On February 1, 2013, the Supreme Court of Canada released its much anticipated decision in Sun Indalex Finance, LLC v. United Steelworkers, a case which pitted the claims of pensioners against those of secured creditors in the context of the insolvency of the employer plan sponsor.
The Supreme Court’s decision in Indalex largely overturned the Ontario Court of Appeal’s earlier decision in this matter, which was resolved in favour of the pensioners’ claims, and that had created uncertainty for lenders, insolvency practitioners and participants in the pensions industry. While the Supreme Court ultimately decided Indalex in favour of the secured creditors, it appears to have facilitated a greater role for plan members in insolvency proceedings in the future. And although the Supreme Court clarified a number of the uncertainties arising from the Ontario Court of Appeal’s decision, it may have raised more questions than it answered.
Briefly, the Supreme Court made the following findings:
the deemed trust provisions in the Ontario Pension Benefits Act (the PBA) apply to the entire amount the employer is required to pay under the PBA with respect to a pension plan wind up deficiency;
as a result of the doctrine of federal paramountcy, an order made in a CCAA proceeding giving priority to a debtor-in-possession charge over a provincial deemed trust is effective; and
Indalex’s interests as a corporation came into conflict with its fiduciary duties as a plan administrator during certain stages of the insolvency proceedings, and Indalex breached its fiduciary duties by not properly dealing with this conflict; however, imposing a constructive trust in respect of the pension wind up deficiency was not an appropriate remedy for such breaches.
For further discussion of the pension implications of the Indalex decision, please read the our update, Indalex: What Are the Pension Implications? Or, if you would like the perspective of our Financial Services and Insolvency & Restructuring Groups, please read their Osler Update.
We will also be discussing the implications of the Indalex case at tomorrow’s seminar “What is the Future of Pensions? Key Legal Developments for 2013.” For further information, please contact Vaughna MacKenzie, Meetings & Conferences Planner at email@example.com.