Indalex: Priority of Provincial Deemed Trusts in a CCAA Restructuring
Posted: 30 Mar 2013
Date Written: March 28, 2013
On February 1, 2013, Supreme Court of Canada (“SCC” or “Court”) released its much awaited decision, Sun Indalex Finance, LLC et al. v. United Steelworkers et al. The case involved a company, Indalex, that was pursuing restructuring proceedings under the Companies’ Creditors Arrangement Act. Prior to its restructuring, Indalex had been failing to meet its employer contribution obligations to the company’s pension plan and when the pension plan was wound up, there was a deficiency in the funds.
During its restructuring, Indalex obtained debtor-in-possession (“DIP”) financing to fund its operations and when it subsequently sold its business, the proceeds of the sale were not enough to pay its creditors. The members of the pension plan claimed that the shortfall in the pension plan entitled them to a super-priority, such that their claim would be paid before the DIP lenders.
There were two main findings by the Court. With regard to the deemed trust, the Court was split but it upheld the finding of the Ontario Court of Appeal that a deemed trust had arisen under the Pension Benefits Act in favour of the pension holders for the wind-up deficiency payments. However, the SCC overturned the Ontario Court of Appeal in its finding of the priority of the deemed trust, unanimously maintaining that the deemed trust would not be granted super-priority over the DIP lenders.
The Court also unanimously agreed with the Ontario Court of Appeal in its findings on the existence of a fiduciary duty owed by Indalex as administrator of the pension plans, and on Indalex’s breach of that duty. A majority of the Court, disagreed, however, with the Ontario Court of Appeal’s remedy for that breach, finding that the imposition of a constructive trust was not appropriate.
This comment will address two issues arising from the decision. First, the priority afforded to the DIP lender over the pensioners has caused considerable disappointment. Pensioners and other creditors are vulnerable against DIP lenders and it can seem considerably unfair and unjust. The priority afforded by the Court, however, is arguably ultimately justified when the reasons for DIP priority are articulated. Second, the priority of DIP lenders over deemed trusts will be examined, and the way the doctrine of federal paramountcy can operate between provincial legislation and the CCAA will be addressed.
Keywords: Indalex, CCAA, restructuring, pension, deemed trusts, DIP, priorities
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