On February 1, 2013, the Supreme Court of Canada in Re Indalex allowed in part the appeal of Sun Indalex Finance and, in doing so, delivered guidance to companies entering into restructuring proceedings.  

Background

On February 1, 2013, the Supreme Court of Canada rendered its much-anticipated decision in Sun Indalex Finance, LLC v. United Steelworkers et al. (Indalex). This bulletin focuses on pension plan administration issues arising from the Indalex case.

Facts

The Supreme Court of Canada released its highly anticipated decision in Indalex Limited (Re) this morning.  The ruling stemmed from an appeal of an Ontario Court of Appeal decision that had created commercial uncertainty among many participants in the financial services, pensions and restructuring industries.

Pension and insolvency lawyers have been waiting with great anticipation for the Supreme Court of Canada to rule in Indalex.  The decision was released on February 1, 2013 and represents a major statement by Canada’s top court on the intersection of pension and insolvency law.

“Insolvency can trigger catastrophic consequences”.

So begins the epic decision released this morning by the Supreme Court of Canada in Sun Indalex Finance, LLC v United Steelworkers, 2013 SCC 6 – a case that considers the impact of insolvency on the employee beneficiaries to a pension plan.

In (Re) Indalex, the Supreme Court of Canada (SCC) affirmed the super-priority of the security granted to a debtor-in-possession (DIP) lender, over a deemed trust created under provincial pension legislation, in the context of a Companies’ Creditors Arrangement Act (CCAA) proceeding. The SCC’s analysis leaves open further issues.

Introduction

A ruling on December 7, 2012, by the Supreme Court of Canada has determined that orders made under provincial environmental protection legislation can be compromised as part of insolvency proceedings. While not all regulatory claims will be compromised in this way, those that meet certain criteria of "monetary claims" can be. The decision in Newfoundland and Labrador v. AbitibiBowater Inc. has important ramifications for debtor companies and their stakeholders in respect of contaminated property and other regulatory matters.

Shareholders often overlook the need to properly document loan advances in their haste to provide funds to the company, without being aware of the significant consequences that can result.

This is another post-Indalex pension deficit priority case. Due to factual differences from Indalex, however, the pension claims were largely rejected.