Canada: Navigating Through Pension Obligations Of Professionals In An Insolvency: Concerns For Monitors, Receivers, Trustees In Bankruptcy, Officers And Directors

Last Updated: February 24 2011
Article by Alexander MacFarlane and Alexandra North


Canada does not require that a corporation establish registered pension plans for its employees. However, if a corporation decides to do so, and the corporation subsequently becomes insolvent, a number of potential liabilities arise under Canadian insolvency and pension legislation. Recent amendments to the Bankruptcy and Insolvency Act ("BIA")1 and the Companies Creditors Arrangement Act ("CCAA")2 have attempted to address these potential liabilities, but there remains doubt as to whether this statutory response to recently decided troublesome case‐law adequately protects insolvency professionals and a corporation's directors and officers.

Regulatory Framework

Prior to an insolvency event, pension plans are governed by the Income Tax Act (Canada) ("ITA") and the applicable federal or provincial pension legislation. In the case of a federally governed plan, the Pension Benefits Standards Act (Canada) applies and in the case of a provincially governed plan, the applicable provincial legislation. In Ontario, the act is titled the Pension Benefits Act (Ontario) ("PBA").3

Directors and Officers

Directors and Officers duties pre‐insolvency

Under the relevant legislation, directors and officers of a corporation have concurrent responsibilities to both the corporation and to the beneficiaries of the pension plan depending on whether the corporation is acting in its capacity as the employer providing the registered pension plan or the plan administrator.4


In its capacity as the employer providing the registered pension plan the board of directors has several obligations to the corporation including: (i) the design of the pension plans (for example, this can include determining contribution levels for the corporation and the employees); (ii) eligibility requirements (the class or type of employee that may participate in a particular pension plan); (iii) ensuring that the minimum funding obligations of the corporation are met for registered pension plans; and (iv) amendments or changes to the corporation's pension plans including any decisions to wind‐up the pension plan, merge two or more pension plans, amend the pension plans (subject to any statutory obligations or collective agreements), or take contribution holidays.5

When acting in its capacity as employer under a corporation's pension plans, the board of directors of the corporation do not have a fiduciary obligation to the plan beneficiaries. The corporation and board of directors may therefore act in their own best interests, rather than the best interests of the plan members and beneficiaries.6

Plan administrator

In its capacity as plan administrator, the board of directors of a corporation is charged with accurately administering the registered plan according to the applicable pension legislation and the plan documentation that has been filed with the applicable provincial or federal plan regulator. In Ontario, the pension plan regulator is the Financial Services Commission of Ontario ("FSCO"). The Office of the Superintendant of Financial Services ("OSFI") regulates federally registered pension plans.

The PBA imposes a "fiduciary type" duty on a corporation in its capacity as the plan administrator and requires that the directors and officers of the corporation fulfill their responsibilities using the care, due diligence and skill of an ordinary person charged with dealing with another's property.7 The corporation is not expected to be perfect when administering the plan for the plan members, but is expected not to act negligently, in breach of its fiduciary duty or in bad faith when administering the plan.8

In practice, due to the oversight required to properly administer a registered pension plan, and in recognition of the considerable time involved and necessary expertise required, the board, acting qua administrator, has the power to delegate the administrative function to agents.9 Directors have the responsibility for selecting suitable agents and prudently and reasonably supervising such agents. However, the delegation of the administration of the registered pension plans to such agents does not absolve the directors of their legal responsibilities as administrator of the registered pension plans.10

Directors and officers may be criminally charged if they directed, authorized, assented to, acquiesced in, participated in, or failed to take reasonable care to prevent the contravention of the relevant statue as an individual or on behalf of the corporation. A director or officer that is found guilty of such an offence can be liable for a fine up to $100,000 or twelve months imprisonment or both, for a first offence.11 Personal liability for directors may also arise where the corporation has been convicted of an offence related to a failure to make payment or remit payment.12

Directors' and Officers' liability for under funded pension plans

There have been a number of recent cases that have directly considered directors' and officers' liability under the PBA, the CCAA and the BIA. Two very important decisions arose out of the recent restructuring of Slater Stainless Corp. ("Slater"). In both Morneau Sobeco Ltd. v. Aon Consulting Inc. ("Morneau v. Aon")13 and Re Slater Steel Inc. ("Slater Steel")14 the courts dealt with directors' and officers' liability in respect of claims arising from the administration of the Slater pension plans.

Morneau v. Aon

Slater as employer, provided and acted as plan administrator for two registered pension plans (the "Plans"). The Plans were underfunded. Slater hired a third party actuary, a Mr. Norton ("Norton"), who was employed by Aon Consulting Inc. ("Aon") to manage the Plans and prepare actuary reports to provide valuations of the Plans' assets. Prior to filing for protection under the CCAA, Slater had extensive discussions with FSCO in respect of alleged improprieties in the Plan actuarial reports as prepared by Norton. FSCO alleged that the improper actuarial valuations overstated the value of the Plans' assets enabling Slater to avoid making additional contributions to the Plans before becoming insolvent. FSCO also claimed that had the proper reports been filed, additional payments to the Plans would have been required and these contributions would have reduced or eliminated the alleged deficits in the Plans.15

Pursuant to the Initial Order under which Slater was granted protection under the CCAA, the court granted a charge of up to $17.5 million in order to indemnify Slater's directors and officers (the "D&O Charge") for claims that could potentially be asserted against them (the "D&O Claims").16 A claims procedure was established by the court to resolve any D&O Claims asserted against Slater's directors and officers (the "D&O Claims Process"). The superintendent of FSCO filed a D&O Claim (the "FSCO Claim") pursuant to which it claimed that Slater was in breach of a number of regulatory and compliance requirements regarding Slater's administration of the Plans. Part of the FSCO Claim included a claim that Slater's directors and officers had committed offences under the PBA because they had "caused, authorized, permitted, acquiesced or participated in" Slater's contraventions of the PBA and failed to take reasonable care to prevent Slater contravening the PBA.17

Slater did not file a plan in its CCAA proceedings and Slater's CCAA proceedings were subsequently terminated pursuant to a termination order (the "Termination Order") which provided for the continuation of the D&O Claims Process for certain claims that were already being adjudicated, including the FSCO Claim. PriceWaterhouseCoopers ("PWC") was subsequently appointed by the court as interim receiver and receiver and manager (collectively, the "Receiver") of Slater pursuant to the applicable provisions of the BIA and the Courts of Justice Act (Ontario).18 The FSCO Claim was settled and a settlement agreement was entered into by, inter alia, the Receiver, on behalf of Slater, the directors and officers of Slater and FSCO. The Receiver, on behalf of Slater, agreed: (i) to pay $100,000 to FSCO in lieu of a fine under the PBA, and (ii) to an unsecured judgment against Slater which provided that Slater would pay the lesser of $18. 6 million or the actual deficiencies in the Plans (the "FSCO Settlement").19 There were no funds available in the Slater estate to satisfy the judgment. The superintendant of FSCO subsequently appointed Morneau Sobeco Limited Partnership ("Morneau") as the successor plan administrator of the Plans.

Morneau then brought an action against Norton and Aon in which it claimed damages for the amount by which the Plans were underfunded. Aon and Norton defended the action by claiming that Slater had not relied on their advice and sought to institute third party proceedings against certain Slater personnel (the "Aon Third Party Claim") including Slater's directors and officers who had served on Slater's audit committee (collectively, the "Slater Personnel"), which had been given the responsibility for the management and administration of the Plans. The Aon Third Party Claim claimed that the Slater Personnel had acted negligently in breach of their statutory and fiduciary duties, placed themselves in conflicts of interest and engaged in willful misconduct.20

The Slater Personnel were successful in striking the Aon Third Party Claim relying on the terms of the FSCO Settlement and the Termination Order. In particular, the Slater Personal relied on the provisions of the Termination Order that released and discharged any and all claims against Slater's officers and directors and stayed all claims against them unless the claims were brought pursuant to the D&O Claims Process. On appeal, the Court of Appeal ("COA") allowed the appeal and held that the Slater Personnel had not been released from liability by the terms of the Termination Order, as the Termination Order (i) only protected them from claims arising from their service as directors and officers of Slater and the Slater Personnel were being sued not in that capacity but in their capacity as plan administrators, (ii) provided for a carve‐out in respect of persons that knowingly and actively participated in the breach of any fiduciary duties, and (iii) provided that the court had the authority to lift the stay to allow for claims to proceed.

The COA also made it clear that while it was prepared to accept the argument by Aon and Norton in response to the motion to strike, its reasons were not determinative of the substantive issue raised in the Aon Third Party Claim. Certain commentators have posited that if the distinction drawn in Morneau v. Aon is accurate, then section 5.1(1) of the CCAA which allows for the compromise of claims against directors that arose prior to the commencement of the CCAA proceedings21 in a plan of compromise or arrangement requires further consideration.22 The authors of Freedom 55 argue that section 5.1(1) of the CCAA may be interpreted to preclude, as part of a debtor company's plan, releases of its directors as agents, representatives or administrators of debtor company's pension plans.23

Slater Steel

Following the COA's decision in Morneau v. Aon, the Slater Personnel brought a motion for a declaration by the court that FSCO was required, pursuant to the terms of the FSCO Settlement, to cause Morneau to abandon its claim or provide the Slater Personnel with an enforceable indemnity. In response, FSCO argued that (i) the indemnity in the FSCO Settlement was inapplicable as neither FSCO, nor the superintendent of FSCO had brought the action; and (ii) the action was commenced by Morneau and as such, FSCO was not in a position to withdraw the claim or cause the claim to be withdrawn.

The Slater Personnel argued that FSCO essentially controlled Morneau's claim since FSCO had allocated up to $80 million dollars of the Pension Benefit Guarantee Fund to the Plans, and they became subrogated to the rights of Morneau as administrator and therefore, would be entitled to receive the proceeds of any recovery if Morneau was successful in its action against Aon. The Ontario Superior Court of Justice ("OSCJ") dismissed the motion for three principal reasons: (a) the claim belonged to Morneau and as such, any defences of the Slater Personnel must be asserted against Aon and Morneau and not FSCO; (b) the terms of FSCO Settlement only affected the FSCO Claim, but did not affect the rights of persons who were not party to the FSCO Settlement. Morneau was not a party to the FSCO Settlement; and (c) a genuine issue for trial existed as to whether FSCO had control over the claim.

Recent Legislative Amendments to the BIA and CCAA

Protection for Directors and Officers

In CCAA proceedings, the court typically grants a directors' and officers' charge ("D&O Charge") in order to protect the debtor company's directors and officers in their capacity as a director and officer of the debtor company from liabilities arising post‐filing. Both the CCAA and BIA were recently amended to codify such protections for directors and officers.24 Prior to the amendments, the courts took the position that in keeping with the broad and liberal interpretation given to the CCAA and in order to provide a debtor company with the greatest chance to successfully restructure, a debtor company's directors and officers should be given protection for liabilities arising post‐filing pursuant to a D&O Charge.25 The courts reasoned that the directors and officers were integral to a successful restructuring of the debtor company and by not protecting them from significant liabilities post‐filing would be counterproductive to the entire restructuring process and would most likely cause the directors and officers to resign. The courts have been cautious, in respect of fixing the quantum of the D&O Charge, as they have recognized that the D & O Charge could potentially reorder the priority of claims for the benefit of otherwise unsecured claims (for example, for unpaid wages and termination pay).26

Section 11.51 of the CCAA and section 64.1 of the BIA now specifically authorize the court, on a motion by the debtor company and on notice to any secured creditors who may be affected, to direct that all or part of the property of the debtor company be subject to a security or charge in favour of any director or officer of the company to indemnify them against obligations and liabilities they may incur as a director or officer that arise after the commencement of proceedings under the respective act.27 Such a charge may rank ahead of the claims of secured creditors.28 The court may only grant a D&O Charge if it is satisfied that the debtor company could not obtain adequate indemnification insurance for its directors and officers.29

The amendments reflect a slight change from the previous case‐law as courts tended to grant D&O Charges to protect a debtor company's directors and officers even where there was evidence of indemnity insurance.30

To the knowledge of the authors, there have only been four reported cases since the amendments that have considered these new provisions in the CCAA and the BIA. The OSCJ granted a D&O Charge in Re Canwest Global Communications Corp.31 and Re Canwest Publishing Inc.32 By comparison, the Quebec Court Superior Court ("QSC") has twice refused to grant a D&O Charge. In Dessert & Passion Inc. (Faillete) c. Banque Nationale du Canada, the QSC held that because the director had made it known that he intended to remain in office regardless of the outcome of the proceeding and there was no evidence that he could not obtain insurance, a D&O Charge was not warranted.33 In Re Industries Show Canada Inc., the QSC again refused to grant a D&O Charge because the director, who was also the majority shareholder, refused to give up control of the company and indicated that he would remain in office.34

Interim Receivers, Receivers, Trustees and Monitors and Successor Employer Liabilities35

The Rise of the Interim Receiver

In the 1990s interim receivers appointed pursuant to the BIA were often used by secured creditors for the primary purpose of effecting realizations on their collateral. Generally, when an interim receiver was appointed, it was also cross‐appointed as a receiver and manager under the Courts of Justice Act (Ontario) in order to enable the receiver to convey the real property of the debtor company.36 The primary reason for the wide use of interim receiverships arose as a result of the amendments made to the BIA in 1992 (the "1992 Amendments") including the addition of s.244(1) which required that a secured creditor must give ten days notice (the "Notice Period") to the debtor company prior to taking steps to realize on its security. Pursuant to section 47(2), which was also part of the 1992 Amendments, a secured creditor could apply to the court for the appointment of an "interim receiver" during the Notice Period in order to the protect the secured creditor's collateral.37 Section 47(2) granted the court considerable discretion respecting the appointment of interim receivers. Interim receivership orders routinely gave interim receivers protection from all successor employer liabilities under the guise of doing "what justice dictates and what practicality demands".38 However, following the widespread use of the interim receiver as a vehicle to effect realizations, the appellate courts released several decisions which questioned whether the courts acting pursuant to the BIA, had the authority to shield interim receivers from such liabilities.

The Decline of the "Interim Receiver" and the Creation of the "National Receiver"

The most recent amendments to the BIA have significantly curtailed the role of the interim receiver and created a new "national receiver". Although, the BIA still permits an interim receiver to take possession of the debtor company's property and exercise control over the debtor company's property as the court considers appropriate; interim receivers are essentially restricted to only taking measures to conserve the property of the debtor company. The duration of the appointment of the interim receiver is also limited to: (i) the period prior to the appointment of a "national receiver" or a trustee in bankruptcy; (ii) on a date fixed by the court; or (iii) for 30 days after the appointment of the interim receiver, whichever is earlier.39

Secured creditors now have the option of seeking an order from the court appointing a "national receiver" over the property, assets and undertaking of the debtor which is empowered to act in all of the provinces and territories of Canada. The "national receiver" cannot be appointed until the Notice Period has expired unless the court orders otherwise. "National receivers" are afforded the same protections for liabilities as are trustees and monitors under the applicable provisions of the BIA and the CCAA.40

Monitors Exposure to Potential Successor Employer Liabilities

There has been less concern regarding whether a monitor, appointed pursuant to the CCAA, has exposure to successor employer liabilities, because under the CCAA, the debtor company effectively remains in control of the restructuring process and in possession of its property, assets and business.

Successor Employer Liabilities In Respect of Pension Plans: Pitfalls for Insolvency Professionals

In Ontario, the PBA defines an "employer" as

"in relation to a member or former member of a pension plan means the person or persons from whom or organization from which the former member receives or received remuneration to which the pension plan is related, and "employed" and "employment" have a corresponding meaning".41

In relation to pension obligations, this means that an insolvency professional may have potentially onerous obligations as the employer under the registered pension plan, including an obligation to contribute to a registered pension plan or to incur the responsibility of wind‐up deficits,42 depending on the specific actions it takes subsequent to its appointment in an insolvency proceeding.

St. Mary's Paper

Concern over the liabilities of insolvency professionals for pension obligations arose with the COA decision in St. Mary's Paper Inc.43 ("St. Mary's"). In St. Mary's, Ernst & Young was appointed as a receiver and manager and trustee in bankruptcy (the "Trustee"), although it acted solely in its capacity as Trustee in continuing the operations of St. Mary's. The Trustee was held to be an "employer" as defined in the PBA such that the Trustee was required to make "special payments" on account of the unfunded liabilities of St. Mary's pension plans. The Trustee was found to be an "employer" under the PBA despite the fact that it had specifically contracted out of its obligations in respect of unfunded pension liabilities when it re‐hired certain employees whose employment had been terminated on the bankruptcy of St. Mary's. After bankruptcy, the Trustee had agreed to deduct employee contributions to St. Mary's pension plans in the regular amounts, remit those contributions and pay the service costs of the pension plans on behalf of those employees that had been re‐hired by the Trustee.44

Notwithstanding the agreement made by the Trustee with the re‐hired employees, PWC, who was subsequently appointed as the administrator of St. Mary's pension plans pursued the Trustee as an "employer" in order to force the Trustee to make the special payments to the pension plans. The COA held that the Trustee was, in fact, an "employer" under the PBA as the contributions the Trustee had made to the plans were "remuneration to which the pension plan is related". The COA also held that the Trustee had not automatically become an "employer" pursuant to the PBA, but that it effectively became an employer for the purposes of the PBA pursuant to the terms of the employment contract which it had negotiated with the employees.

In response to the COA decision, the BIA was amended again in 1997 with the intention to provide statutory protections to trustees in bankruptcy, receivers and interim receivers for such liabilities.45 Section 14.06(1.2) of the BIA was enacted to protect trustees, interim receivers, and receivers from liabilities that arose prior to the bankruptcy or receivership of the debtor company. Notwithstanding the primary reason for amending section 14.06(1.2), the section was silent, regarding the liability of trustees, receivers and interim receivers for pension obligations and in respect of any liabilities that arose post bankruptcy, on filing of a notice of intention to file a proposal, or on appointment of an interim receiver, or a receiver.46

GMAC Commercial Credit Corp. v. TCT Logistics Inc. 47

In TCT Logistics, KPMG Inc. ("KPMG") was appointed as interim receiver of TCT Logistics Inc. ("TCT"). The receivership order granted the interim receiver broad powers to shut down and sell the business. The receivership order specifically provided that: (i) KPMG would not be liable as a successor employer for any of its employer‐type activities; and (ii) upon appointment of KPMG as interim receiver, all of TCT's unionized employees would be terminated. KPMG assigned TCT into bankruptcy and KPMG, acting in its capacity as trustee in bankruptcy, sold the majority of TCT's assets. Certain of the unionized employees were hired by the purchaser, but not pursuant to the union seniority list. The union applied to the Ontario Labour Relations Board ("OLRB"), without seeking leave from the bankruptcy court for a declaration that the purchaser was a successor employer to TCT and/or the interim receiver and was bound by the terms of the union's collective agreement. The receiver successfully brought a motion to stay the union's application on the basis that the receivership order required that leave of the bankruptcy court first be obtained prior to commencing proceedings against the interim receiver. The union then brought a motion before the bankruptcy court for an order to vary certain provisions of the receivership order including the provision that provided that the interim receiver would not be deemed to be a successor employer and sought leave of the court to commence proceedings before the OLRB. The bankruptcy court refused to grant leave to the union to apply to the OLRB for a determination of the successor employer issue.

On appeal, the COA overturned the decision of the bankruptcy court and held that the OLRB had exclusive jurisdiction to make successor employer determinations. The Supreme Court of Canada ("SCC") unanimously upheld the decision of the COA and stated that: (i) the OLRB had the exclusive jurisdiction to decide whether an interim receiver was a successor employer; and (ii) the broad language of the then section 47(2) did not immunize an interim receiver from successor employer liabilities. Following the decision at the COA and the SCC in TCT Logistics, there was a precipitous decline in the use of interim receivers and receivers to effect the realizations on a debtor company's property and assets.

Amendments to the BIA and the CCAA

Protection from pension obligations

In response to the rulings by the COA and the SCC in TCT Logistics, the BIA and the CCAA were again amended in order to better protect receivers, interim receivers, trustees in bankruptcy and monitors from successor employer liabilities. Section 14.06(1.2) of the BIA now provides that, despite any federal or provincial law, where a trustee (which includes a receiver, interim receiver and a trustee in bankruptcy) carries on the business of a debtor or continues the employment of a debtor's employees, the trustee is not by reason of that fact personally liable in respect of a liability including, one as a successor employer, (a) that is in respect of the employees or former employees of the debtors or a predecessor of the debtor or in respect of a pension plan for the benefit of those employees; and (b) that exists before the trustee is appointed or that is calculated by reference to the period of employment.48 The CCAA now also provides corresponding protections for monitors.49

To date, there have been no cases that have judicially considered these sections.

Obligations of Trustees, Interim Receivers and Receivers under the BIA in respect of Certain Pension Plan Contributions

As of July 7, 2008 sections 81.5 and 81.6 of the BIA provide super‐priority status for certain unpaid contributions of pension plans of bankrupt employers or employers subject to a receivership. The amounts subject to the priority include:

  • An amount equal to the sum of all amounts that were deducted from the employees pay for payment to the pension fund;
  • If the prescribed pension plan is created by an Act of Parliament,
    • An amount equal to the normal cost that was required to be paid by the employer to fund; and
    • An amount equal to the sum of all amounts that were required to be paid by the employer to the fund under a defined contribution provision.
  • Any other prescribed pension plan:
    • An amount equal to the normal cost that was required to be paid by the employer to fund; and
    • An amount equal to the sum of all amounts that were required to be paid by the employer to the fund under a defined contribution provision.

These provisions create a security interest for the unpaid normal cost pension amounts that ranks in priority to every other claim, right, charge or security against the debtor company's property and assets, regardless of when the claim, right, charge or security arose (subject to: (i) certain exceptions set out in sections 81.1 and 81.2;50 (ii) amounts provided for in section 67(3)51 that are deemed to be held in trust; and (iii) security provided under sections 81.3 and 81.4.52 If a receiver, interim receiver or trustee in bankruptcy disposes of the assets of the debtor company it will be subject to the restrictions, among others, under sections 81.5 and 81.6 of the BIA, and the receiver, interim receiver or trustee in bankruptcy will be liable for those amounts subject to any realization on the disposition of assets.53 The receiver, interim receiver or trustee in bankruptcy is subrogated to and in the rights of the fund in respect of those amounts.54

Although the recent amendments to the CCAA and BIA have increased certain obligations and liabilities of directors, officers, monitors, receivers and trustees when a debtor company becomes insolvent, they have also provided clarity and increased certain protections to such persons. It remains to be seen whether the new amendments will have the desired effect of protecting directors, officers and insolvency professionals from the liabilities previously imposed by the courts, for pension and other successor employer obligations.


Directors, officers, receivers, trustees and monitors can attempt to minimize potential successor employer and corresponding pension liabilities in a variety of ways. Recommendations for directors, officers, monitors, receivers and trustees in order to reduce their exposure to underfunded pension plan liabilities would include:

Directors and officers

  • Establish a governance policy that clearly outlines the Board's responsibilities and the capacity in which the Board undertakes those responsibilities;
  • Draft comprehensive mandate statements of investment policies and procedures and review them on an annual basis to determine if they are appropriate;
  • Pension committee members should meet on a regular basis and should have a thorough understanding of the pension plan documents;
  • Pension committee members should attend pension meetings as much as possible;
  • Pension committee members should monitor all required filings with the regulators;
  • Boards should review their directors and officers insurance to determine if there is sufficient coverage for those directors and officers that may be seen to be acting in a fiduciary capacity in respect of the pension plans;
  • Prior to a debtor company filing for protection, the Board should engage independent counsel to provide advice in order to protect the interests of the board in respect of prefiling and post‐filing obligations that may arise on account of the company's insolvency;
  • Board should ensure that any court‐ordered charge they obtain as a part of the Initial Order in respect of post‐filing obligations and liabilities that may arise on account of the debtor company's insolvency: (a) is adequate in quantum and (b) has an acceptable ranking in the waterfall of post‐filing charges granted by the court; and
  • During a reorganization under the BIA or CCAA the Board should also ensure that there is compliance with sections 65.13(8) and 36(7) of the BIA and CCAA respectively, with respect to any proposed asset sales and also consult with their professional advisors to ensure that any proposal or plan which is to be presented to the debtor company's creditors for approval complies with sections 60(1.5)(1.6) and 6(6)(7) of the BIA and CCAA respectively, as the case may be.

Receivers, trustees and monitors

  • In re‐hiring employees post receivership or bankruptcy, the trustee or receiver should ensure that any employment contracts explicitly outline that the receiver, or trustee is not a successor employer for the purposes of the relevant employment and pension legislation, including, among other things, explicit language that the insolvency professional will not make any contributions to the debtor company's pension plans for, or on behalf of the employees; and
  • Prior to disposing of assets of the debtor company, ensure the amounts required to be paid pursuant to section 81.5 and 81.6 of the BIA are, in fact, up to date or paid from those sales.


1 R.S.C. 1985, c. B‐3, as amended.

2 R.S.C. 1985, c. C‐36, as amended.

3 R.S.O. 1990 c. P. 8. The authors of this paper practice in Ontario and as such, this discussion will focus on the PBA. Other provincial pension benefits legislation have slight differences.

4 Barry Reiter, Directors' Duties in Canada, 4th ed. (Toronto: CCH Canadian, 2009) at 520.

5 Ibid. at 521.

6 Ibid. at 522.

7 PBA, supra note 3 at s. 22(1).

8 Supra, note 4 at 524.

9 PBA, supra note 3 at s. 110(2).

10 Supra note 4 at 527.

11 PBA, supra note 3 at ss. 110(1) & 110(2).

12 Ibid. at s. 110(4)

13 (2008), 2008 CarswellOnt 1427 (Ont.C.A.).

14 (2009), 2009 CarswellOnt 3122 (S.C.J.).

15 Ibid. at paras. 6 &12.

16 Ibid. at paras. 2‐5.

17 Ibid. at para. 7.

18 R.S.O. 1990, c. C.43, s.101.

19 Supra, note 13 at para 10.

20 Supra, note 13 at para 15.

21 BIA, supra note 1 at s. 5.1(1). Section 5.1(1) of the CCAA states that "a compromise or arrangement made in respect of a debtor company may include in its terms provision for the compromise of claims against directors of the company that arose before the commencement of proceedings under this Act and that relate to the obligations of the company where the directors are by law liable in their capacity as directors for the payment of such obligations".

22 Massimo Starnino and Mary Picard, Freedom 55 Lost? The Recent Treatment of Pensions in Insolvency Proceedings, presented at the Education Program of the Commercial List Users Committee/OBA Insolvency Law Section/OAIRP on June 2, 2010 ["Freedom 55"].

23 Ibid. at 27.

24 The amendments were proclaimed into force in September 2009.

25 See for example Re Air Canada, 2003 CarswellOnt 2464 (Ont.S.C.J.).

26 See for example Re Westar Mining Ltd., 2003 CarswellOnt 275 (B.C.S.C.).

27 CCAA, supra note 2 at s.11.51(1); BIA, supra note 1 at s. 64.1(1).

28 CCAA, supra note 2 at s.11.51(2); BIA, supra note 1 at s. 64.1(2).

29 CCAA, supra note 2 at s.11.51(3); BIA, supra note 1 at s. 64.1(3).

30 Freedom 55, supra note 22.

31 (2009), 2009 CarswellOnt 6184 (S.C.J).

32 (2010), 2010 CarswellOnt 212 (S.C.J.).

33 Dessert & Passion Inc. (Faillete) c. Banque Nationale du Canada (2009), 2009 CarswellQue 10378 (S.C.).

34 Re Industries Show Canada Inc. (2009), 2009 CarswellQue 13202 (S.C.).

35 Section 2(1) of the BIA defines a trustee as "a person who is licensed under this act". Monitors, receivers, trustees in bankruptcy and proposal trustees are all "trustees" within the meaning of the BIA.

36 Appointment of a receiver and manager under the Courts of Justice Act (Ontario) allows the court to make an order on "such terms as the court deems just".

37 Paul Macdonald and Brett Harrison, "Receivership Orders‐ Where Do We Go From Here?" (2004), 21 Nat. Insol. Rev. 65 at 66.

38 Canada (Minister of Indian and Northern Affairs & Northern Development) v. Curragh Inc., [1994] O.J. No. 954 (Ont. Gen. Div.) at para. 16.

39 BIA, supra note 1 at s. 47.

40 BIA, supra note 1 at s. 243.

41 PBA, supra note 3 at s.1

42 Susan Grundy & Katherine McEachern, (2010) Are We There Yet? Personal Liability of Insolvency Practitioners for Employee and Pension Claims after the 2009 Insolvency Law Amendments, 26 B.F.L.R. 35 at 5.

43 (1994), 1 C.B.R. (3d) 273, 1994 CarswellOnt 285. (C.A.).

44 Re St. Mary's Paper Inc., 1993 CarswellOnt 1830 (Ont. Gen. Div. [Commercial List]) at para. 4.

45 Supra, note 38.

46 Supra, note 42 at 7.

47 [2006] 2 S.C.R. 123, [2006] S.C.J. No. 36 (S.C.C.) ["TCT Logistics"]

48 BIA, supra note 1 at s. 14.06 (1.2).

49 CCAA, supra note 2 at s. 11.8(1).

50 Section 81.1 of the BIA provides for the right of an unpaid supplier to enter onto the bankrupt's premises and reclaim the goods if the goods were delivered within 30 days prior to the date of the bankruptcy. Section 81.2 provides a special right for farmers, fishermen or aquaculturalists for products sold and delivered to the bankrupt within 15 days of the date on which the bankruptcy occurred. The claim of the farmer, fisherman or aqualculturalist for the unpaid amount is secured by security on all inventory in the amount of the claim and the security ranks above every other claim against that inventory, regardless of when that other claim arose except for the supplier's right under section 81.1.

51 Amounts deemed to be held in trust pursuant to section 67(3) of the BIA are amounts under section 227(4) or (4.1) of the ITA, subsections 23(3) or (4) of the Canada Pension Plan or subsections 86(2) or (2.1) of the Employment Insurance Act, or any provincial act that deems amount to be held in trust (a) that are for the purposes of taxation similar to section 227(4) and 227(4.1) of the ITA; or (b) the province is a "province providing a comprehensive pension plan" and the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in subsection 23(3) or (4) of the Canada Pension Plan.

52 Section 81.3 and 81.4 provides security for unpaid wages in a bankruptcy or a receivership up to $2000.

53 BIA, supra note 1 at ss. 81.5(3) & 81.6(3).

54 The recent amendments to the CCAA and BIA provide that the Court will not sanction a proposal or a plan of compromise or arrangement unless: (i) the plan or proposal provides for the payment of certain of the debtor company's pension obligations (the employer's unpaid amounts to the prescribed pension plan fund); and(ii) the Court is satisfied that the debtor company can and will make the payments (BIA s. 60(1.5); CCAA s. 6(6)). The Court may sanction a compromise or arrangement that does not allow for the payment of the amounts referred to in s. 60(1.5) of the BIA and s. 6(6) of the CCAA, if it is satisfied that an agreement has been entered into and approved by the relevant pension regulator (BIA s.60(1.6); CCAA s.6(7)). Additionally, the court cannot sanction a sale of assets in a proposal or under the CCAA unless those pension obligations that would be required on the sanctioning of a plan or proposal are met (BIA s. 65.13(8) and CCAA s. 36(7)).

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