Canada: Indalex Case: Ontario Court Of Appeal Gives Priority To Pension Plan Deficiency Over Secured Lenders

Last month, in the proceedings of Indalex Limited under the Companies' Creditors Arrangement Act (CCAA), the Ontario Court of Appeal (OCA) made the surprising decision to give priority to Indalex's pension plan wind-up deficiency claims over the claims of Indalex's CCAA-secured lender. While the OCA's decision creates challenges for secured lending to Ontario borrowers with defined benefit pension plans, the scope of the case's application may be limited, and in appropriate circumstances, strategies may be available to lessen its impact.

At the heart of the OCA's decision is its conclusion that all contribution obligations to fund the shortfall have accrued as of the date the plan is wound up. On this reading of Ontario's Pension Benefits Act (PBA), the statutory deemed trust applies to the entire deficiency at that date even if the deficit-related contributions are not then due and the employer had made all contributions when due. Coupled with the provisions of Ontario's Personal Property Security Act (PPSA) that subordinate security interests in accounts and inventory to deemed trusts created under the PBA, on its face, Indalex could severely restrict working capital lending to employers with defined benefit pension plans.

A second theme of the OCA's decision is its criticism of Indalex's handling of the concurrent and often conflicting duties a company faces when it is, on the one hand, the employer providing the pension plan as part of operating its business and, on the other, the administrator of the pension plan with duties to the pension plan members. In the opinion of the OCA, the employer, as administrator of the pension plan, has fiduciary duties that would be breached if the employer filed an assignment in bankruptcy, even if it were clearly and admittedly insolvent, because under the Bankruptcy and Insolvency Act (BIA), the artificial deemed trust created by the PBA would be ineffective.

A third concern for CCAA lenders is the willingness of the OCA to set aside the priority provisions of the order that approved the CCAA loan. That approval order was not under appeal, and specifically provided that the CCAA loan would have priority over all statutory deemed trusts and liens. Nevertheless, the OCA gave priority to the deemed trust for the pension deficit, raising an issue of whether CCAA lenders can safely rely on court orders made in CCAA cases when making court approved loans.

An application for leave to appeal the OCA's decision in Indalex is being prepared by counsel for the debtor and the secured creditor. Observers are hopeful that leave will be granted because of the impact of the case on secured lending and because, in its attempt to restrict access to the federal BIA for insolvent companies, the OCA's decision in Indalex is at odds with the Supreme Court's very recent decision in Century Services v. Canada and the OCA's own decision in Ivaco. In those cases, the courts treated the priority scheme in the BIA as appropriate for the distribution of the proceeds when the debtor's assets are sold in a CCAA case.

While the appeal process unfolds, lenders, borrowers and their advisors have avenues available to them to lessen the impact of the Indalex decision. Firstly, the unusual circumstances of the Indalex case may have had a significant impact on the OCA's decision giving lower courts some scope to distinguish subsequent cases. Certainly, the fact that Indalex's parent company was holding and asserting the CCAA lender claims and had taken a direct role in managing Indalex affected the equities of the case and implicated the CCAA lender with the fiduciary duties of Indalex as plan administrator. An arm's-length CCAA lender may have been treated differently.

Secondly, the newly found deemed trust for the pension deficit has priority only over pre-existing security interests subject to the PPSA in accounts, inventory and their proceeds. This limitation means that pre-existing security interests and mortgages in other assets, for example capital equipment or real estate, are not affected. Further, and importantly, the Bank Act (Canada) may provide an opportunity to qualifying lenders and borrowers to avoid the impact of the Indalex decision.

In situations where Bank Act security is available, the SCC's decision in Royal Bank of Canada v. Sparrow, namely, that security granted pursuant to the Bank Act has priority over subsequently arising statutory deemed trusts, may provide a possible priority solution for qualifying secured lenders in respect of inventory and accounts receivable that are proceeds of inventory. Of particular note is the fact that this SCC decision has been applied by the OCA in the specific context of the deemed trust under Ontario's PBA.

Thirdly, while the OCA did not give effect to the priority provisions of the order that approved the CCAA loan, it did acknowledge that the CCAA court had the power and discretion, under the CCAA, to grant priority to CCAA loans over any deemed trust. The OCA's decision not to give priority to the CCAA lender on the basis of the approval order was based on the OCA's view that (i) insufficient notice had been given to the pension plan members of the motion to approve the CCAA loan, (ii) insufficient disclosure had been given to the CCAA court of the existence of the deficit, and (iii) the CCAA court had not explicitly invoked its paramount power to subordinate the deemed trust for the pension deficiency. In subsequent cases, CCAA lenders may insist that all of these issues be addressed by effective notice, full disclosure and appropriate wording in the approval order before any funds are advanced to CCAA debtors.

In summary, the challenges revived or created by the Indalex decision are significant, and observers from the commercial lending, insolvency and pension industries will be watching eagerly to see the outcome of the expected appeal or any legislative response to the decision that enables current practices to continue. In the meantime, strategies are available to minimize the impacts of the decision.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.