The Supreme Court of Canada (“SCC”) recently released its much-anticipated decision in the Indalex Limited (“Indalex”) proceedings under the Companies’ Creditors Arrangement Act (the “CCAA Proceedings”). The decision is important for secured lenders in the context of an insolvency proceeding (“DIP Lenders”) or outside of an insolvency proceeding (“secured lenders”). One of the main issues the SCC scrutinized was whether defined benefit pension plan wind-up deficiencies are subject to the deemed trust provided for by the Pension Benefits Act (Ontario) (“PBA”) and the priority of the deemed trust in respect of a charge granted in favour of the DIP Lenders who funded Indalex’s CCAA Proceedings (“DIP Financing”).

Short Summary -

a. Implications for Lenders -

In a 4-3 decision (with three separate written judgments), the SCC held that an employer’s obligations for funding deficiencies that arise upon the wind-up of a defined benefit pension plan are included in the PBA deemed trust provisions and, as a result, enjoy priority over secured lenders. When providing financing to borrowers with defined benefit pension plans, secured lenders should carefully consider appropriate provisions in their credit agreements that set out, among other things, strict reporting obligations and on-going monitoring of the debtor’s affairs.

DIP Lenders can take comfort in the SCC’s unanimous (7-0) decision that a court-ordered super-priority charge securing advances to an insolvent debtor will have priority over the PBA deemed trust provisions.

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