On April 7, 2011, the Ontario Court of Appeal released its judgment in theRe Indalex Limited case (Indalex).1 The decision addresses the interplay between the deemed trust provision in the Ontario Pension and Benefits Act (PBA)2 and the federal Companies’ Creditors Arrangement Act (CCAA),3 as well as the fiduciary duties of pension plan administrators in CCAA proceedings. Indalex is important for pension plan sponsors and administrators for a number of reasons:

On April 7, 2011, the Ontario Court of Appeal (the “OCA”) released its decision in Indalex Limited, ordering that the reserved sale proceeds of a going-concern sale involving the Canadian Indalex entities (“Indalex Canada”), held by the court-appointed monitor, FTI Consulting Inc.

INTRODUCTION

As international trade grows, financial institutions and manufacturers of equipment recognize that international sales or globalization of their business is a requirement to staying competitive.

On April 7, 2011, in Indalex Limited (Re), 2011 ONCA 265 (Re Indalex), the Ontario Court of Appeal (the Court) held that in certain circumstances a pension plan wind-up deficit should be paid in priority to claims of secured creditors, including amounts outstanding under a court-approved debtor-in-possession facility (the DIP Facility).

A ruling on April 7, 2011 by the Ontario Court of Appeal has resulted in deemed trust and unsecured breach of fiduciary duty claims in favour of pension beneficiaries being given priority ahead of court-ordered “super-priority” charges.

On April 7, 2011, the Ontario Court of Appeal released its long-awaited decision in Re Indalex Limited 1. In a unanimous decision, the Court of Appeal overturned the decision of the Ontario Superior Court of Justice dated February 18, 2010, and allowed the appeals of the United Steelworkers and a certain group of retired executives. The Court of Appeal ordered FTI Consulting Canada ULC (the Monitor) to pay from the reserve fund (the Reserve Fund) held by the Monitor from the sale of Indalex Limited, Indalex Holdings (B.C.) Ltd., 6326765 Canada Inc. and Novar Inc.

On April 7, 2011, in the context of a liquidating CCAA that achieved a going concern sale of the debtor’s business, the Ontario Court of Appeal held that:

In Canada, as in the US, corporate debtors are permitted with court approval to obtain DIP financing on a super-priority basis. The Order typically provides protections as hard as a nutshell, including that pension claims cannot crack the shell of protection and are subordinated to the new DIP loan. A recent Canadian decision, however, held that certain pension claims could crack the nut wide open and should be paid ahead of a DIP loan. Re Indalex Limited, 2011 ONCA 265 (Apr. 7, 2011).

Certain provisions of Bill C-9, last year's Budget Bill, which amended the federal Pension Benefits Standards Act (PBSA), have been proclaimed in force.

On April 7, 2011, the Ontario Court of Appeal rendered a decision in the restructuring proceedings involving Indalex Limited (Indalex) under the Companies’ Creditors Arrangement Act (CCAA) that is inconsistent with prior non-binding comments by the same court relating to the priority of certain pension claims. The decision has material implications for institutional financiers that lend against the inventory, accounts receivable or cash collateral of businesses with Ontario regulated defined benefit pension plans and for the access of those businesses to secured credit.