On Friday, February 1, 2013, the Supreme Court of Canada will release its highly-anticipated pension decision in the Re Indalex Limited case, one that could have potentially far-reaching implications for lending transactions.
Indalex Limited and its U.S. parent sought protection from their creditors under the Companies Creditors Arrangement Act and under Chapter 11 of the U.S. Bankruptcy Code. The court authorized a loan under a debtor-in-possession (“DIP”) credit agreement and gave the lenders a super-priority charge against Indalex’ assets. When the assets of Inalex were sold, two groups of pension plan members argued that a portion of the proceeds should be reserved for payment of pension fund deficiencies. Despite the super-priority granted under the DIP loan, the Court of Appeal found in favour of the pension plan members, holding that that the deemed trust provisions in the Ontario Pension Benefits Act in respect of the Salaried Pension Plan that had been wound up prior to the CCAA proceedings was effective as against the guarantor of the DIP loan. The court also applied a constructive trust in respect of the deficiency in the Executive Pension Plan that had not been wound up.