August 2, 2011
Court of Appeal gives priority to pension funds in landmark Indalex decision April 7, 2011
In a precedent setting April 7, 2011 decision in the Indalex restructuring, the Ontario Court of Appeal ruled in favour of two groups of pensioners. Andrew Hatnay and Demetrios Yiokaris of Koskie Minsky LLP successfully represented one of these groups, whose approximate $3.2 million pension plan deficiency was ordered to be paid in priority to the interests of secured creditors. The pensioner groups argued that the deficiencies should be paid in priority to secured creditors because they are a deemed trust under s. 57(4) of the Ontario Pension Benefits Act and because of the companies’ breach of fiduciary duties as pension plan administrators.
Although the Ontario Court of Appeal clarified that decisions will be made on a case by case method and not all pension plan deficiencies will receive such priority, the implications are clear. Companies under CCAA protection cannot afford to ignore pensioners in insolvency proceedings. It is expected that companies will now be more diligent in informing and including pensioners in the restructuring process at all stages, and as early as possible. Employers who are also pension plan administrators will be more mindful of their obligations. Companies will now have to prove to Courts why it is necessary for them to avoid their obligations to underfunded pension plans, even for future special payments. Specifically, they will need to prove that such payments would thwart restructuring. Members of pension plans with deficiencies should now finally have a “seat at the table” and play a more active role during the compromise of claims and restructuring of the company.