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Trading in PaperlinX shares has been suspended as the group investigates a possible breach of banking covenants in Europe.

In a statement, PaperlinX company secretary Michelle Wong said: “The trading halt is necessary as a subsidiary of the company is in discussions with one of its European financiers in relation to whether there is a likely breach of a banking covenant.”

The share price was just $0.017 prior to the suspension, giving the business a market capitalisation of $11.31m.

UK paper products group GF Smith announced last week that its products would no longer be available through PaperlinX.

Joint managing director John Haslam said concerns over continuity of supply for customers had driven the move: “Despite having a long-term relationship with the PaperlinX group, we have made this tough decision to ensure that the end users and specifiers of our products are assured continuity of supply.”

Haslam added: "Anyone who has placed an order for GF Smith products through PaperlinX within the past two days should contact GF Smith directly immediately."

Industry speculation about the long-term future of PaperlinX has intensified in recent weeks.

Last month PaperlinX admitted that its cash position was “under pressure” due to a reduction in demand for paper in Europe, combined with the effects of some mills opting to sell direct in the UK and Benelux.

There has also been speculation that Asia Pulp & Paper (APP) could be a potential buyer for the European operation via some sort of pre-pack sale.

The suspension will only add to the company’s woes; in recent months it has seen the sudden departure of its CEO Andrew Price, a withdrawal from the Canadian market, and less-than impressive financial results.

The company is also looking to restructure its European operations as demand for paper in Europe continues to drop.