This decision considers the obligations of a company acting as
both employer and pension administrator where the company becomes
insolvent. Indalex Limited
("Indalex") obtained protection from creditors under
the Companies' Creditors Arrangements Act
("CCAA"). At the time, Indalex provided two pension
plans, the "Executive Plan" and the "Salaried
Plan", and was the sponsor and administrator of both.
During the CCAA proceedings, the court authorized Indalex to
borrow funds pursuant to a DIP credit agreement and granted the DIP
lenders a super-priority charge in Indalex's property. A
few months after obtaining CCAA protection, Indalex moved for
approval of the sale of its assets on a going-concern basis, and
for approval to distribute the sale proceeds to the DIP
lenders. The result was nothing would remain to fund the
deficiencies in the Plans. Representatives for the Plans'
beneficiaries objected. The court approved the sale, but
ordered an amount be held by the Monitor pending a determination on
the rights of the Plans' beneficiaries (the "Reserve
Fund"). As the sale funds were insufficient to
completely repay the DIP lenders, the guarantor paid the
In their motions, the Plans' beneficiaries claimed the
Reserve Fund was subject to deemed trusts in their favour pursuant
to the Pension Benefits Act ("PBA"), and should
be paid to them in priority to the guarantor. They also
claimed Indalex breached its fiduciary obligations to them during
the CCAA proceedings. The motion judge dismissed the
beneficiaries' motions on the basis that, at the date of sale,
no deemed trust under the PBA had arisen in respect of either plan,
and did not deal with the fiduciary obligation argument. The appeal
to the Court of Appeal was allowed.
In respect of the Salaried Plan, the PBA Regulations permitted
Indalex to make up the deficiency owed pursuant to s. 75 of the PBA
over a period of years. The motion judge held that amount was not
"due" and thus no deemed trust arose at the date of wind
up. The Court of Appeal disagreed, holding the owed amounts were
accrued to the date of wind up. The fact that the employer
was given time to make the required contributions did not change
their status as liabilities as at the wind-up date. The
deemed trust under the PBA applied to all amounts payable under s.
In respect of the Executive Plan, the fact that it had not been
wound up caused both levels of court to doubt that a deemed trust
arose, as the wording in the PBA appeared to require wind up for a
deemed trust to arise. The Court of Appeal declined to decide
whether a deemed trust applied, as it disposed of the matter on the
basis that Indalex breached its fiduciary obligations.
The Court held that Indalex owed a fiduciary duty as
administrator of the Plans, both pursuant to common law and s. 22
of the PBA. Indalex wore "two hats" during these
proceedings: its corporate hat, and its administrator's
hat. While it had the right to decide to commence CCAA
proceedings as a corporate actor, Indalex could not ignore its
obligations as the Plans' administrator and make all its
decisions during the proceedings on a solely corporate basis.
Even were the pension beneficiaries not the beneficiaries of a
deemed trust, they were unsecured creditors to whom a fiduciary
duty is owed, which put them on different standing that other
unsecured creditors. The Court could consider their equitable
position in deciding how the Reserve Fund should be
The Court considered the recent Supreme Court of Canada
decision, Century Services, which it distinguished on
several bases, including that nothing in the CCAA expressly
excluded the provincial deemed trust for unpaid pension
contributions from applying in CCAA proceedings. The Court
rejected the respondents' contention that Century
Services stood for the unqualified proposition that the
federal priorities under the Bankruptcy and Insolvency Act
apply in CCAA proceedings. Where the provincial obligation
was alleged to conflict with a priority granted under the federal
CCAA, the facts would have to be examined to determine if
the CCAA purpose was frustrated, and the doctrine of federal
paramountcy would have to be invoked and determined. The
Court held this would not lead to "strange asymmetry"
between the CCAA and the BIA, as it would be open to the court to
find the super-priority charge made under the CCAA order overrode
the deemed trust, giving the CCAA court greater flexibility in
considering various interests in the reorganization.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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