Canada: Setting The Record Straight On Pension Plan Deficits And CCAA

In a decision issued on April 20th, 2012, Justice Robert Mongeon of the Superior Court of Quebec gave a decisive answer to one of the most troubling questions facing debtors and DIP lenders in reorganizations under the Companies' Creditors Arrangement Act (CCAA). Justice Mongeon's decision in White Birch should go a long way to calming concerns stemming from last year's decision of the Ontario Court of Appeal in Indalex, at least with regard to proceedings in Quebec.

The Indalex decision, now before the Supreme Court of Canada, caused a stir because it reduced the rank of claims that had been granted "super-priority" status in the context of CCAA proceedings. Most notably, these include claims of the debtor-in-possession (DIP) lender, which are typically accorded a rank ahead of all pre-filing creditors pursuant to the terms of the Initial Order. DIP lenders provide capital essential to permit an insolvent company to successfully reorganize its affairs, and without a guarantee of super-priority status, that capital would simply not be made available.

In the Indalex matter, DIP financing had been provided and super-priority status had been granted for the DIP loan under the terms of the Initial Order. Despite this fact, the Ontario Court of Appeal ordered that a claim relating to deficits in the company's pension plans be paid in priority to the claim for reimbursement of the DIP loan. The Court's justification for reaching that decision was that the pension plan deficiencies were protected by a deemed trust created under Ontario pension legislation and/or by a constructive trust established by the Court as a result of perceived inequitable behaviour by Indalex. The Court of Appeal ruled that such trust claims ranked ahead of the super-priority claims of the DIP lender.

Many observers wondered whether this decision might have a chilling effect on the availability of interim financing in Canada, as lenders might be concerned that their super-priority status could be lost.

At the same time, pension plan beneficiaries saw the decision as an opportunity to seek a similar order in CCAA proceedings across the country. Indeed, in the White Birch file, the pension plan beneficiaries opted to seize this opportunity.

In October 2011, nearly a year and a half after the Initial Order was issued in White Birch, the labour unions, as well as a group of retirees and the company's pension committees all made motions based on the Indalex decision, seeking an order that would grant certain pension plan claims a rank superior to the super-priority DIP claims established by the Initial Order. The Court was also asked to order that the company recommence making past service contribution payments, which had been stayed since the Initial Order, and to further order that those payments (which would serve to reduce the pension plan deficit) receive priority over any repayment of the company's DIP loan.

Summary of the Findings in White Birch

In its April 20th decision, the Court dismissed the Applicants' motion and held that the legal principles on which the Indalex (Re) decision was based did not apply in Quebec. Below is a brief summary of the reasoning the Court used to come to this conclusion.

Deemed Trusts Cease to Apply

Firstly, and perhaps most importantly, the Court held that in light of the Supreme Court of Canada's decision in Century Services Inc. v. Canada (Attorney General), the deemed trust found in Article 49 of the Supplemental Pension Plans Act, RSQ, c R-15.1 (SPPA) had no further effect once a debtor had been afforded protection by the Court under the CCAA. The Court explained that for any such trust to have survived, Section 37 of the CCAA would have had to confirm in clear and unmistakable terms the survival of the deemed trust created by Section 49 of the SPPA. This is a very significant finding that may have a major impact in CCAA files. A number of deemed trusts will be affected.

Section 49 of the SPPA Does Not Create a Valid Trust

The Court then proceeded to assess whether the trust created by Section 49 of the SPPA qualified as a trust under Quebec law. To make that determination, the Court held that it must rely on the Supreme Court of Canada's judgment in Bank of Nova Scotia v. Thibault, which outlined the requirements that must be met for a Quebec trust to be constituted. These requirements are: "property must be transferred from an individual's patrimony to another patrimony by appropriation; the property must be appropriated to a particular purpose; and the trustee must accept the property."

Based on a three-pronged analysis, the Court held that Section 49 of the SPPA could not give rise to a real trust within the meaning of Quebec law. In doing so, Justice Mongeon concurred with Superior Court Justice Danièle Mayrand's conclusion in AbitibiBowater inc. (Arrangement relatif à).

In addition, the Court held that Section 49 of the SPPA did not give rise to a floating charge on the assets of the Debtor. For this conclusion, the Court relied on the Minister of Justice's commentary to Article 2715 CCQ, which specifically stated that the notion of floating charge in common law did not exist in Quebec law.

The Court further considered whether, as the employer, White Birch had a fiduciary duty to the pension plan or pension fund. In answering this question, the Court pointed to several articles of the SPPA, including Section 147, which specifies that every pension plan is to be administered by a pension committee, and Section 150 of the SPPA, which states that it is the pension committee that is to act in the capacity of a trustee. In light of these provisions, the Court held that unlike the Ontario Pension Benefits Act, the SPPA does not impose an obligation on an employer to act as an administrator of the pension plans belonging to the unionized and non-unionized employees, and therefore, White Birch was not in violation of the kind of fiduciary duty that applies to a constructive trustee in common law.

Res Judicata

As a final note, in his analysis of the motions before him, Justice Mongeon made some interesting comments as to the nature of CCAA orders. White Birch had argued that the motions by the labour unions, retirees and pension committees should be dismissed because the issue of rank had already been dealt with under the terms of the Initial Order and various subsequent decisions. White Birch pointed out that the labour unions had received service of the motion for an initial order and were called on to make representations at the hearing, but declined to do so. In addition, all subsequent decisions (notably with regard to the stalking horse sales process and the entitlement to the proceeds from that process) were also served on the interested parties, and none chose to make representations asserting prior rank at the hearings. White Birch, therefore, insisted that the petitioners were no longer entitled to seek such relief, as much time had passed and many parties had relied on the rank conferred by the Court's previous orders.

Justice Mongeon concluded that the CCAA orders in question were subject to what he termed "chose decidee" (i.e. something similar to "chose jugée" or res judicata). Although he recognized that certain CCAA orders may be varied by the CCAA judge (notably by way of the comeback clause), he went on to state that a court asked to vary an order must take into account the rights of all interested parties who may have made decisions based on the order. In this light, he ruled that unless the previous orders were issued without notice to the petitioners, they cannot be varied to the prejudice of parties that relied on the orders in good faith.

In the White Birch matter, as the DIP lender had disbursed significant sums based on the super-priority granted by the Initial Order, the subsequent reduction of the rank of its claim would obviously cause it significant prejudice.

Where Do We Go From Here?

It remains to be seen whether any or all of the petitioners will seek to appeal from Justice Mongeon's decision. What appears clear, however, is that this decision will have a major impact on present and future CCAA filings in Quebec and in the rest of Canada.

Of particular interest is the Court's adoption of Justice Morris Fish's position in Century Services with respect to the survival of deemed trusts in the CCAA context. If followed, this will align CCAA proceedings more closely with the Bankruptcy and Insolvency Act framework, in which only explicitly recognized in the Act continues to apply post-filing. Clearly, a number of current beneficiaries of deemed trusts will be dissatisfied with this result.

Notwithstanding the dissatisfaction from this quarter, we expect that the insolvency community as a whole will receive this decision in White Birch very positively. It will restore DIP lenders' confidence in the process and thus ensure that essential capital is available to companies seeking to reorganize under the CCAA. This, in turn, should be a positive outcome for all stakeholders, as a successful reorganization is virtually always better than an outright bankruptcy.

We look forward to seeing how the courts of Quebec and of the other Canadian provinces will react.

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.