Canada: Where Do We Stand? The Timminco Decision Raises More Questions Than It Answers Regarding The Status Of Pension Plan Claims

On January 24th, 2014, Justice Mongeon of the Superior Court of Quebec issued an important decision (the Timminco Decision) regarding the status of pension plan claims in the context of a CCAA restructuring. The Timminco Decision established that Section 49 of the Quebec Supplemental Pension Plans Act (the SPPA) creates a valid deemed trust1 which ranks ahead of pre-existing conventional security, and which survives the issuance of an Initial Order pursuant to the Companies' Creditors Arrangement Act (CCAA). This deemed trust protects all special contributions (or catch-up payments), even if they were not actually placed in a distinct trust account.

The Timminco Decision is Justice Mongeon's second judgment regarding the issue of pension plan claims in the CCAA context. Unfortunately, it is, in many ways, irreconcilable with his previous decision in White Birch Paper (theWhite Birch Paper Decision). As a result, it raises more questions than it answers.

Although it was to be expected that the court would modify its findings due to the Supreme Court of Canada decision in Indalex (the Indalex Decision), which was issued subsequent to the White Birch Paper Decision, Justice Mongeon didn't simply follow the principles established by the Supreme Court. He actually reversed some of his own previous findings that were specific to the Quebec Supplemental Pension Plans Act.

As the Timminco Decision only (directly) addresses the relative rank of the deemed trust purportedly created pursuant to Section 49 of the SPPA and conventional security created prior to the issuance of the CCAA Initial Order, it is unclear how the Timminco Decision affects the status of Quebec law regarding the relative rank of pension plan claims and super-priority charges. This question remains open to interpretation.

What's more, it is not clear whether the court's analysis of and conclusion regarding the validity of the deemed trust purportedly created pursuant to Section 49 of the SPPA will withstand the scrutiny of the province's higher courts. The Quebec Court of Appeal has already received a motion for leave to appeal with respect to the Timminco Decision, which motion is presentable in mid to late May of this year.

In our view, the Court of Appeal should consider adopting the approach taken by Justice Schrager of the Superior Court of Quebec in the Aveos Fleet Performance Inc. matter (the Aveos Decision). As explained in greater detail below, we believe that his recent decision regarding the status of the deemed trust created pursuant to the federal Pensions Benefits Standards Act (PBSA) presents the opportunity to establish a more well-balanced and universally applicable framework relating to the status of statutory deemed trusts in an insolvency context.

Section 49 Does Create a Valid Prior Ranking Deemed Trust (after all)

In the White Birch Paper Decision, Justice Mongeon ruled that Section 49 of the SPPA did not create a valid deemed trust. In reaching this decision, he focused on the requirements that must be met in order to create a true trust pursuant to Quebec law, as well as the Minister of Justice's comments regarding Article 2715 CCQ (which governs floating hypothecs), which specifically establish that the common law notion of a floating charge does not exist pursuant to Quebec law.

In the Timminco Decision, Justice Mongeon approached the same question from an entirely different perspective. He did not address the Minister's comments and set aside the criteria to establish a true trust. Instead, he focused principally on a series of decisions interpreting the deemed trust provisions contained in the federal Income Tax Act.

Over the years, in decisions such as Henfrey Samson Belair, and Sparrow Electric, the Supreme Court of Canada repeatedly invalidated or limited the scope of such provisions. In each case, the federal legislator responded by amending the language of the provision in order to meet the requirements established by the Supreme Court. Finally, in First Vancouver Finance, the Supreme Court declared it was satisfied that the wording of the deemed trust provision was sufficient to establish its scope and rank.

Although Justice Mongeon considered such decisions in detail, his analysis ended with a recent Quebec Court of Appeal decision that followed First Vancouver Finance and declared that the deemed trust provision contained in the Quebec Tax Administration Act (formerly the Act Respecting the Ministère du Revenue), and worded in such a way as to mirror the amended federal deemed trust provisions, creates a valid and enforceable deemed trust under Quebec law.

Despite having acknowledged the Supreme Court's insistence on a strict interpretation of deemed trust provisions, and upon the "magic words" required, Justice Mongeon failed to enforce the requirement that the provision purporting to establish a deemed trust must clearly define the assets charged as well as the moment when the deemed trust attaches. Indeed, there is no discussion in the Timminco Decision of these requirements, which appear to be missing from the wording of Section 49 of the SPPA. Indeed the text of Section 49 is comparable to the equivalent provision in the Income Tax Act prior to the amendments made in order to address the Supreme Court's requirements.

In addition, the Timminco Decision circumvents the requirement, established in the Supreme Court decision in Sparrow Electric, that the relevant legislation explicitly grant priority not only over subsequent security, but also over existing conventional security.

With respect to this issue, the Timminco Decision refers to Section 264 of the SPPA, which states that "All contributions paid or payable into the pension fund" are unassignable and unseizable. The court considered this sufficient and concluded that these contributions were protected from claims by other creditors, including existing secured creditors.

This conclusion will no doubt be the subject of debate before the Court of Appeal, as the reasoning, while creative, appears somewhat flawed. At the very least, it must be said that Section 264 of the SPPA does not contain explicit wording of the type referred to in the Sparrow Electric decision.

How Does the Timminco Decision Affect the Status of Super-Priority Charges?

As mentioned, the Timminco Decision purports to affect only the status of existing conventional secured claims. However, as many of the key foundations supporting the White Birch Paper Decision have now been removed, it no longer provides clear guidance regarding the status and rank of super-priority charges (except as regards the issue of res judicata).

In light of the Timminco Decision, Section 49 of the SPPA must now be regarded as sufficient to create a valid deemed trust that protects special contributions and grant them rank ahead of conventional security. What's more, this deemed trust is now said to survive the issuance of an Initial Order pursuant to the CCAA.

In some ways, this brings Quebec in line with the state of the law in Ontario, following the Indalex Decision issued by the Supreme Court (although only the unremitted special contributions are captured by the deemed trust in Quebec, unlike in Ontario). However, the analysis which underpins the conclusions reached in the Timminco Decision is entirely different, due notably to the differences between the relevant provisions of the Ontario and Quebec pension legislation. Furthermore, the fact that the Court reversed itself on key elements of the White Birch Paper Decision casts doubts upon the application of the remaining elements.

As a result, it is our expectation that the Court of Appeal will grant leave and will provide its own analysis of the issues. We are hopeful that this will permit greater clarity to be achieved with respect to the rank of all types of claims.

The Aveos Decision Provides a Better Alternative

In our view, the Aveos Decision, issued by Justice Schrager on November 20th, 2013, merits careful consideration by the Court of Appeal in its deliberations regarding the Timminco Decision. Although the clause of the PBSA that purports to create a deemed trust is different from Section 49 of the SPPA, Justice Schrager's analysis of the criteria applicable to deemed trust provisions is well-reasoned and complete.

More importantly, however, in the Aveos Decision, Justice Schrager addresses the most important issue relating to all deemed trusts, namely, whether such deemed trusts (even if they are validly constituted) continue to apply once a debtor company has availed itself of the protection of the CCAA. This question was addressed by the Supreme Court of Canada in the Indalex Decision. However, it was examined more directly and from a broader standpoint by Justice Fish in his additional reasons in the Century Services matter (the Century Services Decision). In the Aveos Decision, Justice Schrager refers to the reasons of Justice Fish in the Century Services Decision and adopts his reasoning in concluding that the "general rule [is] that deemed trusts are ineffective in insolvency".

In order to continue to apply, the deemed trust provision must be "saved" by an express provision in the CCAA (or the BIA, as the case may be). In this respect, both the Supreme Court in the Century Services Decision and Justice Schrager in the Aveos Decision point to provisions in the CCAA that do save certain statutory deemed trusts, but make no mention of either the SPPA or the PBSA (or any other equivalent pension benefit legislation). They conclude that, as the legislator chose not to include these provisions, it must have intended for the deemed trusts created thereby to cease to apply once a CCAA initial order is granted.

In support of this conclusion, both Justice Schrager and Justice Fish also refer to the fact that in the most recent amendments to the CCAA, the legislator granted protection with respect to certain pension plan benefits, to the specific exclusion of special contributions. As a result, it is contrary to the rules of statutory interpretation to declare that, despite having been denied such protection by virtue of the text of the CCAA, the same protection is nevertheless afforded indirectly by virtue of the survival of a statutory deemed trust.

Unfortunately, the Supreme Court did not seize the opportunity to confirm the rule established by Justice Fish in the context of the Indalex Decision. Nevertheless, we believe the reasoning is well-founded and hope that the Court of Appeal of Quebec will choose to follow Justice Schrager's lead in adopting it.

In the interim, secured lenders and other interested parties will need to exercise caution and ensure that issues of status and rank are dealt with at the very outset of any CCAA proceedings. In so doing, they will be in a position to rely upon the res judicata rule established in the White Birch Paper Decision, as well as the principles set forth in the Supreme Court's Indalex Decision.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

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