This morning, the Supreme Court of Canada (SCC) released its
decision in Sun Indalex Finance, LLC v. United
Steelworkers (Indalex). A majority of
the SCC made the following rulings, which have wide-ranging
ramifications for lenders, employers and pension plan
administrators of Ontario-registered defined benefit pension
The SCC upheld the finding of the Ontario Court of Appeal
(ONCA) that the deemed trust imposed under subsection 57(4) of the
Ontario Pension Benefits Act (PBA) applies only to a
pension plan that is terminated, but, when it applies, extends to
the entirety of a defined benefit plan's "wind up
deficiency." This finding may have significant ramifications
for lenders relying on security interests in accounts and/or
inventory, since, under the Ontario Personal Property Security
Act, these interests are expressly made subordinate to
"deemed trusts" under the PBA.
The SCC overturned the ONCA in finding that the deemed trust
did not have priority over the claim of the debtor in possession
(DIP) lender in this case. The Companies' Creditors
Arrangement Act (CCAA) judge had made an order granting the
DIP loan "super-priority" over any statutory trusts,
including those arising under the PBA. The SCC overturned the ONCA
and held that the doctrine of federal paramountcy means that the
court-ordered DIP priority supersedes claims under the PBA's
deemed trust provision, without need to have paramountcy asserted
in the relevant court order.
The SCC's decision is consistent with the ONCA's
finding that the directors of Indalex Limited failed to properly
manage a conflict of interest between their fiduciary duties to the
corporation on the one hand and, in their role as plan
administrator, to the pension plan beneficiaries on the other, when
they proceeded to seek a court order granting priority to the DIP
loan without sufficient notice to the beneficiaries.
Although the SCC found that the directors of Indalex had acted
in a conflict of interest vis-à-vis plan beneficiaries, a
majority of the judges overturned the ONCA's award of a
constructive trust over the assets of the estate in favour of
beneficiaries of Indalex's executive pension plan (to which the
PBA's deemed trust provision did not apply).
The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
The Court of Queen's Bench of Alberta authorized a disposition of a debtor's assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings.
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