Canada: Supreme Court Of Canada Indalex Decision: Implications For Lending

Last Updated: February 13 2013
Article by Howard S. Silverman

Most Read Contributor in Canada, September 2016

In a much awaited decision, on February 1, 2013, the Supreme Court of Canada ("SCC") set aside the Ontario Court of Appeal's ("ONCA") decision in Sun Indalex Finance, LLC v. United Steelworkers.1 While the SCC was split, the majority agreed with the ONCA that a deemed trust arose from section 57(4) of the Pension Benefits Act (Ontario) ("PBA") for defined benefit pension plan wind-up deficiency payments. However, the SCC reversed the ONCA decision and held that the deemed trust did not have super-priority over lenders providing debtor-inpossession ("DIP") financing.2


Indalex Limited ("Indalex") was the sponsor and administrator of two pension plans, one for salaried employees and one for executive employees. In 2009, Indalex became insolvent and sought creditor protection under the Companies' Creditors Arrangement Act ("CCAA"). Both plans had solvency deficiencies. The salaried employee plan was in the process of being wound-up. The executive employee plan was closed but not in the process of being wound-up.

With the authorization of the CCAA court, Indalex obtained DIP financing to be able to continue its operations. The DIP lenders were granted a charge having priority over "all other security interests, trusts, liens, charges and encumbrances, statutory or otherwise". The DIP loan was guaranteed by Indalex's US parent, Indalex Holding Corp.

Indalex sought court approval for the sale of its assets and distribution of the sale proceeds to the DIP lenders. The proceeds were not sufficient to satisfy the pension plan deficiencies and the amounts owing to the DIP lenders. The plan members objected on the basis that the PBA provided them with a deemed trust over the sale proceeds and a constructive trust arising from Indalex's breach of fiduciary duty as administrator of the plans. The CCAA court approved the sale but ordered that the amount of the funding deficiencies be retained by the monitor pending the outcome of the case. Indalex Holding Corp. paid the shortfall on the DIP loan pursuant to its guarantee and became subrogated to the DIP lenders, seeking recovery from the funds held by the monitor.

The CCAA court held that the deemed trust did not apply to the wind-up deficiency. Accordingly, the plan members were considered unsecured creditors with respect to the wind-up deficiency. The ONCA reversed that decision and held that the funding deficiency was subject to a deemed trust which had priority over the DIP lenders' charge.

SCC Decision

The majority of the SCC held that the deemed trust provided for in section 57(4) of the PBA applied to the wind-up deficiency relating to the salaried employee pension plan, even though the exact amount could not be determined at the time of wind-up. The deemed trust did not apply to the executive plan as it had not been wound-up.

The SCC disagreed with the ONCA and held that the DIP charge granted in the CCAA proceeding had priority over the deemed trust. While a deemed trust created under provincial legislation, such as the PBA, still applied in federal CCAA proceedings, it remained subject to the doctrine of federal paramountcy, even though the doctrine of paramountcy had not been invoked in the CCAA proceeding. As the DIP charge was created under federal legislation, the CCAA, it had priority over the deemed trust, which was created under provincial legislation, the PBA.


The ONCA's finding that a deemed trust under the PBA took priority over the DIP charge had been of concern to lenders. The SCC reversing the ONCA finding, and confirming that the doctrine of federal paramountcy results in a DIP charge having priority over a conflicting provincially-created deemed trust, should provide comfort to lenders.

However, as a result of its ruling that windup deficiencies are included in section 57(4) of the PBA in cases where a defined benefit pension plan is being wound-up, the SCC does confirm the expanded scope of the statutory deemed trust under the PBA. Given that section 30(7) of the Personal Property Security Act (Ontario) provides that, "[a] security interest in an account or inventory and its proceeds is subordinate to the interest of a person who is a beneficiary of a deemed trust arising under the...Pension Benefits Act ", a lender could find its security on accounts and inventory subordinated to the full amount of a wind-up deficiency.3

The ONCA decision had in some cases led to heightened due diligence, more restrictive covenants and larger reserves against borrowing bases when lending to borrowers with defined benefit pension plans. Depending on their borrowers' credit profiles and other relevant factors, lenders may still need to take such precautions when lending to borrowers with defined benefit pension plans.


1 2013 SCC 6

2 The SCC also found that Indalex Limited had a fiduciary duty in respect of its pension plans, which duty it had breached. Indalex Limited had failed to address the conflict between its fiduciary duty as plan administrator and its duty to act in the best interests of the corporation. However, the SCC declined to impose a constructive trust as a remedy as there was no evidence that such failure resulted in an identifiable asset that would be unjust for Indalex Limited to retain. See also: Andrew Harrison, BLG Pension Alert, February 2013, and James Szumski, BLG Insolvency and Restructuring Bulletin: Supreme Court of Canada Rules on Indalex, February 2013.

3 The SCC was rather spare in its discussion of when section 30(7) of the Personal Property Security Act (Ontario) would apply. Century Services Inc. v. Canada (Attorney General), 2010 SCC 60 had held that the deemed trust for unpaid GST under the Excise Tax Act was excluded from applying in a CCAA proceeding. In response to the appellants' similar argument that the PBA deemed trust does not apply in CCAA proceedings because the relevant priorities are those of the federal insolvency scheme, Deschamps J. found that, "[p]rovincial legislation defines the priorities to which creditors are entitled until that legislation is ousted by Parliament. Parliament did not expressly apply all bankruptcy priorities either to CCAA proceedings or to proposals under the BIA. ...The provincial deemed trust under the PBA continues to apply in CCAA proceedings, subject to the doctrine of federal paramountcy. ... The Court of Appeal therefore did not err in finding that at the end of a CCAA liquidation proceeding, priorities may be determined by the PPSA's scheme rather than the federal scheme set out in the BIA."

About BLG

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.