On February 1, 2013, the Supreme Court of Canada (the "SCC") released its long-awaited decision in Sun Indalex Finance, LLC v. United Steel Workers1 ("Indalex"). By a five to two majority, the SCC allowed the appeal from the 2011 decision of the Ontario Court of Appeal (the "OCA") which had created so much uncertainty about the relative priorities of debtor-in-possession ("DIP") lending charges and pension claims in Companies' Creditors Arrangement Act (the "CCAA") proceedings. The SCC was unanimous in holding that the deemed trust for pension claims created by section 57 of the Pension Benefits Act (Ontario) (the "PBA"), which deemed trust is elevated to priority status by the operation of subsection 30(7) of the Personal Property Security Act (Ontario) (the "PPSA"), had survived into the commencement of Indalex's CCAA proceeding but then had its priority reversed by the court-ordered charge in favour of the DIP lender. The SCC held that a DIP charge in a CCAA proceeding has the same paramountcy over a conflicting priority scheme under provincial legislation as if the court-ordered DIP Charge priority scheme had been prescribed by the CCAA itself.
Although the SCC's decision gives some comfort to DIP lenders in CCAA proceedings, it actually did not provide that much practical clarity. On the one hand, DIP lenders had already successfully worked around the OCA's Indalex decision by seeking explicit paramountcy rulings in CCAA DIP-charge orders2. On the other hand, would-be DIP lenders will still have to make sense of certain statements made by the SCC about giving notice before seeking a DIP charge and will have to determine how to time DIP advances if, due to such new notice requirements, the DIP charge cannot be obtained on the first day of the CCAA proceedings. The would-be DIP lender in that position shares the uncertainty of any other creditor who has to rely on contractual security rather than a court-ordered charge. And, unfortunately, contractually secured creditors get neither comfort nor certainty from the SCC's ruling.
PBA Deemed Trust Expanded
Secured creditors without a DIP charge get no comfort because the SCC held that the PBA deemed trust survives a CCAA filing, thus priming non-DIP charge secured claims in respect of proceeds of current assets by the operation of subsection 30(7) of the PPSA which elevates PBA and Employment Standards Act (Ontario) (the "ESA") deemed trust claims above other secured claims. Moreover, secured creditors would be primed to a greater extent than previously thought because the SCC also expanded the scope of the PBA deemed trust. PBA subsection 57(4) creates a deemed trust for employer contributions "accrued to the date of the wind up but not yet due". The SCC majority held that, although the subsection 57(4) deemed trust only applies to CCAA company's pension plan if the plan's wind-up had already commenced prior to the CCAA filing, in such circumstance, the subsection 57(4) deemed trust extends to all amounts that are determined to be owing by the employer up to the date of wind-up (even if such amounts are not determined until a later date) and not just amounts that could be determined on the date of wind-up. This expansion of the PBA deemed trust to cover wind-up deficiencies presents a problem for lenders (and therefore companies who need credit), not just because of the potentially large quanta of such newly-prioritized wind-up deficiencies, but also because such liabilities will not be calculated until some undetermined time, after wind-up has begun, by an actuary who will employ art as much as science to do so – and then remain subject to recalculation thereafter. The calculation of a pension plan's wind-up deficiency will depend on, among other things, choices the plan beneficiaries can only make after the wind-up has commenced and the actuary's assumptions. It will then fluctuate over the five-year period the employer has to satisfy the wind-up deficiencies due to changes in market and other assumptions. So, even if the amounts in question were manageable, it could be practically impossible for a lender to maintain reserves to deal with such liabilities with any reasonable precision. As SCC Justice Cromwell (dissenting on this point) put it in his Indalex judgment:
" ... extending the deemed trust protections to the wind-up deficiency might well be viewed as counter-productive in the greater scheme of things. A deemed trust of that nature might give rise to considerable uncertainty on the part of other creditors and potential lenders. This uncertainty might not only complicate creditors' rights, but it might also affect the availability of funds from lenders. The wind-up liability is potentially large and, while the business is ongoing, the extent of the liability is unknown and unknowable for up to five years. Its amount may, as the facts of this case disclose, fluctuate dramatically during this time. A liability of this nature could make it very difficult to assess the creditworthiness of a borrower and make an appropriate apportionment of payment among creditors extremely difficult."3
No Clarity on Impact of New CCAA
Secured Creditors without a DIP charge also get no certainty from the Indalex decision because the SCC applied the CCAA without its material 2009 amendments. The amendments enacted in September 2009 after the start of, and thus not binding on, the Indalex CCAA proceedings include a number of provisions aimed at giving new protection to pension claims. Section 6 of the CCAA, which sets out certain pre-conditions for court sanctioning of a plan of compromise or arrangement, now prohibits a court from sanctioning a CCAA plan unless the plan ensures payment of certain amounts to pension plans. These pension amounts are limited in subsection 6(6) to (i) unpaid amounts deducted from payroll, (ii) unpaid normal costs contributions, and (iii) any unpaid defined employer contributions. Because underfunded amounts are limited to unpaid normal cost contributions, the effective priority the CCAA now gives to pension claims is far narrower in scope than the priority (by operation of PPSA subsection 30(7)) under the PBA deemed trust, which covers all unfunded pension liabilities including special payments (going concern unfunded liabilities and solvency deficiencies) and wind-up deficiencies. In its language, CCAA subsection 6(6) largely mirrors the language of subsection 60(1.5) of the Bankruptcy and Insolvency Act (the "BIA") which imposes similar requirements when a court is approving a BIA proposal. CCAA subsection 6(6) also follows closely the language in sections 81.5 and 81.6 of the BIA which create super-priority charges for certain pension claims in bankruptcy and receivership, and has the same effect as those BIA provisions.
More pertinent to the facts in Indalex, the 2009 CCAA amendments also include the new section 36 provisions governing going-concern sales in CCAA proceedings. As a pre-condition to court approval of such a sale, subsection 36(7) requires payment of "the amounts that would have been required under paragraphs 6(4)(a) and (5)(a) if the court had sanctioned the compromise or arrangement". Paragraph 6(5)(a) of the CCAA requires payment of the same types and amounts of pre-filing wage arrears as are given priority in bankruptcies and receiverships (by operation of sections 81.3, 81.4 and 136 of the BIA) together with all post-filing wage arrears. A quandary arises, however, because there is no paragraph 6(4)(a) in the CCAA4. Subsection 36(7) of the CCAA and the parallel subsection 65.13(8) of the BIA were originally introduced in 2007 by Bill C-125. The legislative summary for Bill C-12 described the effect of subsection 36(7) of the CCAA (and subsection 65.13(8) of the BIA) as follows:
" ... in the case of a debtor that is an employer, the court may only grant an authorization to sell or dispose of the assets if it is satisfied that the debtor can and will make any payments in respect of unpaid wages and unremitted pension plan contributions that would have been required in order to obtain court approval of the reorganization"6
The legislative summary then immediately goes on to state, in a footnote:
"(28) It should be noted that there is a small drafting error under the proposed section 36(7) of the CCAA. That section reads: "The court may grant the authorization only if the court is satisfied that the company can and will make the payments that would have been required under paragraphs 6(4)(a) and (5)(a) if the court had sanctioned the compromise or arrangement" (emphasis added). Subsections 6(4)(a) and 6(5) (a) of the CCAA, as enacted by Chapter 47, are the provisions that require the reorganizing debtor to meet its obligations with respect to unpaid wage claims and unremitted pension plan contributions. However, these provisions are renumbered under clause 106 of Bill C-12 as paragraphs 6(5)(a) and 6(6)(a). There is no 6(4)(a)."
It thus appears that the reference in section 36(7) of the CCAA to the provisions in section 6 of the CCAA protecting wage and pension claims was not amended to reflect the renumbering of those section 6 provisions, effected by Bill C-12.
The account given in the Bill C-12 legislative summary is the only plausible explanation for the reference, in CCAA section 36(7), to the non-existent paragraph 6(4)(a) and the lack of a reference to 6(6)(a), where the latter would be necessary to protect pension amounts in the case of a going-concern sale. As it stands, with the typographical error in place, the CCAA going-concern sale provisions are inconsistent with the BIA provisions governing going-concern sales in proposal proceedings (specifically subsection 65.13(8)) which do require payment in a going-concern sale of the same pension amounts as must be satisfied in a proposal (namely the same amounts as are protected in bankruptcies and receiverships by operation of sections 81.5 and 81.6 of the BIA, along with any post-filing wage arrears)7. If this inconsistency between treatment of pension claims in CCAA proceedings and their treatment in BIA proposal proceedings, receiverships and bankruptcies actually was intentional on the part of Parliament, it would fly in the face of one of the overarching purposes of the 2009 amendments to the two statutes, namely harmonization of priority regimes.
For the above reasons, the remainder of this article is based on the assumption that: (i) the courts will interpret the references to paragraphs 6(4)(a) and 6(5)(a) in subsection 36(7) of the CCAA as actually references to paragraphs 6(5)(a) and 6(6)(a); and (ii), in its upcoming 5-year review of the CCAA, Parliament will correct the typo mentioned in the Bill C-12 legislative summary, so that there is no doubt that 36(7) provides protection for pension claims.
This raises the question of whether, given the protection of pension claims introduced in the new CCAA, and given the limited scope of this protection, the PBA deemed trust should still be considered to survive a CCAA filing. Framed another way: are pension claims against a CCAA company protected only by their effective super-priority status under CCAA sections 6 and 36(7), or do they also benefit from the priority status accorded by the PBA deemed trust and section 30(7) of the PPSA? If the PBA deemed trust survives to provide additional protection, pension claimants would enjoy priority under section 6 and subsection 36(7) over all secured creditors including any DIP lender, for a sub-set of their claims, and then a second, lower level of priority under the PBA and PPSA (with respect to proceeds of current assets) over all non- DIP lenders and other non-super-priority creditors. This question was not addressed by the SCC in Indalex as there was no discussion in the SCC's judgment about the impact of the 2009 amendments. As discussed below, the legislative process leading to the 2009 amendments was discussed in Justice Deschamps' conclusion, but only as evidence that federal Parliament had considered, but then chose not to expand, the scope of the priority for pension claims.
Intent of New CCAA Pension Protections
The protections for wage and pension claims in CCAA section 6 were first introduced in 2005 by Bill C-558. Industry Canada's clause-by-clause analysis of Bill C-55 gives the following rationale for these new protections (referring to subsections 6(4) and 6(5), which, as discussed above, eventually would become 6(5) and 6(6), respectively):
" ... The intention of the reform is to ensure that the treatment of certain claims be similar in both the CCAA and the BIA to prevent forum shopping to defeat these interests, which are protected for public policy reasons. Concurrent reforms to the BIA require that a court's ability to sanction a plan be limited to an extent to ensure that the treatment of certain creditor groups be the same in both the BIA and CCAA.
Subsection (4) prohibits the court from sanctioning a plan of arrangement or compromise unless the plan requires the payment of all outstanding unpaid wage claims of employees and former employees, subject to monetary limits in the BIA.
A concurrent reform in the BIA to enhance the protection of wage earners in respect of unpaid wages is reflected in the CCAA to ensure equal treatment of workers under both statutes. By prohibiting a court from sanctioning a plan unless the plan requires the payment of unpaid wages, the reform ensures equal treatment of wage earners whether the employer becomes bankrupt, files a proposal under the BIA or enters CCAA proceedings.
Subsection (5) prohibits the court from sanctioning a plan of arrangement or compromise unless the plan requires the payment of specific pension obligations, enumerated in the subsection, outstanding at the date of the hearing to sanction the plan.
Subsection (6) provides that, notwithstanding subsection (5), the court may sanction a plan if the parties to the pension plan and the relevant pension regulator agree to alternate financing obligations.
Subsections (5) and (6) mirror the reforms in the BIA. Effectively, pension obligations will need to be accounted for before a court can sanction a plan.
Pension rights may form a significant portion of a wage earner's compensation from its employer, although it is deferred income. When the employer undertakes a restructuring under the CCAA, debts, including those owed to a pension fund, may be compromised. For wage earners, a diminution of pension benefits would have a negative impact on future income levels.
The intention of the reform is to provide a higher priority for unremitted pension contributions. The amounts subject to the provision are (1) contributions deducted from employees' salaries but not remitted to the pension fund, (2) contributions owed by an employer for the cost of benefits offered under the pension plan, excluding amounts payable to reduce an unfunded pension liability, and (3) contributions owed by an employer to a defined contribution plan. Obligations relating to unfunded pension liabilities, including special payments or solvency payments ordered to be paid by a regulator but not remitted to the pension fund, are not intended to be captured by the reform and will not be given a higher priority. If an unfunded pension liability exists and a claim is made, it would be treated as an unsecured debt.
Because court approval is required before a compromise or arrangement is finalized, prohibiting a court from approving it if it does not require the payment of unremitted pension contributions described above effectively grants a super-priority to the pension contribution amounts. The super-priority, however, is limited by the operation of subsection (6).
Subsection (6) provides flexibility to allow for a compromise of pension contribution obligations where the parties agree. It is expected that the provision will be used in limited circumstances where the parties agree to reduce pension benefits, which would reduce the employer's obligations. Requiring full payment of pre-filing contributions would not make sense in that circumstance.
The nature of pension regulation in Canada also affects aspects of the section - pensions may be regulated federally or provincially. The section must capture kinds of pensions described in the federal and provincial legislation. Prescribing pension plans that will be subject to this section provides greater flexibility to ensure that the appropriate pension plans are captured."9
Two points (among others) can be drawn from this Industry Canada analysis: (i) the desire for harmonization of priority regimes in bankruptcy, BIA proposals and CCAA proceedings; and (ii) the expectation that unfunded pension liabilities (not protected by what would become subsection 6(6)) would be treated as unsecured claims. Indeed, for the reasons below, unfunded pension liabilities of a CCAA company would have to be treated as unsecured in order to maintain consistency with how they would be treated in a bankruptcy or a proposal.
Treatment of Pension Claims under BIA
Apart from the super-priority status in bankruptcy accorded to particular classes of pension claims by BIA section 81.5 (which came into force in July 2008), and the effective super-priority status accorded to the same classes of pension claims in proposal proceedings by BIA subsections 60(1.5) and 65.13(8) (which came into force in September 2009), all other pension claims (including those for unfunded liabilities) have only unsecured status in bankruptcies and proposals because:
- such claims are not recognized as trust claims since, according to case law, BIA paragraph 67(1) (a), which excludes assets held in trust from estate property divisible amongst the creditors of a bankrupt, does not extend to assets subject to deemed trusts created by provincial statute (where such deemed trusts do not otherwise have all the attributes of common law trusts)10;
- such claims are not recognized as secured claims since, according to case law, the creation of a statutory charge and/or lien in respect of provincial statutory deemed trust amounts does not make the deemed trust claim a secured claim ranking at the top of the BIA section 136 priority scheme for distribution of proceeds of a bankrupt's estate11;
- such claims are not priority claims because BIA section 136 contains no spot in the priority scheme for pension claims; and
- pursuant to BIA subsection 66(1), BIA subsection 67(1) (interpreted as it has been by the courts not to apply to statutory deemed trusts) and the section 136 priority scheme both apply to Division I proposals12.
Because of the limited scope of BIA subsections 60(1.5) and 65.13(8), unfunded pension liabilities remain unsecured claims in proposal proceedings, or at least in proposals (since BIA subsection 66(1) only speaks of proposals, as it was not amended to reflect the new concept of a going-concern sale in a proposal proceeding). Thus, if the PBA deemed trust survives the commencement of a proceeding under the post-September 2009 CCAA, and, as a result, claims for unfunded pension liabilities still enjoy priority status, then that would be inconsistent with how such claims are treated in BIA proposals (and, possibly, BIA proposal going-concern sales).
Reading in Parliamentary Intent to Harmonize
Harmonization of priority regimes in the BIA and the CCAA was one of the primary stated purposes of the new pension claims provisions. As discussed above, Industry Canada's clause-by-clause analysis of the relevant provision of Bill C-55 stated:
"The intention of the reform is to ensure that the treatment of certain claims be similar in both the CCAA and the BIA to prevent forum shopping to defeat these interests, which are protected for public policy reasons. Concurrent reforms to the BIA require that a court's ability to sanction a plan be limited to an extent to ensure that the treatment of certain creditor groups be the same in both the BIA and CCAA."
In the SCC's earlier 2010 decision in Century Services Inc. v. Canada (sub nom Re Ted Leroy Trucking Ltd.) ("Ted Leroy"), where it was held that the Excise Tax Act (the "ETA") deemed trust for GST was reversed in CCAA proceedings, the parliamentary intention to harmonize the priority regimes of the BIA and the CCAA played a pivotal role in Justice Deschamps' judgment for the majority:
"23 Another point of convergence of the CCAA and the BIA relates to priorities. Because the CCAA is silent about what happens if reorganization fails, the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will happen if a CCAA reorganization is ultimately unsuccessful. In addition, one of the important features of legislative reform of both statutes since the enactment of the BIA in 1992 has been a cutback in Crown priorities (S.C. 1992, c. 27, s. 39; S.C. 1997, c. 12, ss. 73 and 125; S.C. 2000, c. 30, s. 148; S.C. 2005, c. 47, ss. 69 and 131; S.C. 2009, c. 33, ss. 25 and 29; see also Alternative granite & marbre inc., Re, 2009 SCC 49,  3 S.C.R. 286,  G.S.T.C. 154 (S.C.C.); Quebec (Deputy Minister of Revenue) c. Rainville (1979),  1 S.C.R. 35 (S.C.C.); Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency (1986)).
24 With parallel CCAA and BIA restructuring schemes now an accepted feature of the insolvency law landscape, the contemporary thrust of legislative reform has been towards harmonizing aspects of insolvency law common to the two statutory schemes to the extent possible and encouraging reorganization over liquidation (see An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts, S.C. 2005, c. 47; Gauntlet Energy Corp., Re, 2003 ABQB 894,  G.S.T.C. 193, 30 Alta. L.R. (4th) 192 (Alta. Q.B.), at para. 19).
47 Moreover, a strange asymmetry would arise if the interpretation giving the ETA priority over the CCAA urged by the Crown is adopted here: the Crown would retain priority over GST claims during CCAA proceedings but not in bankruptcy. As courts have reflected, this can only encourage statute shopping by secured creditors in cases such as this one where the debtor's assets cannot satisfy both the secured creditors' and the Crown's claims (Gauntlet, at para. 21). If creditors' claims were better protected by liquidation under the BIA, creditors' incentives would lie overwhelmingly with avoiding proceedings under the CCAA and not risking a failed reorganization. Giving a key player in any insolvency such skewed incentives against reorganizing under the CCAA can only undermine that statute's remedial objectives and risk inviting the very social ills that it was enacted to avert.
48 Arguably, the effect of Ottawa Senators is mitigated if restructuring is attempted under the BIA instead of the CCAA, but it is not cured. If Ottawa Senators were to be followed, Crown priority over GST would differ depending on whether restructuring took place under the CCAA or the BIA. The anomaly of this result is made manifest by the fact that it would deprive companies of the option to restructure under the more flexible and responsive CCAA regime, which has been the statute of choice for complex reorganizations."13
It should be noted, however, that in Indalex, Deschamps J. cautioned against making too much of the parliamentary intent to harmonize the BIA and CCAA priority regimes:
"49 The Appellants argue that any provincial deemed trust is subordinate to the DIP charge authorized by the CCAA order ... First, they submit that the PBA deemed trust does not apply in CCAA proceedings because the relevant priorities are those of the federal insolvency scheme, which do not include provincial deemed trusts ...
50 The Appellants' first argument would expand the holding of Ted Leroy Trucking Ltd., Re, 2010 SCC 60,  3 S.C.R. 379 (S.C.C.), so as to apply federal bankruptcy priorities to CCAA proceedings, with the effect that claims would be treated similarly under the CCAA and the BIA. In Century Services, the Court noted that there are points at which the two schemes converge:
Another point of convergence of the CCAA and the BIA relates to priorities. Because the CCAA is silent about what happens if reorganization fails, the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will happen if a CCAA reorganization is ultimately unsuccessful. [para. 23]
51 In order to avoid a race to liquidation under the BIA, courts will favour an interpretation of the CCAA that affords creditors analogous entitlements. Yet this does not mean that courts may read bankruptcy priorities into the CCAA at will. Provincial 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. Although the creditors of a corporation that is attempting to reorganize may bargain in the shadow of their bankruptcy entitlements, those entitlements remain only shadows until bankruptcy occurs. At the outset of the insolvency proceedings, Indalex opted for a process governed by the CCAA, leaving no doubt that although it wanted to protect its employees' jobs, it would not survive as their employer. This was not a case in which a failed arrangement forced a company into liquidation under the BIA. Indalex achieved the goal it was pursuing. It chose to sell its assets under the CCAA, not the BIA.
52 The provincial deemed trust under the PBA continues to apply in CCAA proceedings, subject to the doctrine of federal paramountcy (Crystalline Investments Ltd. v. Domgroup Ltd., 2004 SCC 3,  1 S.C.R. 60 (S.C.C.), at para. 43). 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."
Although we must, therefore, heed Justice Deschamps' warning that courts cannot read bankruptcy priorities into the CCAA at will, the argument being made in this article is that, for the sake of harmony, the CCAA can and should be read to be consistent with the priority regime applicable to BIA proposal proceedings. That proposition seems a matter of common sense, since the two proceedings serve parallel purposes. It has, of course, already been argued above that subsection 66(1) of the BIA imports the bankruptcy priority scheme into BIA proposals (and, possibly, BIA proposal proceeding going-concern sales). It also has to be noted that, in the passage excerpted immediately above, Justice Deschamps states: "Parliament did not expressly apply all bankruptcy priorities either to CCAA proceedings or to proposals under the BIA." (emphasis added). This statement was made, however, seemingly in passing, with no acknowledgement or analysis of BIA subsection 66(1), nor of any case that applies that section, and therefore has to be given limited weight.
Applying Principle of Implied Exclusion
In addition to the harmonization argument, the argument can be made that the fact that CCAA subsections 6(6) and 36(7) give an effective super-priority only to a limited subset of pension claims, implies an exclusion of priority for other types of pension claims, including for unfunded pension liabilities14. This argument is bolstered by the fact that it is well documented that claims for unfunded pension liabilities were considered, but rejected, for inclusion in subsections 6(6) and 36(7)15. As Justice Deschamps stated in the conclusion of her judgment in Indalex:
"81 There are good reasons for giving special protection to members of pension plans in insolvency proceedings. Parliament considered doing so before enacting the most recent amendments to the CCAA, but chose not to (An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, S.C. 2007, c. 36, in force September 18, 2009, SI/2009- 68; see also Bill C-501, An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), 3rd Sess., 40th Parl., March 24, 2010 (subsequently amended by the Standing Committee on Industry, Science and Technology, March 1, 2011)). A report of the Standing Senate Committee on Banking, Trade and Commerce gave the following reasons for this choice:
"Although the Committee recognizes the vulnerability of current pensioners, we do not believe that changes to the BIA regarding pension claims should be made at this time. Current pensioners can also access retirement benefits from the Canada/Quebec Pension Plan, and the Old Age Security and Guaranteed Income Supplement programs, and may have private savings and Registered Retirement Savings Plans that can provide income for them in retirement. The desire expressed by some of our witnesses for greater protection for pensioners and for employees currently participating in an occupational pension plan must be balanced against the interests of others. As we noted earlier, insolvency — at its essence — is characterized by insufficient assets to satisfy everyone, and choices must be made.
The Committee believes that granting the pension protection sought by some of the witnesses would be sufficiently unfair to other stakeholders that we cannot recommend the changes requested. For example, we feel that super priority status could unnecessarily reduce the moneys available for distribution to creditors. In turn, credit availability and the cost of credit could be negatively affected, and all those seeking credit in Canada would be disadvantaged."
Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act (2003), at p. 98; see also p. 88.)
82 In an insolvency process, a CCAA court must consider the employer's fiduciary obligations to plan members as their plan administrator. It must grant a remedy where appropriate. However, courts should not use equity to do what they wish Parliament had done through legislation."
The implied exclusion rule of statutory interpretation was recently applied (albeit without specific identification as such) by the Supreme Court of Canada in Re AbitibiBowater Inc., where the court held that the limited priority given to environmental claims in new subsection 11.8(8) of the CCAA implies an exclusion of any priority for other types of environmental claims and that granting any priority to those other types of claims would be inconsistent with the CCAA:
"32 Parliament recognized that regulatory bodies sometimes have to perform remediation work (see House of Commons, Standing Committee on Industry, No. 16, 2nd Sess., 35th Parl., June 11, 1996). When one does so, its claim with respect to remediation costs is subject to the insolvency process, but the claim is secured by a charge on the contaminated real property and certain other related property and benefits from a priority (s. 11.8(8) CCAA). Thus, Parliament struck a balance between the public's interest in enforcing environmental regulations and the interest of third-party creditors in being treated equitably.
33 If Parliament had intended that the debtor always satisfy all remediation costs, it would have granted the Crown a priority with respect to the totality of the debtor's assets. In light of the legislative history and the purpose of the reorganization process, the fact that the Crown's priority under s. 11.8(8) CCAA is limited to the contaminated property and certain related property leads me to conclude that to exempt environmental orders would be inconsistent with the insolvency legislation. As deferential as courts may be to regulatory bodies' actions, they must apply the general rules."16
The principle of implied exclusion was also applied by the Supreme Court of Canada in Ted Leroy (again without specific identification as such) when it reasoned that since other Crown deemed trusts are explicitly preserved in section 18.3 (now 37) of the CCAA, reading in (as the OCA did) a preservation of the ETA deemed trust as well, without any explicit statutory language to that effect, would make the CCAA internally inconsistent:
"46 The internal logic of the CCAA also militates against upholding the ETA deemed trust for GST. The CCAA imposes limits on a suspension by the court of the Crown's rights in respect of source deductions but does not mention the ETA (s. 11.4). Since source deductions deemed trusts are granted explicit protection under the CCAA, it would be inconsistent to afford a better protection to the ETA deemed trust absent explicit language in the CCAA. Thus, the logic of the CCAA appears to subject the ETA deemed trust to the waiver by Parliament of its priority (s. 18.4)."
In conclusion, based on (i) Parliament's intention to harmonize priority regimes in CCAA proceedings and BIA proposal proceedings and (ii) the fact that Parliament granted limited protection to pension claims in the new CCAA, thereby signalling an intention to exclude further protection, this author's view is that the PBA deemed trust should no longer survive the commencement of proceedings under the new CCAA. As stated above, this conclusion is premised, in the case of going-concern sales in CCAA proceedings, on the assumption that: (i) the courts will interpret the references to paragraphs 6(4)(a) and 6(5)(a) in subsection 36(7) of the CCAA as actually references to paragraphs 6(5)(a) and 6(6)(a), so that pension claims are protected in a going-concern sale; and (ii), in its upcoming 5-year review of the CCAA, Parliament will correct the erroneous reference to 6(4)(a), so that there is no doubt that subsection 36(7) provides protection for pension claims. Neither of those has yet happened, and no court, to the writer's knowledge, has yet ruled on the priority of pension claims subject to a provincial statutory deemed trust in a plan under the post- September 2009 CCAA. Until such time, secured claims not backed by a court-ordered charge remain at risk of being primed in CCAA proceedings by PBA deemed trust claims in respect of pension plans in the process of being wound-up (including claims for unfunded liabilities).
On a final note, if the PBA deemed trust does survive a filing under the new CCAA, then likely too would survive the ESA section 40 deemed trust for vacation pay, which is also backed by a statutory charge and lien over all assets that is elevated to priority status by PPSA subsection 30(7) (in respect of current assets only). As a result, employees would have a second level of priority for any accrued vacation pay not already protected as wages under subsections 6.5(a) and 36(7) of the CCAA (which subsections protect all post-filing wages and up to $2,000 per employee for wages accrued in the six months prior to filing). Although the amounts involved in vacation pay arrears may, in many cases, be of lesser magnitude than the potential pension plan liabilities under the newly expanded scope of the PBA deemed trust, the survival of the ESA deemed trust in CCAA proceedings would likely be a more frequent problem for secured lenders. Not every company has a pension plan, let alone a defined plan in wind-up, but almost every company pays vacation pay and will be liable for some amount of accrued vacation pay at any given time. Fortunately, unlike unfunded pension liabilities, a debtor company's accrued vacation pay liabilities should be ascertainable at any given time and therefore something a lender could, in theory, manage with reserves.
1 Indalex Inc., Re, (1996) 2013 SCC 6, 96 C.B.R. (5th) 171, 354 D.L.R. (4th) 581 (S.C.C.); reversing Indalex Ltd., Re (2011), 331 D.L.R. (4th) 352, 75 C.B.R. (5th) 19, 104 O.R. (3d) 641, 2011 ONCA 265 (Ont. C.A.); reversing Indalex Ltd., Re (2010), 2010 ONSC 1114 (Ont. S.C.J. [Commercial List]); and reversing in part Indalex Ltd., Re (2011), 81 C.B.R. (5th) 165, 2011 ONCA 578 (Ont. C.A.)
2 See, for example, Timminco Ltd., Re, (2012) 2012 ONSC 506, 85 C.B.R. (5th) 169 (Ont. S.C.J. [Commercial List]).
3 Indalex note 1 supra, at paragraph 177.
4 The closest thing to a paragraph 6(4)(a) is subsection 6(4), which requires, as a condition to court sanction of a plan, that crown claims assessed post-filing (including, without limitation, for source deductions) be satisfied.
5 Bill C-12 would be enacted as An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, S.C. 2007 C. 36.
6 See: http://www.parl.gc.ca/Content/LOP/LegislativeSummaries/39/2/c12-e.pdf at page 23.
7 It is also notable that BIA subsection 65.13(8) does not require payment of amounts covered by BIA subsection 60(1.2), being the analogue to CCAA subsection 6(4).
8 Bill C-55 would be enacted as An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to make consequential amendments to other Acts, S.C. 2005 C. 47.
9 See: http://www.ic.gc.ca/eic/site/cilp-pdci.nsf/eng/cl00821.html or http://www.ic.gc.ca/eic/site/cilp-pdci.nsf/vwapj/clXcl124-129EN.pdf/$FILE/clXcl124-129EN.pdf at pages 6 to 7. Industry Canada's clause-by-clause analysis of Bill C-12, which introduced the corresponding protection of wage and pension claims in going-concern sales by the new CCAA subsection 36(7), does not shed further light on the subject, saying only:
"Subsection (7) is added to ensure that the interests of wage earners are protected, as are the interests of other creditors. By requiring the court to consider the effect of any sale on the rights of those claimants, the risk that a debtor company will engage in a liquidating plan (i.e., a restructuring run with the intention of disposing of all assets) will be removed."
10 See GMAC Commercial Credit Corp. - Canada v. TCT Logistics Inc., (2005) 7 C.B.R. (5th) 202, 74 O.R. (3d) 382 (Ontario C.A.), reversing in part GMAC Commercial Credit Corp.- Canada v. TCT Logistics Inc., (2002), 61 O.R. (3d) 85, 36 C.B.R. (4th) 231 (Ont. S.C.J. [Commercial List]) at paragraphs 14 to 17. See also Continental Casualty Co. v. MacLeod-Stedman Inc.,  2 W.W.R. 516, 141 D.L.R. (4th) 36 (Manitoba C.A.) wherein a number of the same SCC decisions cited and followed by OCA in TCT Logistics were also followed by the Manitoba Court of Appeal in finding that a deemed trust under The Pension Benefits Act (Manitoba) did not survive a bankruptcy. See also Ivaco Inc., Re, (2006) 25 C.B.R. (5th) 176, 83 O.R. (3d) 108, 275 D.L.R. (4th) 132 (Ontario C.A.), a provincial pension deemed trust case in which the OCA echoed, in obiter, the TCT Logistics stance on provincial deemed trusts in bankruptcy.
11 In General Chemical Canada Ltd., Re, (2006) 22 C.B.R. (5th) 298 (Ont. S.C.J. [Commercial List], the court held that, because the PBA deemed trust itself could not survive in bankruptcy, the creation of a charge and lien in respect of the PBA deemed trust was "an indirect attempt by the province to do indirectly what it could not do directly, and to legislate priorities for unpaid pension plan contributions. This is a matter solely within the sphere of federal legislation" (at paragraph 70).
12 Subsection 66(1) reads:
"66.(1) Act to Apply – All the provisions of this Act, except Division II of this Part, in so far as they are applicable, apply, with such modifications as the circumstances require, to proposals made under this Division."
For application of BIA subsection 66(1) to terminate a pension deemed trust under provincial statute see W.R.T. Equipment Ltd., Re (2003) 41 C.B.R. (4th) 288 (Sask Q.B.), at paragraph 12:
" ... Absent the application of the provisions of the BIA to an employer it is clear that an employer's indebtedness to an employee pension plan does give the pensioners preferred creditor status by virtue of s. 43(3) of The Pension Benefits Act, 1992. With the intervention of the BIA, and proceedings under that Act, including the presentation of a Proposal, a combination of s. 66(1) and s. 67(2) of the Act as judicially interpreted results in another conclusion (see Continental Casualty Co. v. MacLeod-Stedman Inc. (1996), 141 D.L.R. (4th) 36 (Man. C.A.); Husky Oil Operations Ltd. v. Minister of National Revenue (1995), 128 D.L.R. (4th) 1 (S.C.C.)). Provincially created statutory trusts, such as the one created by The Pension Benefits Act, 1992 are not recognized in bankruptcy, including Proposals submitted under the BIA."
13 Century Services Inc. v. Canada (sub nom Re Ted Leroy Trucking Ltd.),  3 S.C.R. 379, 72 C.B.R. (5th) 170, 326 D.L.R. (4th) 577 (S.C.C.).
14 This would be an application of the maxim "expressio unius est exclusio alterius" or "the expression of one thing is the exclusion of the other".
15 See, for example, Industry Canada's parliamentary notes on Bill C-55, note 9 supra, as well as the summary of submissions made to the Standing Senate Committee on Banking, Trade and Commerce in its report, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act available at: http://www.parl.gc.ca/37/2/parlbus/commbus/senate/com-e/bank-e/rep-e/bankruptcy-e.pdf.
16 AbitibiBowater Inc., Re, (2012) 2012 SCC 67, 352 D.L.R. (4th) 399, 95 C.B.R. (5th) 200 (S.C.C.); affirmed AbitibiBowater Inc., Re (2010), 68 C.B.R. (5th) 57(Que. C.A.); refused leave to appeal AbitibiBowater Inc., Re (2010), 68 C.B.R. (5th) 1 (Que. S.C.).
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