Bankrupt RG Steel's unsecured creditors are seeking permission to sue Ira Rennert — the billionaire who created the company to buy Sparrows Point — for allegedly worsening the steel mill owner's financial situation in order to improve his own.
The Official Committee of Unsecured Creditors told the U.S. Bankruptcy Court in Wilmington, Del., that it might be able to recover more than $238 million if allowed to pursue claims against Rennert for "breaches of fiduciary duties."
Andrew Shea, a spokesman for Rennert's Renco Group, a New York holding company, had a succinct response to the request: "These claims are frivolous and without merit."
The creditors' argument isn't that Rennert caused the bankruptcy but that he delayed the "inevitable," leaving RG Steel with more debt and less-valuable assets in order to benefit himself.
"While Renco clearly lost a significant amount of money as a result of Rennert's disastrous decision to purchase the Debtors in March 2011, this in no way gave him license to make a series of decisions … calculated solely to mitigate Renco's losses at the expense of the Debtors and their creditors," the committee's attorneys said in a draft of the proposed lawsuit, filed along with the motion seeking permission to pursue it.
The creditors' committee said in its filing, made public late Thursday, that RG Steel was "hopelessly insolvent" and ready to seek bankruptcy protection in December 2011 — about half a year before it ultimately did. Instead, Rennert directed the company to take on additional debt so he could make arrangements to try to avoid liability for RG Steel's "underfunded" pension plans, the committee alleged.
A later delay substantially reduced the value — potentially to zero — of RG Steel's stake in a joint venture that produces coke, the carbonized coal used in steelmaking, the creditors said. RG Steel filed for bankruptcy after a key deadline involving the joint venture because Rennert was working out a deal to stop one of his lenders from drawing down cash collateral provided by Renco, the creditors said.
Attorneys for the creditors' committee said in their filing that the group must be allowed to pursue the claims because RG Steel can't be expected to do so against its "sole equity owner and controlling manager."
Rennert is ranked No. 52 on the Forbes 400 list of the richest people in the country, with an estimated net worth of $6.5 billion.
RG Steel idled Sparrows Point last summer, laying off the approximately 2,000 employees there. The Baltimore County steel mill, bought at auction by a liquidator and a redevelopment firm, is being sold off in pieces.
The United Steelworkers, which represented many of the Sparrows Point workers, is among the unsecured creditors. Joe Rosel, president of the union's Local 9477 in Sparrows Point, said additional money would help former employees who rushed to see doctors in their final weeks of health insurance eligibility and then discovered that the money RG Steel set aside for that purpose was insufficient.
"Any bill that came in after Sept. 14 wasn't paid," Rosel said. "It's … somewhere in the $250,000 range."
Charles Shafer, a University of Baltimore professor who teaches bankruptcy law, said the job of the creditors' committee is to make sure unsecured creditors get whatever money they're entitled to. He's not familiar with the facts in RG Steel case, but he said there are limits on what company leaders can do with corporate assets.
"If it seems like there's reason to believe this happened, I wouldn't be surprised if the court approved it," he said of the lawsuit request.