The province has filed an objection with the court to protect the interests of the government as well as the Ontario steelmaker's workers and other stakeholders, Finance Minister Charles Sousa said Friday.
"Ontario supports a restructuring that is based on consensus and that gives the best value to employees, retirees, creditors and communities," Sousa said in a statement.
The government said it's concerned that some of the conditions attached to about $185 million in temporary funding from Pittsburgh-based U.S. Steel could have a negative impact on employees and retirees of its Canadian subsidiary.
U.S. Steel Canada, with operations at Lake Erie Works and Hamilton Works, has the capability of producing approximately 2.6 million tons of steel annually. It employs about 2,000 people and has thousands of retired employees.
The company has said it hopes to sell both properties by next October. A sale process for Hamilton Works, which has been permanently closed since December 2013 after being idled in late 2010, could begin within months with a sale of Lake Erie Works in Nanticoke to begin in March.
U.S. Steel Canada has accumulated an operating loss of about $2.4 billion since 2009 and filed for court protection from creditors on Sept. 16.
Ontario is one of U.S. Steel Canada's creditors due to a $150-million loan to the company. Ontario also has an agreement with the company requiring it to guarantee certain pension payments.
"The province is working to ensure that the company lives up to these obligations, does not put the repayment of inter-company loans ahead of its pension obligations, and continues to have responsibility for any environmental liabilities associated with its Canadian operations," Sousa said in his statement.
New Democrat Paul Miller said both Ontario and the federal government have "dropped the ball" in enforcing U.S. Steel Canada's obligations to workers.
"U.S. Steel's 'debtor-in-possession' application is set up to make sure the U.S. parent gets its money out of Ontario first and gets a first shot at buying the Lake Erie Works," Miller said in a statement.
"Meanwhile, the application leaves workers and retirees at the end of the line, wondering whether their pensions will be there like they were promised. Employees and retirees should come before the wealthy American parent company."
U.S. Steel Canada has said it will carry on business as usual while it develops and implements a comprehensive restructuring solution under a process governed by the Companies' Creditors Arrangement Act, or CCAA.
Typically, a company in CCAA attempts to obtain a commitment for money — referred to as debtor-in-possession financing — that can be used to pay its expenses during a process taking months or years to complete.
Progressive Conservative critic Ted Arnott said the Liberal government has taken "deliberate policy decisions" on electricity rates, taxes and "excessive red tape" that have made Ontario less competitive.
"I feel very strongly the minister should publicly take responsibility for his government's misguided policies, which made us uncompetitive," Arnott said.