The City of Sault Ste. Marie is challenging a Toronto judge's ruling suspending Essar Steel Algoma's obligation to pay millions of dollars in municipal property taxes.
SooToday.com reported lawyers representing the city have filed a notice of motion with the Ontario Court of Appeal, seeking leave to appeal Justice Frank Newbould's June 15 ruling that the Sault steelmaker need not pay realty taxes until its insolvency protection expires.
Essar Algoma hasn't paid city property taxes since April 16, 2014.
When it applied for protection from its creditors on November 9 of last year, Essar Algoma owed the city $14 million in property taxes.
Under the Companies' Creditors Arrangement Act (CCAA), the $14 million can't be collected until Essar Algoma emerges from CCAA protection.
The company announced June 17 that it has entered into an asset purchase agreement for the sale of the steel works to a consortium of bidders headed up by KPS Capital Partners, a New York-based private equity firm. The sale, which closes Aug. 31, is subject to conditions being met related to employee pension plans and collective agreements, capital projects and environmental matters.
At issue in this case is $3.6 million in additional property taxes incurred since the CCAA protection began. Essar Steel Algoma filed for creditor protection last Nov. 9. Ernst & Young is the court-appointed monitor.
Essar's original CCAA protection order required it to pay municipal taxes going forward.
In his decision on June 15, Judge Newbould acknowledged Essar Algoma's obligation to pay the taxes, but he refused to order immediate payment and effectively suspended the steelmaker's obligations.
The city's lawyers are now arguing that the terms of a proposed purchase of Essar Algoma's assets by KPS create "a very real possibility" that no funds will be available to pay either the $3.6 million owing for current taxes or $14 million in back taxes.
The city accuses Justice Newbould of making fundamental errors of law and fact.
If his decision is allowed to stand, the city argues, it will set a dangerous precedent, allowing court orders to be disregarded.
"The decision is unprecedented," the city says in a motion filed this week.
"It represents a complete disregard for what had, up to this point, been clear-cut and well-established jurisprudence that orders must be obeyed, that they are binding and conclusive until set aside/amended and that their respect in the foundation for the Canadian ideal of the rule of law."
The city's application for leave to appeal is expected to be heard within 36 days.
Ernst & Young is recommending approval of the proposed sale to KPS Capital Partners Inc.
In the meantime, the steel producer has been racking up fines, the latest being a $100,000 fine from the Ministry of Environment and Climate Change for failing to report a 2014 discharge of lime dust after a baghouse fan malfunctioned and the baghouse was taken off line. The company continued to operate the lime kiln with the baghouse off line causing lime kiln dust to be discharged.
The company pleaded guilty in July 6 and was convicted of one offence.
