On February 1, 2013, the Supreme Court overturned a controversial decision of the Ontario Court of Appeal which granted pension beneficiaries priority over DIP lenders in the context of a restructuring under the Companies’ Creditors Arrangement Act (“CCAA”).1 The Court of Appeal’s decision led many to worry that lenders would be reticent to advance funds to restructuring debtors for fear of not being able to secure charges which would outrank all other claims.
The Court of Appeal for Ontario's (the "OCA") decision in Re Indalex Ltd.1 was decried by professionals in pension, banking and insolvency practices. On February 1, 2013, the Supreme Court of Canada (the "SCC" or the "Court") overturned the OCA's decision.
Introduction
The Supreme Court has issued its much-anticipated decision in Sun Indalex Finance, LLC v. United Steelworkers.
The Supreme Court of Canada’s decision in (Re) Indalex has changed the landscape for both lenders and borrowers in Canada who sponsor registered defined benefit pension plans. For lenders, carefully drafted loan documentation and effective planning can enhance the protection of a secured lender’s position in the face of the broadened scope of a deemed trust applicable to a borrower’s defined benefit pension obligations.
On February 1, 2013, the Supreme Court of Canada released its decision in Sun Indalex Finance, LLC v. United Steelworkers[1]. The ruling:
The Supreme Court of Canada (“SCC”) recently released its much-anticipated decision in the Indalex Limited (“Indalex”) proceedings under the Companies’ Creditors Arrangement Act (the “CCAA Proceedings”). The decision is important for secured lenders in the context of an insolvency proceeding (“DIP Lenders”) or outside of an insolvency proceeding (“secured lenders”).
The Supreme Court of Canada’s decision in the case of Re Indalex Ltd. [2013] SCC 6 (the “Decision”) does not, as one national newspaper put it place “creditors before pensioners”. The Decision which overturned the Ontario Court of Appeal’s decision in Re Indalex Ltd. [2011] O.J. No.
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.