by Sarah Danckert
The new administrators to collapsed steel company Arrium will on Monday launch urgent legal action to stop United States banking giant Morgan Stanley from scuppering a rescue deal between Arrium, its lenders and the union representing workers.
Morgan Stanley Bank NA filed action in the Delaware Chancery Court on Friday seeking orders that Arrium and its subsidiary companies must repay a $US75.4 million ($A97.6 million) credit facility the US bank provided in 2013.
Morgan Stanley's legal manoeuvre is the latest instalment in the dramatic collapse of Arrium that saw tensions between Arrium's directors and managers and its lenders boil over, leading to the controversial removal of Arrium's voluntary administrators at Grant Thornton in favour of rival insolvency group KordaMentha.
If the bid to restrain Morgan Stanley fails, there is a risk the rescue deal between the lenders and the Australian Workers Union could be frustrated by ongoing legal action and the expected restructure of Arrium and its businesses.
Morgan Stanley is also seeking orders to prevent Arrium and its subsidiaries from transferring assets out of the US, according to reports in the US.
Morgan Stanley's loan is linked to Arrium's US business including its successful ore grinding business Moly-Cop which is the most profitable part of Arrium's business and central to the rescue plan for the collapsed group, American legal publication Law360 reports.
Moly-Cop has operations in Australia, the US, Canada, Chile, Indonesia, Peru and Mexico.
"MSBNA (Morgan Stanley Bank NA) has no assurances that defendants will not try to transfer their assets from the United States to Australia or any other foreign jurisdiction beyond MSBNA's reach. Any such transfers will likely be irretrievable," the complaint said, according to the report.
Arrium Finance and Arrium Iron Ore Holdings are listed as the borrowers of Morgan Stanley's loan. The loan is in turn guaranteed by Arrium subsidiaries Litesteel Technologies America LLC, Moly-Cop USA LLC, Onesteel Group Inc., Onesteel Recycling Inc. and Onesteel Investments.
In response to Morgan Stanley's claim, administrators from KordaMentha have filed their own action in the Federal Court of Victoria.
KordaMentha is seeking to block Morgan Stanley's action through orders which restrain Morgan Stanley from taking steps to enforce its debt. Those orders will then need to be registered in Delaware.
The Federal Court application is to be heard on Monday morning by Justice Jennifer Davies.
KordaMentha was installed as administrators after Arrium's directors backed a $US927 million recapitalisation proposal from US vulture fund GSO Capital that raised the ire of the company's lenders and the AWU.
The aborted recapitalisation deal, in which Arrium's banks would have received 55¢ in the dollar, sparked concerns the company's struggling Whyalla steel plant and linked iron ore mines would be closed down affecting thousands of jobs and hampering recoveries for the banks.
The GSO Capital deal came after Arrium's lenders had worked with the company's financial advisors at McGrathNicol, yet when the time came to appoint administrators Arrium's directors surprised the market by installing representatives from rival firm Grant Thornton.
Arrium's noteholders supported the push led by the big four banks – ANZ, Commonwealth Bank, Westpac and NAB – and the AWU to change administrators from Grant Thornton to KordaMentha.
KordaMentha's appointment was pushed by the AWU and the big four banks due to the insolvency firm's previous experience in the 2001 bust of airline Ansett which is seen as the model for protecting work entitlements.
The steelmaker's workers are owed about hundreds of millions in entitlements while the company's has loans totalling $2.3 billion of which
$1 billion is from ANZ, CBA, Westpac and NAB.
According to reports, the US bank claims it sought immediate repayment of $US75.4 million on April 8 – a day after Arrium appointed voluntary administrators. Morgan Stanley reportedly filed a second demand on April 12 but has received no payments from Arrium's related entities.
Morgan Stanley is asking the court to order Arrium and its subsidiaries to make the payments immediately.
The US bank is also seeking relief from Arrium pledging any of its assets to any other party, including the lenders involved in the local administration.
A spokesman for KordaMentha declined to comment on the legal action.
Fairfax Media was unable to make contact with representatives from Morgan Stanley's offices in Hong Kong or Sydney.
