Timminco Limited: CCAA Court Considers Fiduciary Obligations Post-Indalex

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Timminco Limited is among the first reported cases to be released following the Ontario Court of Appeal’s April 7, 2011 decision in Re Indalex. There are two Timminco decisions – Timminco 1 and Timminco 2.

Indalex Recap

Recall, that in Indalex, contrary to widely accepted principles governing pensions under the Companies’ Creditors Arrangement Act (the CCAA), the Court of Appeal held that the entire amount an employer is required to contribute to fund a pension plan wind-up deficiency under the Ontario Pension Benefits Act (PBA) is subject to the deemed trust provisions of the PBA. In this case, such contributions were ordered to be paid in priority to outstanding secured creditor claims, including the super priority charge granted by the CCAA court to the debtor-in-possession (DIP) loan advanced to Indalex to finance its CCAA restructuring. In particular, the Ontario Court of Appeal held that:

  • the deemed trust under subsection 57(4) of the PBA extended to all amounts owed by the employer on plan wind-up, regardless of the fact that the regulations under the PBA permit employers to pay the pension shortfall over a period of five years;
  • due primarily to certain fact-based procedural deficiencies identified by the Court of Appeal, the DIP charge granted by the CCAA court order, which purports to impose paramountcy over the PBA deemed trust provisions, did not, in the circumstances, have priority over such deemed trust; and 
  • with respect to one of the affected pension plans that had not been wound up, Indalex was in a conflict of interest position with respect to its co-existing sponsor (non-fiduciary) and administrator (fiduciary) roles (the so-called “two hats” doctrine) in dealing with pension issues under the CCAA proceedings, giving rise to a constructive trust in respect of the plan deficit which also took priority over the DIP charge.

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