Creditors of RG Steel LLC are asking for court permission to sue billionaire Ira L. Rennert, founder of Renco Group Inc., which owns the bankrupt former steelmaker, claiming he failed to perform his fiduciary obligations to the company.
The official committee of unsecured creditors of RG Steel, the fourth-biggest U.S. flat-rolled steelmaker when it sought court protection, claim in court papers that Rennert delayed the company’s bankruptcy filing for about six months when it was “already hopelessly insolvent” in order to protect his own interests.
The creditors estimate that a successful lawsuit could generate more than $238 million in proceeds for RG Steel and its creditors, according to court documents filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware.
“The committee believes that prosecuting the Rennert claims would be appropriate and may provide recoveries in excess of $238 million,” lawyers for the creditors said in court papers.
The creditors claim Rennert caused the delay so Renco Group could transfer a portion of its equity interests in RG Steel’s parent in an effort to avoid obligations on the steelmaker’s underfunded pension plan. They also argue the delay caused the company to lose value in a coke-supplying joint venture.
“These claims are frivolous and without merit,” said Andrew Shea, spokesman for the Renco Group, in a telephone interview.
The committee said in court papers, it is “crucial” that it have authority to pursue the litigation because demanding RG Steel to bring such actions “would be futile” due to its “inherent conflict of interest in suing its majority equity holder and controlling manager.”
Renco Group bought the three-plant steelmaker from Russia’s OAO Severstal (CHMF) in 2011 for about $1.2 billion, less than three years after Severstal acquired it for $2.2 billion. Renco created RG Steel to buy the mills, which could produce 8.2 million tons of steel a year.
The company and its affiliates are 75 percent-owned by Renco, with the remaining equity owned by Cerberus RG Investor LLC, according to court papers.
RG Steel was forced to seek bankruptcy protection because of “substantial liquidity problems” it began to face during mid-2011, “driven by a rapid decline in steel prices, while raw material prices remained at peak levels,” according to court filings. The company, based in Sparrows Point, Maryland, listed assets and debt of more than $1 billion each in Chapter 11 documents filed May 31.
The company sold its prized asset, the steel-making facilities in Sparrows Point, on the outskirts of Baltimore, in August to Environmental Liability Transfer Inc., Commercial Development Co. and Hilco Trading Co. for about $72.5 million.
The lead case is In re WP Steel Venture LLC, 12-11661, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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