The Supreme Court of Canada overturned the Ontario Court of
Appeal today in what is one of the most highly-anticipated cases
for the pension and insolvency bars pending before the courts. In
Indalex (Re) 2013 SCC 6, the court provided clarity regarding some
key questions relating to the governance of an
employer-administered pension plan during a proceeding under the
Companies' Creditors Arrangement Act (CCAA). The
judges split on some of the issues, but here is our brief
Priority. The full amount of a deficit in an
Ontario pension plan will rank ahead of secured creditors (as a
deemed trust), provided that the plan is wound up and the employer
is not in bankruptcy. The SCC upheld the Court of Appeal on this
DIP Facilities Can Come First. A judge may
order that court-approved debtor-in-possession financing in a CCAA
proceeding ranks ahead of pension deficit deemed trusts. The SCC
upheld the Court of Appeal on this issue.
Fiduciary Duties Owed. Employers who
administer pension plans owe a "fiduciary duty" to the
members of the plans. This means that such employers must manage
conflicts of interest. These conflicts will arise when there is a
substantial risk that the employer-administrator's
representation of the plan members would be materially and
adversely affected by the employer-administrator's duties to
the corporation. In these circumstances, separate representation
(among other things) might be appropriate to protect plan members.
The SCC narrowed the scope and content of the fiduciary duty that
the Court of Appeal had imposed.
Remedies. Any remedy for a breach of fiduciary
duty must be tailored to the nature of the breach. The remedy of a
"constructive trust", which provides the plan members
with a proprietary interest in specific assets of the employer
corporation, will only be available if there is a direct link
between the breach of fiduciary duty and the specific assets. The
breach must have resulted in the assets being in the
corporation's hands. The SCC overturned the Court of Appeal on
Lawyers will be picking through the lengthy judgments in this
decision for months to come. It has significant implications for
Canadian corporate lending, insolvencies and restructurings.
Look for FMC Law's in-depth analysis of this case in the
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