City appeals Judge Newbould's ruling on Essar Algoma property taxes

The City of Sault Ste. Marie is seeking leave to appeal an Ontario Superior Court decision denying immediate payment of $10.8 million in property taxes owed by Essar Steel Algoma.

In a motion filed Thursday with Ontario's Court of Appeal, the city's legal team argued that a May 17 order by Justice Frank Newbould misconstrued and misapplied key facts and evidence.

Judge Newbould retired on June 1.

Essar Steel Algoma's restructuring proceedings under the Companies' Creditors Arrangement Act have been taken over by Justice Glenn Hainey, who made worldwide headlines earlier this year when he approved the sale of Toronto's money-losing Trump Tower.

Judge Newbould's decision to deny the city's request for immediate payment "takes it upon itself to decide significant issues as between federal and provincial statutes without even acknowledging the provincial law or engaging in a constitutional paramountcy analysis," the city's lawyers argue.

In addition to $10.8 million in property taxes that haven't been paid since Essar Algoma entered insolvency protection under the Companies' Creditors Arrangement Act (CCAA) in November, 2015, the steelmaker owes an additional $14 million in taxes owing from before that date.

The $14 million is expected to be eventually repaid through ongoing CCAA proceedings as the company restructures.

In his May 17 decision, Newbould rejecting the city's demand for immediate payment of the entire $10.8 million, ordering Essar Algoma to pay just $350,000 a month, an amount suggested by the company with support from the court-appointed monitor, term lenders and senior secured note holders.

"No explanation was given as to how the $350,000 figure was calculated or how it arose," the city's lawyers argue.

In their application for leave to appeal filed on Thursday, the city's legal team repeated assertions it made in April that if Judge Newbould's decision isn't revisited, Sault Ste. Marie will have no choice but to consider one or more of the following:

• levy Essar Algoma's tax obligations on the Sault's residential ratepayers, forcing a tax increase between 12 per cent and 20 per cent. This would be on top of the three per cent increase already forecast on local residential properties in 2018
• laying off at least 80 to 150 employees (representing 20 per cent of city staff) for each year that Essar hasn't paid property taxes since it first sought insolvency protection in November 2015
• take the money from the city's $24.5 million capital budget, a decision that could place current and future funding from high levels of government at risk
• borrow cash to compensate for Essar's unpaid tax bill. This option would also need to be supplemented by at least one of the other three options above

Essar Steel Algoma Inc. rebranded itself as Algoma on May 26 but retains its original name for legal purposes.

Meanwhile, the new owner of U.S. Steel Canada Inc. (Stelco) is indicating he's still interested in also buying the Sault steel mill.

"Algoma is definitely on our radar screen,"  Alan Kestenbaum, chair of U.S. venture capital firm Bedrock Industries, told the Hamilton Spectator this week.

Bedrock expects to invest $250 million in Stelco over the five years.

The Spectator's Mark McNeil revealed that Bedrock's purchase of Stelco was first suggested to Kestenbaum in October 2015 by Leo Gerard, the international president of the United Steelworkers and AFL-CIO vice president.

Gerard was born in Creighton Mine (then an unincorporated suburb of Sudbury) and started his career at Sudbury's Inco nickel smelter.

"My experience with Alan Kestenbaum has been positive and he has acquired things not to flip them but to be successful," Gerard told The Spectator.