Mayor asks for face-to-face meeting with Ernst and Young about Essar's tax bill

The city has already spent $275,000 on lawyers trying to collect Essar Algoma's property taxes, but the mayor's taking the unusual step of directly approaching the monitor to press our case

20141201 Chain of Office Detail Mayor Christian Provenzano KA

Detail of chain of office as worn by Mayor Christian Provenzano. File photo by Kenneth Armstrong/SooToday

Mayor Christian Provenzano is asking for face time with Brian Denega of the Toronto office of Ernst and Young, the court-appointed monitor overseeing the restructuring of Essar Steel Algoma.

The city has already spent $275,000 on lawyers trying to collect $26 million in property taxes owed by the steelmaker, but the mayor is taking the unusual step of directly approaching the monitor to press the city's case.

Yesterday, the Ontario Superior Court agreed to hear the city's arguments on May 10.

As SooToday reported on Wednesday, the city filed a court affidavit this week warning that it will be forced to take "draconian" measures to stabilize its finances at the end of June if the property tax bill isn't paid.

On Monday, City Council will be asked to approve an additional $100,000 for the legal team pursuing the city's claim.

"There has been no indication that any taxes will be paid at this time," says chief administrative office Al Horsman in a memo to city councillors.

"The city is at a critical juncture. Reserve balances have maintained the cash flow and city operations for the last 19 months of the restructuring but recent developments do not lend to an imminent exit from the Companies' Creditors Arrangement Act," Horsman says.

"The city’s reserves cannot continue to carry the balance owing, which is equivalent to 25 per cent of the annual tax levy, going forward. At this critical phase it will be imperative that the city’s restructuring lawyer provide expertise and guidance on the non-payment of Essar Steel Algoma property taxes."

"As well they need to continue to monitor the proceedings and steps taken by other stakeholders, all of which is expected,often with short notice, to become more intense and active."

"The city’s lawyers and staff needs to be prepared to file court materials on short notice, seeking clarification or providing its response to any filings that may impede its priority status. Finally, there may be ancillary works or responses required from the city to any proposed agreement or steps taken by parties to the CCAA proceedings," Horsman says.

The following is the full text of an email sent to Ernst and Young by Mayor Christian Provenzano this week:

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Mr. Brian Denega,
Ernst & Young Inc.P.O.Box 251,
Tor-Dom Centre
Toronto, ON
M5K1J7

Mr. Denega:

I am writing you further to the cross-motion served and filed by the Corporation of the City of Sault Ste. Marie seeking payment of the municipal taxes from CCAA [Companies' Creditors Arrangement Act] filing to date and ongoing.

The affidavit in support of the cross-motion sworn by the city solicitor and relying on information provided by our treasurer very clearly outlines the challenge that has been created by Essar Steel Algoma’s refusal to pay any municipal taxes since

CCAA filing, the monitor’s support for that position and Justice Newbould’s endorsement of that position by court

order in June, 2016.

Today’s circumstances are very different than those that existed in June, 2016.

The DIP [debtor in possession] loan has been substantially reduced while the amount owed by Essar Steel Algoma for municipal taxes has increased substantially.

The city was owed $14 million at CCAA filing.

It is now owed $26 million.

The price of steel is now much higher and Essar Steel Algoma is, to my understanding, generating a positive cash flow.

At the same time, Essar Steel Algoma’s refusal to pay any municipal taxes is having a deleterious effect on the city’s own cash flow and its ability to manage that cash flow without an adverse effect on our services and ratepayers.

Based on the foregoing, City Council instructed our administrative staff to seek the relief sought in the motion we filed and served on April 18 and I can advise that it strongly supports these efforts.

I am hopeful that the monitor will take a much more reasonable and, frankly, responsible approach and recommend to the court that Essar Steel Algoma pay its post-filing municipal taxes.

I note, importantly, that the DIP loan was originally made on the understanding municipal taxes would be paid from the date of filing on an ongoing basis.

While the monitor may have at one time believed it reasonable to suspend that responsibility, I do not see how it can maintain that position in the present circumstances.

If it does, it will only serve to exacerbate challenges within the community and ultimately, I believe, frustrate the final settlement of the matter.

I will make myself available to meet with you, at your convenience, to discuss this matter further.

Yours truly,

Christian C. Provenzano, B.A., LL.B., LL.M.

Cc:

Members of Sault Ste. Marie City Council

Al Horsman, CAO SSM

Malcolm White, City Clerk SSM

Aird & Berlis, LLP

Kaylan Gosh, CEO Essar Algoma

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