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Hollinger Canadian Publishing Holdings Co. (“HCPH”)

Update – December 23, 2015

We are pleased to report that HCPH will be paying a third and final distribution to all eligible creditors of HCPH, which are predominantly retirees with OPEB claims. The distribution is expected to be released before the end of December, 2015. As you are aware, the second distribution was paid by HCPH in March/April 2015. Since that time, the company has been working to finalize corporate tax and other administrative matters that needed to be addressed prior to being able to determine the amount of remaining funds available for a final distribution. We have been in touch with the company on a regular basis to address the remaining issues so that the final distribution could proceed. The final distribution is expected to be approximately 2.6 cents on the dollar of claim amounts that have been “grossed-up” (i.e., increased) to take into account the impact of income tax. The third distribution will bring the total distribution paid by HCPH to creditors in its CCAA proceeding to approximately 21-22 cents on the dollar (comprised of the 7 cents/dollar distribution in June 2014; the 12-13 cents/dollar distribution in March 2015, and the third and final 2.6 cent/dollar distribution in December 2015).

Pursuant to the January 30, 2015 court order which approved the company proceeding with a final distribution, due to the administrative costs to HCPH associated with the preparation of any distribution, eligible retirees will only receive a cheque if an OPEB claim generates a cheque of $10 or more to the retiree.

Tax slips will be mailed to you by HCPH under separate cover and are expected in early 2016.

We mailed a letter on December 21, 2015 to all HCPH retirees providing an update on the distribution, the CCAA proceedings and the filing of income tax returns for those with health benefit claims. To view a copy of our letter please click here.

UPDATE – Tax Inquiries Regarding Advance Tax Ruling (updated March 26, 2015)

We have received questions regarding the filing of tax returns for amounts relating to the Advance Tax Ruling (ATR) and how to report the amounts relating to your claim for the loss of health benefits.

If you have not yet filed your 2014 tax return

If you have not yet filed your 2014 tax return, you should refer to the cheque stub that was sent by HCPH with your June 2014 distribution to identify the amount of your health benefit claim. Please contact us if you do not have a copy of your stub. The amount that relates to your health benefit claim does not need to be reported on your tax return. You only need to report amounts for any other distributions (e.g. in respect of your claim for life insurance, etc.) you may have received on line 101 of your tax return. The breakdown of amounts and what types of claims you have is set out in the cheque stub.

For example, if box 14 on the T4 you received from HCPH indicates you received $1,000 in respect of employment income and your June 2014 stub indicates that $600 of this amount relates to your health benefit claim and $400 relates to other claims, you should only report $400 on line 101 of your tax return but not the $600. All other claims other than the health benefit claim are taxable and should be reported.

The tax withheld by HCPH as shown on your T4 slip should be included on line 437 of the tax return, and the Employment Insurance (EI) premiums should be reported on line 312. These amounts will be credited towards your other 2014 tax payable. If the amount of tax withheld and EI contributions are greater than the amount of tax and EI you were required to pay for 2014, you will be entitled to receive a refund from CRA.

It is important that you provide CRA with a copy of the ATR. As we advised in our past correspondence, please instruct your tax preparer to enclose the ATR with your tax return when it is filed, or if you prepare your tax return yourself, please ensure that you enclose the entire ATR document that we previously sent to you with your return.

If you file your tax return online, we recommend that you also mail the ATR to your local tax office of the CRA with a cover letter making clear that the ATR should be considered along with your tax return. The tax services office address can be found on the CRA website: http://www.cra-arc.gc.ca/cntct/tso-bsf-eng.html.

A copy of the Advance Tax Ruling (ATR) is available here.

The ATR only applies to amounts withheld by HCPH on its distribution payment to you which the company then paid to CRA. If you are filing a return to Revenu Quebec you will not receive a refund for the amounts withheld by HCPH and paid to Revenu Quebec under the Taxation Act (Quebec). If you have any questions about this please let us know.

If you have already filed your 2014 tax return

If you have already filed your tax return, please review the Notice of Assessment that you receive from CRA. If the Notice of Assessment includes the amount of your health benefit distribution in the calculation of your income, then that is an error. Please contact us at hcph@kmlaw.ca or by telephone at 1-866-545-9917 immediately, and we can assist contacting CRA within 90 days of the date of the Notice of Assessment to object to the Notice of Assessment on your behalf.

Medical Expense Tax Credit

There is no requirement to report the distribution you received in respect of health and dental benefits (the “Payments”) on your federal T1 General Income Tax and Benefit Return. However, you should not claim the medical expense tax credit for 2014 and following years until such time as your cumulative medical expenses since the receipt of the Payments exceed the Payments received.

For example, Mr. X receives payments of $2,500 in 2014 and $5,000 in 2015. Mr. X incurred expenses eligible for the medical expense tax credit of $2,000 in each of 2014, 2015, 2016 and 2017. Mr. X should not report the Payments on his 2014 or 2015 T1 returns. Mr. X should not claim the medical expense tax credit until his expenses exceed the amount of the Payments of $7,500. Consequently, he will not claim the medical expense tax credit in 2014, 2015 or 2016 and will claim a $500 medical expense tax credit in 2017.

The above does not apply for Quebec tax purposes. Individual residents in Quebec are required to report the Payments on form TP-1.D-V, and the Payments do not affect the claim medical expense tax credits on form TP-1.D-V for Quebec income tax purposes.

This information was sent to those identified as a retiree who received a distribution payment form the company in June 2014 in respect of a claim for the loss of health benefits from HCPH. To view a copy of the letter, please click here.

If you have any questions with respect to filing your 2014 tax return and the ATR, please do not hesitate to contact our toll-free hotline at 1-866-545-9917 or email us at hcph@kmlaw.ca and we can assist you further.

Update – March 4, 2015

We are pleased to report that on January 30, 2015, the Superior Court of Justice (Commercial List) approved the motion by the company for a second distribution to retirees with OPEB claims. The approval follows months of negotiations with the Canada Revenue Agency with respect to finalizing corporate tax issues and the court order includes an approval of the Memorandum of Agreement that was entered into between the parties.

The Company is still finalizing outstanding certain financial liabilities in order to be able to determine the distribution amount but we expect a distribution rate in the range of 12 to 13 cents on the dollar to be released in late March 2015. We will provide information regarding the timing and amount of the distribution as soon as it is available.

To view a copy of the Order of Mr. Justice McEwen, please click here. To view a copy of the Endorsement by Justice McEwen, please click here.

Uncashed Cheques

In finalizing the second distribution, the Court also approved a protocol for any uncashed cheques. Section 5.08 of the CCAA Plan of Compromise provides that cheques that become stale-dated (i.e., uncashed cheques that are older than 6 months) will be returned to the available cash pool for distribution to other creditors. As a result, the Court ordered that Representative Counsel and the company will make reasonable efforts to contact anyone with an uncashed cheque and will assist the person in cashing the cheque or obtaining a replacement cheque. Any uncashed cheques that become stale-dated after six months will form part of the uncashed distribution fund and depending on the size of the uncashed distribution fund, may result in a further and final distribution to OPEB members.

Please note that pursuant to section 5.05 of the HCPH CCAA Plan of Compromise, the Company is not required to send cheques of $10 or less. As a result, whether or not a further third and final distribution will be sent to an OPEB claimant will depend on the size of the final available cash pool and the size of your claim.

Tax Gross-Up Adjustment for Health Benefit Claims

Before we obtained the Advance Tax Ruling, a tax gross-up amount was added to each retiree’s health claim on account of the impact of income tax. Due to the successful Advance Tax Ruling, this claim needs to be adjusted to ensure an overpayment is not made. This means that you will have the amount that was received on the interim distribution reduced from your final claim as you are able to receive a refund from the CRA when you file your taxes.

The adjustment is necessary as the Advance Tax Ruling holds that no tax is payable on the distribution in respect of the health benefit claim. As explained in our December 22, 2014 letter, if you are a retiree who received a distribution in 2014 in respect of a health benefit claim, you should provide a copy of the Advance Tax Ruling to your tax preparer when you file your tax return in 2015 so that you can recover the tax that the company withheld from the June 2014 distribution relating to your health benefit claim. It is important that CRA receives a copy of the Advance Tax Ruling (ATR) document. Please instruct your tax preparer to enclose the Advance Tax Ruling with your tax return when it is filed, or if you prepare your tax return yourself, please ensure that you enclose the Advance Tax Ruling with your return when you file your own taxes. If you file your tax return on line, we recommend that you mail the ATR to CRA with a cover letter making clear that the ATR should be considered with your tax return.

The adjustment to health benefit claims was Court approved pursuant to section 5.09(b) of HCPH’s CCAA Plan of Compromise to ensure there were not any improperly inflated claims that would prejudice those who did not have a health benefit claim.

2014 T4 Slips

The Company sent out T4 slips to OPEB claimants in respect of the June 2014 distribution. If you have not received your T4 slip please contact the Company directly at 416-361-1666.

Update – December 22, 2014

We mailed a reporting letter to all retirees on December 22, 2014 providing an update on a number of issues, including the next interim distribution, our success at obtaining an Advanced Tax Ruling from CRA that distributions from HCPH in respect of retirees’ health benefit claims are not taxable, and a refund from HCPH pension plans to HCPH as part of the pension wind up process. A copy of our mailing can be viewed here.

CRA Advanced Tax Ruling – Distribution in Respect of Retiree Health Benefit Claims are not Taxable

We are pleased to report that we recently received the Advance Tax Ruling from CRA granting our request that the distributions with respect to the health benefit claim be held non-taxable. The Ruling will provide tax savings to all retirees with a health benefit claim as the distribution amounts in respect of that claim have been expressly held by CRA to be not subject to tax. To view a copy of the Ruling please click here

If you are a retiree who received a distribution in 2014 in respect of a health benefit claim, we suggest you provide a copy of the Ruling to your tax preparer when you file your tax return in 2015 so that you can recover the tax that the company withheld from the June 2014 distribution relating to your health benefit claim. The company should provide you with a T4 slip in early 2015 reflecting the June 2014 distribution.

Pension Refund to HCPH for the Wind-Up Process

As we explained in prior correspondence, we were successful in negotiating a transaction with BMO Insurance (“BMO”) for the company to be able to purchase annuities to continue full payment of pension benefits from all HCPH pension plans (i.e., without any reduction), and still have some funds remaining for distribution to retirees on OPEB claims. All eligible pensioners should by now have received correspondence from BMO explaining the annuity process, and are receiving continuation of full pension benefits from BMO.

As part of the pension wind up process, it was subsequently determined that there was approximately $3.8 million of excess funds that remained in the HCPH plans after the purchase of the annuities with BMO using the pension fund assets. The company applied to the Financial Services Commission of Ontario (“FSCO”) for a refund of those funds and on November 12, 2014, FSCO approved the payment of approximately $3.8 million from the HCPH pension plans to HCPH. HCPH has advised us that it expects to receive these funds imminently. When received, these funds will also contribute towards the next distribution and will generate a higher payment to retirees.

Pacific Press Trust Wind Up

As previously report on this website, we are pleased to report that on August 19, 2014, Mr. Justice McEwan of the Ontario Superior Court of Justice (Commercial List) granted HCPH’s motion to withdraw funds from the dormant Pacific Press Trust for payment back to HCPH. The payment back to HCPH will provide approximately $1.48 million of additional cash for HCPH to distribute to creditors of HCPH, of which the retirees are the overwhelming group. To view a copy of Justice McEwan’s order and endorsement please click here.

We conducted an extensive investigation of the former beneficiaries of the trust and had discussions with the applicable union (Unifor, Local 2000, formerly CEP, Local 2000) to ensure that the rights and benefits of any former beneficiaries were protected. The Union confirmed to us that all of their affected members were sufficiently protected. Accordingly, we attended in court with the company to support the motion for the withdrawal of the trust funds.

The Pacific Press Trust was established by Pacific Press Limited, a subsidiary of Southam Inc., to provide disability and other benefits for employees and disabled employees of Pacific Press in accordance with the provisions of the Pacific Press Members’ Benefit Plan.

Southam, along with other Hollinger entities operated a newspaper business that included Pacific Press Limited. Southam subsequently became part of HCPH and in 2000, HCPH sold Pacific Press along with the majority of its other newspaper assets to CanWest. As part of this transaction, and following an arbitration and settlement agreement, amounts were paid by HCPH to CanWest in respect of liabilities for certain inactive employees. As a result, ten persons who were identified as originally designated as eligible beneficiaries of the Pacific Press Trust continued to receive benefits they are entitled to from plans through CanWest instead of the Pacific Press Trust.

The Pacific Press Trust has been dormant and inactive for almost fifteen years. Neither the Pacific Press Trust nor HCPH is paying any amount to the Former Beneficiaries. No one, including the Trustees or any of the Former Beneficiaries, or anyone else, has made any claim or asserted any legal claim or other entitlement to any of the trust funds.

For more information and background on the Pacific Press Trust, please see the Motion Record of HCPH that has been filed for the August 19, 2014 motion, which can be accessed here.

Please also see the Motion Record of HCPH that was filed when HCPH sought directions from the Court with respect to the proposed motion, dated May 12, 2014, which can be accessed here.

The Court provided direction to HCPH in respect of the motion including for preparation of and posting a notice, which can be viewed here.

If you have any questions about the mailing or any of the above information, please feel free to contact us on our toll-free hotline at 1-866-545-9917 or email us at hcph@kmlaw.ca

Background

By Order of the Ontario Superior Court of Justice dated December 10, 2009, Koskie Minsky LLP (“KM”) was appointed as Representative Counsel to act for all OPEB Plan members and beneficiaries in respect of issues affecting these members’ post-employment and post-retirement benefits in HCPH’s proceedings under the Companies’ Creditors Arrangement Act (“CCAA”). On July 27, 2010, the scope of KM’s role as Representative Counsel was expanded to include issues that affect members or beneficiaries of the companies’ Pension Plans (as defined in the Court documents).

CCAA Plan

As Representative Counsel, we negotiated with HCPH and Ernst & Young Inc. (the “Monitor) to determine the claims of retirees against HCPH. An agreement was reached in June 2012, which included the windup of six registered pension plans HCPH sponsored and the calculation of claim amounts for retirees in respect to the termination of other post-employment benefits (“OPEBs”). Details of the CCAA Plan of Compromise were provided in a letter to members dated June 18, 2012, a copy of which is available here.

The CCAA Plan was approved by HCPH’s creditors at the creditors’ meetings held on July 20, 2012 and sanctioned by the Court on July 31, 2012. It provided for a small payment to the pension plans to ensure that they were fully funded, and the rest of the funds would flow to the OPEB claimants.

Motion to recover funds from STMG Trust for HCPH

In April 2012, Representative Counsel filed a motion with the Court for the recovery of amounts from a trust fund set up by HCPH, at the direction of SunTimes Media Group (“STMG”), to indemnify the directors of STMG against a series of defamation suits brought by Conrad Black. Representative Counsel took the position that the amount remaining in the trust fund should be returned to HCPH. The motion was settled through mediation held in September 2012, with HCPH recovering $2.95 million. As the retirees are the predominant creditor group of HCPH, the bulk of those funds flow to members as contributions to the underfunded HCPH pension plans and then as a cash distribution in respect of OPEB claims. A copy of the endorsement of Associate Chief Justice Cunningham from the mediation is available here.

High annuity purchase costs for HCPH pension plans

In December 2012, Representative Counsel was informed by HCPH’s actuary, Mercer Canada Ltd. (“Mercer”), that the initial cost for HCPH to purchase annuities from life insurance companies to take over the payment of pension benefits had been underestimated.

As a result, HCPH advised in December 2012, that there was not enough cash available in the pension plans and the company’s own assets to purchase annuities to continue the payment of pension benefits at full amounts. Furthermore, if the annuity purchases proceeded at those prices, not only would it result in a reduction for pension benefits but there would not be any cash left in HCPH for a distribution on the OPEB claims of retirees.

Given the above development, Representative Counsel took the position that the CCAA Plan of Compromise (“Plan”) could not be implemented as originally planned, as the premise of the Plan had been based and negotiated that a payment would be required for the pension annuity purchases, leaving an amount to distribute on behalf of OPEB claims. On December 12, 2012, the company sought direction from the Court with respect to the wind up process, including a request for the Court to approve the suspension of the wind-up of the registered pension plans, (with the exception of the wind up of the Windsor Star plan), pending further direction from the Court.

Over the next several months, under the supervision of the Court, Representative Counsel and your Client Committee continued to work with HCPH and the Monitor to negotiate and meet with life insurance companies to negotiate lower annuity pricing for the potential purchase of annuities.

In June, 2013 a favorable arrangement was negotiated with BMO Insurance, who agreed to provide annuity contracts at a price that will continue payment of pension benefits (i.e. without any reduction to pension benefits) for all members of the HCPH pension plans and leave an amount of cash for a meaningful OPEB distribution. One June 19, 2013, the Court was informed of the development and HCPH re-started the pension plan wind-up process.

As a result of the further negotiated arrangement, effective as of October 1, 2013, BMO Insurance has assumed full responsibility for pension benefits payable under the HCPH plans (March 2013 in the case of the Windsor Star Plan and September 30, 2013 in the case of the Sterling Plan)

The payment of commuted value transfer requests and excess contribution refunds to affected pension plan members were made by HCPH in July, 2013.

Interim Distribution to OPEB Claims

After extensive negotiations with the company regarding a distribution to OPEB claimants, the Company on May 12, 2014 brought a motion before the Superior Court of Justice (Commercial List) for approval of an interim distribution of $3 million to all OPEB claimants, which the court granted. The distribution of approximately $0.07 on the dollar of OPEB claims was made in June and July to eligible members.

This update was provided in our mailing to members, a copy of which can be viewed here.

If you have any questions please contact Representative Counsel through our hotline at 1-866-545-9917 or email at hcph@kmlaw.ca.

Windsor Star Pension Wind Up

On June 18, 2013, the Windsor Star Pension Plan was wound-up with the company purchasing annuities from BMO Insurance that continues to pay full pension benefit for retirees. The wind-up report approved by the Financial Services Commission of Ontario indicated that the pension fund had surplus cash after the wind-up process was completed. We negotiated with HCPH that all of the surplus should be distributed to members, and the company agreed. The wind-up has now been completed and we have been advised by HCPH that the surplus cheques were mailed out to eligible members in August 2014.

This update is provided in our mailing to eligible members, a copy of which can be viewed here.