A recent decision of the Superior Court of Québec in White Birch Paper Holding Company discusses the possible application of the Ontario Court of Appeal decision Indalex Limited (Re) (the Indalex Decision) in defined benefit (DB) pension plans registered in Quebec. In the Indalex Decision, it was decided, among other things, that the deemed trust provisions found in the Ontario Pension Benefits Act (the OPBA) applied to the deficit of a wound-up DB pension plan and that the assets deemed to be held in trust were not available to the debtor-in-possession (DIP) lenders.
On April 20, 2011, Justice Mongeon of the Superior Court of Québec rendered a decision in the context of the plan of arrangement with respect to White Birch Paper Holding Company (White Birch Decision), an enterprise that filed procedures under the Companies' Creditors Arrangement Act (the CCAA). In the White Birch Decision, the Court discussed the scope and possible application of the deemed trust provisions found at section 49 of the Supplemental Pension Plans Act (the SPPA), which reads:
The initial order approved by the Court on February 24, 2010 suspended the payment of any past service contribution to the DB pension plans maintained by the relevant companies and also provided that none of the companies, partnerships or directors involved would have any obligations as a result of the failure to make any contributions other than current service cost contributions. Both the union representing a group of White Birch employees and two groups of retirees asked the Court to review the initial order with respect to the contributions to be paid into the pension plans and submitted arguments to the Court to the effect that the deemed trust provisions found in the SPPA created a distinct patrimony that was not available to the other debtors. The union and the retirees took the position that the deemed trust created under section 49 of the SPPA would cover only accrued and unpaid current service and special contributions, plus interest.
The union and the retirees both referred to the Indalex Decision in support of their position. They also submitted that the deemed trust provisions under the OPBA and the SPPA had the same objective, namely the protection of plan members' benefits.
The Superior Court rejected the arguments submitted by the union and the retirees and concluded that the initial order should not be modified. The Court's findings can be summarized as follows:
- The Indalex Decision does not apply in Quebec because, among others:
- the common law trust and the civil law "fiducies" are different;
- under the SPPA, the employer does not administer the pension plan and accordingly has no fiduciary duty – there can accordingly be no constructive trust created because of a failure by the employer to fulfill its legal obligations towards the plan members and beneficiaries;
- the concept of "constructive trust" does not exist in civil law;
- The deemed trust created under section 49 of the SPPA cannot be characterized as a "fiducie" as defined in the Civil Code of Quebec and is accordingly not a valid trust;
- Even if one were to come to the conclusion that said a deemed trust is a valid trust, it would not apply in the context of a restructuring under the CCAA;
- A deemed trust could only apply in the context of a restructuring under the CCAA if section 37 of said Act referred to it specifically, which is not the case for the deemed trust created under section 49 of the SPPA.
The Court also refers to the "tardiness" of the representations made by the union and the retirees who, according to the Court, did not raise this issue in a timely manner. The Court also mentions that the DIP financing was provided on the basis that only current service contributions would be paid and that no other trust would be recognized in respect of the various relevant companies' assets. The Court concludes that said financing would not have been granted if the special contributions payable in respect of the pension plans had benefited from a super-priority and the relevant amount had thus been excluded from the companies' patrimony. In the Court's opinion, it would accordingly be inappropriate to modify the previous orders in a way that would negatively affect the rights of the DIP lender.
This decision is definitely reassuring for creditors, as the Court analyses very thoroughly the various arguments raised by the parties in the 77-page decision. The Court's conclusion with respect to the non‑existence of a deemed trust in civil law is in line with other decisions to the same effect rendered in different situations, but it remains to be seen if this conclusion will be revised by the Court of Appeal – a motion for leave to appeal has been filed with respect to the White Birch Decision – in view of the Indalex Decision or the decision to be rendered by the Supreme Court in the Indalex file.
As for the possible scope of the deemed trust created under section 49 of the SPPA, it was not decided by the Court as the union and the retirees limited their claim to accrued and unpaid special contributions.
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