The recent Ontario Superior Court of Justice decision in Re Indalex has confirmed that the “deemed trust” provisions of the Ontario Pension Benefits Act do not apply to funding deficiencies on plan wind up. Dismissing the “deemed trust” claim, the Court followed the precedent established by previous courts in decisions such as Re Ivaco Inc. and Usarco.
Indalex Ltd. obtained creditor protection under the Companies’ Creditors Arrangement Act (CCAA), and was able to obtain debtor-in-possession (DIP) financing pursuant to the terms of the initial order. A sale of Indalex’s assets was subsequently approved by the Court, and the Monitor was directed to make a distribution to the DIP lenders from the proceeds of the sale. At the sale approval hearing, two groups of pension claimants opposed the sale and claimed that assets equal to the funding deficiencies in two Indalex pension plans were deemed to be held in trust and should be remitted to the plans.
At the time of the approval order, Indalex had made all of the required contributions to both plans. Although one of the plans had in fact been wound up with a deficiency in 2006, all of the required special payments (excluding the last scheduled special payment to be made at the end of 2009, which was not payable because of the stay under the CCAA) had been made in accordance with the regulations.
Subsection 57(4) of the PBA provides that on plan wind up a deemed trust is created in respect of “employer contributions accrued to the date of the wind up but not yet due”. Subsection 75(2) mandates that on plan wind up the employer shall “pay the money due” in the prescribed manner and at the prescribed times.
Focusing on the specific meaning of the words “due” and “accrued” in these subsections, the Court took the position that the deemed trust provisions only apply to regular contributions together with those special contributions that were to have been made but were not. As there were no such amounts at the time of the sale, the Court concluded that there was not a deemed trust in respect of the plan deficiencies.
While the Indalex decision does not alter established deemed trust case law, the decision lends further support to the proposition that the deemed trust provisions of the PBA only extend to those employer contributions, including special payments, that are due and owing but have not yet been made.