NORTHERN ONTARIO BUSINESS STAFF
A decision by Essar Steel Algoma to lease its dock to a port authority, owned by the steelmaker's parent company, is the subject of a court-ordered investigation, reported SooToday.com.
In a Toronto courtroom on Sept. 26, Superior Court Justice Frank Newbould authorized Ernst & Young, the court-appointed monitor overseeing the Sault Ste. Marie steel producer's insolvency, to start oppression proceedings under the Canada Business Corporations Act.
The action was requested by the debtorin-possession (DIP) lenders who've kept the Sault steelmaker afloat since it sought creditor protection in November 2015.
In 2014, Essar Steel Algoma leased its dock for 50 years to Port of Algoma Inc., a company 99 per cent owned by a subsidiary of the parent company, Essar Global Fund.
The remaining one per cent of the port is owned by the City of Sault Ste. Marie.
In an odd and complicated series of transactions, the port agreed to prepay Essar Algoma US$154.8 million in rent due under the lease, an obligation that was then transferred to the parent company in India, which has not honoured it.
The steelmaker must also provide employees and other support allowing the port to fhlfill these obligations.
The DIP lenders point out that the term of the cargo-handling agreement is just 20 years, after which Port of Algoma will be able to deny Essar Algoma Steel access to port for the 30 years remaining in its lease.
It's further argue that the port-related transactions allow Port of Algoma and its Indian parent to employ "oppressive arrangements to hold the company and its stakeholders hostage" in the current insolvency proceedings.
Port of Algoma has essentially acquired "a functional veto over any transaction in respect of [Essar Steel] Algoma, both at present and subsequent to any transaction or plan in these Companies' Creditors Arrangement...