Canada’s Top Court Looks At Pension Funding And Corporate Restructuring
Lawyers who advise companies on insolvency proceedings, lenders for emergency financing for companies seeking court protection while they are restructuring and pension matters are closely watching the outcome of Supreme Court of Canada’s hearing today of an appeal in what has become known as the Indalex case, The Gazette Moves Deals And Takes blog reported. The Ontario Court of Appeal’s landmark decision in Re Indalex Limited in April last year created lots of waves in the Canadian business law community because it ruled that underfunded employee pension plans should be given priority repayment over an emergency operational loan, notably a debtor-in-possession, or DIP, loan, in the distribution of proceeds from the sale of assets of Indalex Ltd., a company seeking court protection under the Canadian Companies’ Creditors Arrangement Act (CCAA). While the ruling was encouraging for pensioners who often see their retirement plans slashed under corporate restructurings, the Ontario appeal court ruling raised questions about the certainty for lenders who provide DIP loans to Canadian companies in trouble who file for protection under the CCAA and the availability and cost of such borrowings in Canada in the future. It also sparked some warnings about the obligations of companies that administer defined pension plans, given that Ontario Justice Eilene Gillese also ruled that Indalex had breached its fiduciary duty by not giving sufficient notice about its CCCA filing and DIP loan to pension plan beneficiaries, nor considering sufficient ways to address the pension plan underfunding. Read more.