Ernst & Young has been authorized to launch oppression proceedings over Essar Steel Algoma's decision two years ago to lease its aging dock to Port of Algoma Inc.

Essar Steel Algoma's decision two years ago to lease its aging dock to Port of Algoma Inc. has become the subject of a court-ordered investigation and likely legal action.

In a Toronto courtroom yesterday, Superior Court Justice Frank Newbould authorized Ernst & Young, the court-appointed monitor overseeing Essar Algoma's insolvency, to start oppression proceedings under the Canada Business Corporations Act.

The action was requested by the debtor-in-possession lenders who've kept the Sault steelmaker afloat since it sought protection under the Companies' Creditors Arrangement Act last November.

If Essar Steel Algoma or any of its related companies are found to have broken the law, possible penalties range from restraining orders to liquidation and dissolving of corporations.

The action has been authorized under a section of the Canada Business Corporations Act that's applicable if:

any act or omission of the corporation or any of its affiliates effects a result,

the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or

the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner

that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.

Under such circumstances, the court may issue any interim or final order it considers appropriate, including the following:

an order restraining the conduct complained of;

an order appointing a receiver or receiver-manager;

an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;

an order directing an issue or exchange of securities;

an order appointing directors in place of or in addition to all or any of the directors then in office;

an order directing a corporation or any other person to purchase securities of a security holder;

an order directing a corporation or any other person to pay a security holder any part of the monies that the security holder paid for securities;

an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;

an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements or an accounting in such other form as the court may determine;

an order compensating an aggrieved person;

an order directing rectification of the registers or other records of a corporation

an order liquidating and dissolving the corporation;

an order directing an investigation to be made; and

an order requiring the trial of any issue.

In 2014, Essar Steel Algoma leased its dock for 50 years to Port of Algoma Inc., a company 99 percent owned by a subsidiary of the parent company, Essar Global Fund Ltd.

The remaining one percent of the port is owned by the City of Sault Ste. Marie.

In a complex series of transactions, the port agreed to prepay Essar Algoma US$154.8 million in rents due under the lease, an obligation that was then transferred to the parent company in India, which has not honoured it.

Essar Algoma is required to pay Port of Algoma Inc. for cargo handling and other services.

Essar Algoma also provides employees and other support allowing the port to fulfill its cargo-handling obligations.

The debtor-in-possession 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.

The lenders 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.

All legal proceedings against Essar Steel Algoma, Port of Algoma Inc. and Essar Power Corporation have been stayed since last November under the Companies' Creditors Arrangement Act, but Justice Newbould ordered yesterday that those stays be lifted to allow the expected oppression proceedings.

The judge ordered yesterday that all legal actions related to this matter must be brought to the court no later than October 21.