Essar Steel Algoma was billed more than US$9 million for a corporate jet and residential and office space in New York City that were never used by the Sault steelmaker, according to oppression proceedings launched Thursday against corporate parent Essar Global Fund Ltd.
The proceedings were launched under the Canada Business Corporations Act by Ernst & Young Inc., the court-appointed monitor overseeing Essar Algoma's insolvency.
The monitor is alleging that Essar Algoma paid US$1.6 million between May 2010 and April 2011 in expenses related to a corporate jet based in the New York City area.
"This aircraft was not used for Algoma's own business but by representatives of and for the benefit of other members of the Essar Group," lawyers representing the monitor say in a lawsuit filed in Toronto.
From 2011 to 2016, Essar Steel Algoma paid a total of $US7.5 million for residential and office premises in New York City that were similarly "not incurred for the benefit of Algoma's business but for other members of the Essar Group," the lawsuit claims.
The monitor's allegations contained in the oppression proceedings have so far not been proven in a court of law.
Defendants in the proceedings are Essar Global Fund Ltd., Essar Steel Algoma Inc., Essar Steel Ltd., Port of Algoma Inc., Essar Ports Algoma Holding Inc., Algoma Port Holding Co. Inc., Essar Power Canada Ltd. and New Trinity Coal Inc.
Among other remedies, the monitor is asking the court to tear up the 2007 agreement selling its co-generation plant to Essar Power Canada Ltd. and a 2014 agreement spinning off its aging Sault dock to Port of Algoma Inc.
"Since the Essar Group's acquisition of [Essar Steel Algoma] in June of 2007, the Essar Group has exercised de facto control over Algoma and has engaged in a course of conduct that consistently preferred the interests of the Essar Group and in particular Essar Global Fund Ltd., the ultimate parent company of the Essar Group and its stakeholders," the oppression lawsuit states.
"The course of conduct has caused Algoma to engage in transactions and dealings with the rest of the Essar Group to the benefit of the group and the detriment of Algoma and its stakeholders."
"The unfair and prejudicial transactions arising from the Essar Group's course of conduct in relation to Algoma include but are not limited to the transfer to the Essar Group of long-term control over Algoma's port facilities, a irreplaceable and core strategic asset of Algoma and a valuable equity interest in this asset," the monitor's lawsuit alleges.
As an alternative to having the cogen and port deals declared invalid, the monitor is asking cash damages be awarded to Essar Algoma, or in the case of the cogeneratiion plant, enough electricity to meet the needs of the Sault steel operations.
Untested claims made by Ernst & Young in the oppression proceedings include the following:
- divestiture by Essar Steel Algoma of its cogeneration plant left the steelmaker without contractual certainty for its electrical supply
- Essar Steel Algoma paid premiums to Essar Group subsidiary New Trinity Coal Inc. in excess of prices charged by Essar Algoma's other coal suppliers
- transfer of Essar Algoma's port allowed the Essar Group to obtain an effective veto over transactions involving the Sault steel mill
- multi-million-dollar payments made by Essar Steel Algoma to Essar Mauritius for lump iron ore, metallurgical coal and coke essentially amounted to interest-free loans that benefited Essar Group to the detriment of Essar Algoma
In other news, The Globe and Mail is quoting anonymous sources tonight as saying that Essar Global is preparing a bid for U.S. Steel Canada with "deep-pocketed" Cargill Inc. - the largest privately held U.S. corporation, as ranked by Forbes magazine by revenue.
Cargill's involvement is said to be as a lender, not a business partner.
The newspaper says the new Essar/Cargill bid is unsolicited and U.S. Steel Canada is focussed on an offer from Bedrock Industries LP.
An earlier Essar bid for U.S. Steel Canada was rejected in August.
