On February 18, 2010, the Superior Court of Ontario issued a judgment in Re Indalex which confirmed that the "deemed trust" under the Pension Benefits Act (Ontario) ("PBA") does not arise in respect of the solvency deficiency of a continuing pension plan or in respect of special payments in a plan wind-up which are not due and payable at the relevant time.
Indalex Limited and its affiliates ("Indalex Canada") obtained protection from their creditors under the Companies' Creditors Arrangement Act (Canada) ("CCAA"). In the CCAA proceedings, the Court issued an order (the "Approval Order") approving the sale of the assets of Indalex Canada and ordering the payment of the sale proceeds to the monitor for payment to Indalex Canada's debtor-in-possession lenders.
At the hearing of the Approval Order, assertions of deemed trust claims were made over the sale proceeds in respect of the unfunded pension liabilities of 2 pension plans. One pension plan had not been wound up. Indalex Canada had made all required contributions and no amounts were due or owing (including special payments in respect of the estimated wind-up deficiency) under the plan as at the date of the Approval Order. Another pension plan had already been wound up with a wind-up deficiency. As at the date of the Approval Order, all pension payments and special payments in respect of the wind-up deficiency due up to the date of the Approval Order had been paid although there were further annual deficiency payments required to be made.
The Court analysed the meaning of "due" and "accrue" in subsection 57(4) and section 75 of the PBA. Subsection 57(4) provides that, on a plan wind-up, there is a deemed trust in respect of an amount of "employer contributions accrued to the date of the wind up but not yet due under the plan or regulations". Section 75 provides that, on a plan wind-up, the employer shall pay the wind-up deficiency into the pension fund in the prescribed manner and at the prescribed times (the regulations made under the PBA require such wind-up deficiency be funded by annual special payments over a period of not more than 5 years).
The Court adopted the meaning of "accruing due" used in previous court decisions dealing with dividends and held that "accrue" connoted the ability to calculate a precise amount of money and "due" connoted that the amount was payable whether or not the time for payment has arrived. The Court also referred to the Ontario Court of Appeal decision in Re Ivaco Inc. which confirmed that a province could not, by legislating a deemed trust, alter the scheme of priorities under the federal bankruptcy statute.
Based on this analysis, the Court concluded that since all payments payable to the pension plans were made as at the date of the Approval Order and no amounts were "due" or "accruing due" at that time, so no deemed trust arose. As the deemed trust did not arise, there was no conflict between the federal and the provincial legislation.
This decision is another illustration of the difficulty in reconciling the requirements under the PBA with the federal regime of CCAA and the tension between the protection of pension benefits versus the ability of companies to obtain financing for their businesses and the rights of their secured creditors.
This decision is consistent with prior cases and confirms that provincial deemed trust will not extend to employer pension contributions which are not due and payable at the relevant time, irrespective of whether or not the pension plan is an ongoing plan or a wound-up plan.