down May 4.

They were among 1,200 Spartan International employees in Georgia and South Carolina who abruptly lost their jobs when the company closed six mills and turned over its assets to its primary creditor, General Electric Capital Corp. At the time, Spartan owed GE about $35 million.

The appeals court's decision means the U.S. Bankruptcy Court in Augusta now has the authority to decide who gets paid and in what order, and who has a lien against Spartan assets. GE no longer will be able to make decisions concerning the disposition of property without notice to all creditors and approval of the bankruptcy court.

The decision also means that 59-year-old Betty Cushman, who worked at King Mill for 29 years before losing her job, eventually might get some relief from the $75,000 in medical bills she owes. Her husband was in the hospital for surgery in March, and she lost her insurance before the bills could be processed and paid.

''I'm well pleased,'' Ms. Cushman said of the court's ruling. ''I'm hoping everything else goes in our favor.''

On May 22, U.S. District Judge Margaret B. Seymour, on GE's motion and without notice to other creditors, appointed a receiver who took custody of Spartan's assets and began selling them off and turning the money over to GE.

The receiver sold King Mill, valued for taxes at $23 million, for $4.2 million on May 31 without notice to creditors.

On June 7, during a hearing in Augusta, Bankruptcy Judge John S. Dalis ordered the appointment of an interim trustee to hear the employees' case to determine whether the employees' benefits should come before the claims of GE.

But before the interim trustee had a chance to decide, Judge Seymour issued a temporary restraining order against the employees, and after a hearing in Spartanburg a few days later, found them in contempt of her order appointing a receiver.

The employees filed a petition with the bankruptcy court in Augusta to withdraw the bankruptcy, but Judge Dalis denied their petition.

The former employees' attorney, John B. Long, appealed their case to the 4th Circuit, which ruled that a ''bankruptcy court has judicial tools better suited and more specifically tailored to the task'' of resolving the claims involving a large corporation with multiple places of business in different districts and thousands of creditors.

Reach Sylvia Cooper at (706) 823-3228 or sylviaco@augustachronicle.com.