Canada: New Concerns For Bondholders, Lenders And Other Creditors Following SCC’s Indalex Decision

On February 1, 2013, the Supreme Court of Canada (SCC) released its much-awaited decision in the Indalex case.1 While the central issue in Indalex was the priority of wind-up deficiencies in defined benefit pension plans versus court-ordered debtor-in-possession (DIP) financing charges under the Companies' Creditors Arrangement Act (Canada) (CCAA), the SCC also considered whether claims for wind-up deficiencies are covered by deemed trusts under the Ontario Pension Benefits Act (PBA). This issue is of particular importance to lenders, bondholders and other creditors both in the ordinary course and in an insolvency or restructuring.

The Ontario Court of Appeal had ruled that the assets of Indalex were encumbered by a deemed trust pursuant to section 57(4) of the PBA in favour of the pension plan beneficiaries in respect of the wind-up deficit in the Indalex pension plan, and therefore had priority over the court-ordered DIP charge in Indalex's CCAA proceedings with respect to the remaining asset value.

While the SCC overturned the Ontario Court of Appeal's decision on the central issue, holding that the court-ordered DIP charge under the federal CCAA ranks ahead of the deemed trust under the provincial PBA, four of the seven judges on the panel also expressed the view that the assets of Indalex were encumbered by the deemed trust under the PBA to the extent of the pension wind-up deficiency.

This decision could have important implications for lenders, bondholders and other creditors, both secured and unsecured, and appropriate caution and additional protective measures may need to be taken when lending to or dealing with Canadian debtors with operations in Ontario with significant defined-benefit pension plans. The same concerns would not apply to defined-contribution plans and may not apply in certain other parts of Canada.

Deemed Trusts Under the Pension Benefits Act (Ontario)

Section 57(4) of the PBA provides, where a pension plan is wound up, for the creation of a deemed trust with respect to assets of the debtor in an amount equal to unpaid employer contributions accrued to the date of wind-up. Prior to the Court of Appeal decision in Indalex, it was generally accepted (based on prior caselaw in Ontario2) that a wind-up deficiency (i.e., the difference between the value of the assets in the pension plan and the total amount necessary to satisfy the obligations to the pension members as at the wind-up date) unrelated to the failure to make regularly scheduled statutorily mandated payments was a regular unsecured claim not covered by the deemed trust.

While a minority of the SCC agreed with this previous interpretation, a majority of the judges, in different reasons, expressed the view that the deemed trust would extend to the wind-up deficiency. For bondholders, unsecured lenders and other creditors, this now means that you can expect pension administrators of defined benefit plans to assert priority claims for wind-up deficiencies in restructurings or liquidations. One might also expect to see a contracting of available unsecured (and even possibly secured) bank and bond financing for companies with defined-benefit plans, even where they are not approaching insolvency, since lenders may wish to hedge against the above new claims for priority. On the other hand, it should be expected that the creditor side will assert that the views expressed by four of the seven Judges with respect to the deemed trust for wind-up deficiencies were not definitive as to that issue, as the Court did not actually have to make a determination on that issue in Indalex.

Priority of Deemed Trust

On the central issue of the priority of the DIP charge under Indalex's CCAA Initial Order versus the deemed trust for its pension wind-up deficiency, the SCC held that the DIP charge ranked ahead of the claimed deemed trust based on the fact that the federal CCAA is paramount to the provincial PBA in the event of a direct conflict. The Court also noted that the whole concept of a trust claim for wind-up deficiency only becomes relevant where the pension plan is actually wound up.

The SCC's decision was not specifically focused on the issue of where any deemed trust for a pension wind-up deficiency would rank in relation to secured interests other than the DIP charge, and therefore secured creditors will have to consider the legal ranking of their security relative to a deemed trust under the PBA, including such considerations as the wording of the relevant security statute and other applicable legislation, such as the CCAA or the Bankruptcy and Insolvency Act. The answer may vary from province to province, or federally.

Need for Proactive Steps

The full implications of Indalex remain to be seen. It is very early. There are however some immediate proactive steps that lenders, bondholders and other creditors may wish to consider as a result in situations involving debtors with defined-benefit pension plans in Ontario (and perhaps elsewhere). These include:

1. Reviewing lending agreements, bond indentures, security (if any) margin rules with respect to underlying assets and other covenants and considering whether availability can or should be reduced or rules or covenants changed in light of the possible claim to priority for the wind-up deficiency.

2. Being vigilant in monitoring the borrower's defined-benefit pension plan and seeking appropriate and frequent reporting in order to try to determine the rough quantum of any deficiency on an ongoing basis. Of course, such an attempt could only be a very rough one, since a great deal more information is needed to determine the final, statutory wind-up deficiency, which could well be greater than even the most careful outside analysis is able to estimate.

The Spectre of Conflict in Fiduciary Duty

Finally, given that the SCC noted the potential conflict between the debtor company acting as the administrator of its pension plan (which is common) that may be in deficit and acting in the interests of the company, including its creditors and other stakeholders in approaching insolvency, bondholders, lenders and other creditors might expect that an insolvent debtor may be less willing to take steps that, although they might save the company, could be attacked later for not having protected the pensioners sufficiently. In the context of all of the competing interests that often work against a successful restructuring, it appears that the SCC has allowed a renewed emphasis upon yet another such potential impediment.


1. Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6

2. See, for example Toronto Dominion Bank v. Usarco (1991), 42 ETR 235 (Ont Gen Div); and the Ontario Court of Appeal decision in Re Ivaco Inc. (2006), 83 OR (3d) 108 (Ont C.A.)

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.