On December 1, 2011, the Supreme Court of Canada granted leave to appeal the decision of the Ontario Court of Appeal in Re Indalex Limited, 2011 ONCA 265, which we summarized here.
Indalex Limited and its U.S. parent sought protection from their creditors under the Companies Creditors Arrangement Act and under Chapter 11 of the U.S. Bankruptcy Code. The court authorized a loan under a debtor-in-possession (“DIP”) credit agreement and gave the lenders a super-priority charge against Indalex’ assets. When the assets of Inalex were sold, two groups of pension plan members argued that a portion of the proceeds should be reserved for payment of pension fund deficiencies. Despite the super-priority granted under the DIP loan, the Court of Appeal found in favour of the pension plan members, holding that that the deemed trust provisions in the Ontario Pension Benefits Act in respect of the Salaried Pension Plan that had been wound up prior to the CCAA proceedings was effective as against the guarantor of the DIP loan. The court also applied a constructive trust in respect of the deficiency in the Executive Pension Plan that had not been wound up.
The decision came as a surprise to most pension and insolvency practitioners. It has potentially far-reaching implications for lending transactions and has already found its way into the negotiation of financing agreements. It has also created uncertainty about the extent of an employer’s fiduciary obligations in its role as pension plan administrator and how conflicts in corporate sponsor and administrator roles may be resolved.
We will continue to follow this case and will update our readers again when the Supreme Court releases its decision.