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TORONTO (CP) - The Ontario Court of Appeal has reinstated two Stelco
Inc. directors several weeks after the pair were removed from board by a
lower-court judge over concerns about their shareholder interests in the
company.
Roland Keiper and Michael Woollcombe will resume their positions as
directors on Stelco's board, Stelco chief restructuring officer Hap
Stephen said Thursday.
The original appointment of the two men to Stelco's board in February
was opposed in court by lawyers for Stelco unions and non-unionized
employees, who said they were concerned about the role they would have in
deciding the company's fate as it restructures.
Keiper is part of a group holding a near 20 per cent equity stake in
the steelmaker and Woollcombe is his former adviser. They also said they
had the support of other shareholders with a further 20 per cent of
Stelco's stock.
Ontario Superior Court Justice James Farley dismissed the
appointments, citing a potential or perception of bias in favour of
shareholders' interests over other stakeholders, such as employees and
creditors.
Farley also took pains to note that nobody, not even those who wanted
Keiper and Woollcombe removed, had accused them of any improper activity.
That ruling raised questions from governance experts, who noted it is
rare for a judge to interfere in Canada's boardrooms.
On Thursday, an appeals court rescinded Farley's ruling.
Justice Robert Blair said in the decision that court removal of
directors is an exceptional remedy, and one that is rarely exercised in
corporate law.
This reluctance is rooted in the historical unwillingness of courts to
interfere with the internal management of corporate affairs and in the
court's well-established deference to decisions made by directors and
officers in the exercise of their business judgment when managing the
business and affairs of the corporation.
The judge said Keiper and Woollcombe had not acted improperly, and
could not be removed because of a potential conflict of interest.
Even where there are conflicts of interest...directors are not removed
from the board...they are simply obliged to disclose the conflict and, in
appropriate cases, to abstain from voting, Blair wrote, adding that he is
satisfied Farley erred in overturning the two appointments.
Keiper is the president of Clearwater Capital Management Inc., which
has increased its Stelco holdings since the Hamilton company filed for
creditor protection last January.
He has publicly argued that the shares are undervalued, and at one
point last year submitted a proposal to Stelco for a $125 million rights
offering. That was later taken off the table.
Stelco appointed Keiper and Woollcombe to its board - after receiving
letters of support from shareholders representing nearly 40 per cent of
the steelmaker's shares - the same day it began mulling over whether to
accept one of four final proposals to refinance or takeover the
steelmaker.
It later rejected those bids and decided to look to the capital
markets to raise funds for its restructuring.
One week after the appointments, Farley ruled they could taint
Stelco's restructuring process because the two men had obvious stakes in
the restructuring.
Richard Drouin, chairman of Stelco's board, said in a statement that
we are pleased that the Court of Appeal has unanimously confirmed the
original decision of the board of directors.
Like all of Stelco's directors, we look forward to achieving a
balanced restructuring that fairly takes into account the interests of
all stakeholders, including current and former employees, creditors and
suppliers, the province of Ontario and other communities in which Stelco
operates and shareholders, Keiper and Woollcombe said in a joint
statement put out by Stelco.
United Steelworkers representatives, which had argued against the
directors' appointments, said Thursday the appellate decision should not
change one bit the need for the company and its board to deal responsibly
with workers and retirees as it works towards emerging from court
protection this summer.
We expect fully that these gentlemen will discharge their duties in a
full and equitable manner, said Bill Ferguson, president of Steelworkers
local 8782 in Nanticoke, Ont., where Stelco's Lake Erie mill is located.
We will work with anyone who respects our principles but we will not
allow our members and retirees to be treated as second class in this
process.
The court of appeal noted in its decision that Stelco's employees fear
participation of two major shareholder representatives could tilt
Stelco's restructuring in favour of maximizing shareholder value at the
expense of a plan that might be more favourable to interests of the
employees.
In particular, the employees are concerned about dealing with a huge
pension deficit, which could absorb much of the capital that Stelco could
otherwise use to fund improvements to its business.
Shares normally have little to no value when a company emerges from
creditor protection, with shareholders sitting at the bottom of the list
of creditors to be paid.
Stelco may be an exception because the steelmaker became profitable
last year as steel prices soared.
Stelco's stock (TSX:STE.A) gained 33 cents, or 10 per cent, closing at
$3.46 on the Toronto Stock Exchange Thursday.
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