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

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.

Similar Articles
Relevancy Powered by MondaqAI
Stikeman Elliott LLP
Wickwire Holm
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Stikeman Elliott LLP
Wickwire Holm
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions