21/2/2012: A landmark Ontario Court of Appeal ruling last year buoyed the hopes of retirees across the country who were facing drastic cuts to their pension income after the companies for which they worked went belly up. But so far, the ripple effects of ruling have been hard to measure, The Globe and Mail reported.
More than 10 months after the decision in the case of an insolvent Toronto-based aluminum processor called Indalex Ltd., the ruling has surfaced in courtrooms across Canada as insolvent companies struggle to restructure their operations and their pensioners look on anxiously.
The Indalex ruling gave that company’s pensioners priority over its other creditors. In so doing, it appeared to upend the traditional pecking order when a company seeks protection from its creditors, putting underfinanced pension plans ahead of key lenders.
The complex decision relied on the Indalex case’s particular facts. But it attracted widespread attention, given the well-publicized plight of pensioners for defunct companies such as Nortel Networks Corp., who saw their nest eggs disappear.
The Indalex ruling remains a focus in the arcane world of insolvency and pension lawyers on Bay Street, who warned at the time that the decision would make it difficult to secure financing for companies in distress.
Companies in court-supervised restructuring proceedings rely on what is known as “debtor-in-possession” or DIP loans from last-resort lenders, who would be reluctant to participate without being guaranteed first place in the payback line.
The Indalex decision itself now faces a hearing before the Supreme Court of Canada, scheduled for June 5. In the meantime, it has come up in several cases in which companies sought protection from their creditors in order to restructure, under the Companies Creditors’ Arrangement Act (CCAA). Read more.
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