Supreme Court of Canada Releases Decision in Indalex
This morning, the Supreme Court of Canada (SCC) released its decision in Sun Indalex Finance, LLC v. United Steelworkers (Indalex). A majority of the SCC made the following rulings, which have wide-ranging ramifications for lenders, employers and pension plan administrators of Ontario-registered defined benefit pension plans:
- The SCC upheld the finding of the Ontario Court of Appeal (ONCA) that the deemed trust imposed under subsection 57(4) of the Ontario Pension Benefits Act (PBA) applies only to a pension plan that is terminated, but, when it applies, extends to the entirety of a defined benefit plan’s "wind up deficiency." This finding may have significant ramifications for lenders relying on security interests in accounts and/or inventory, since, under the Ontario Personal Property Security Act, these interests are expressly made subordinate to "deemed trusts" under the PBA.
- The SCC overturned the ONCA in finding that the deemed trust did not have priority over the claim of the debtor in possession (DIP) lender in this case. The Companies’ Creditors Arrangement Act (CCAA) judge had made an order granting the DIP loan "super-priority" over any statutory trusts, including those arising under the PBA. The SCC overturned the ONCA and held that the doctrine of federal paramountcy means that the court-ordered DIP priority supersedes claims under the PBA’s deemed trust provision, without need to have paramountcy asserted in the relevant court order.
- The SCC’s decision is consistent with the ONCA’s finding that the directors of Indalex Limited failed to properly manage a conflict of interest between their fiduciary duties to the corporation on the one hand and, in their role as plan administrator, to the pension plan beneficiaries on the other, when they proceeded to seek a court order granting priority to the DIP loan without sufficient notice to the beneficiaries.
- Although the SCC found that the directors of Indalex had acted in a conflict of interest vis-à-vis plan beneficiaries, a majority of the judges overturned the ONCA’s award of a constructive trust over the assets of the estate in favour of beneficiaries of Indalex’s executive pension plan (to which the PBA’s deemed trust provision did not apply).
The decision will be carefully reviewed by lawyers in McCarthy Tétrault LLP’s Pensions, Benefits & Executive Compensation; Bankruptcy & Restructuring and Financial Services practice groups, and we will publish a more detailed discussion of the decision shortly. In the meantime, if you have any questions about what the SCC’s decision means for your business, do not hesitate to contact Randy Bauslaugh (Pensions, Benefits & Executive Compensation), Jamey Gage (Bankruptcy & Restructuring), Gordon Baird (Financial Services) or your regular McCarthy Tétrault LLP lawyer.