On April 7, 2011, the Ontario Court of Appeal released its judgment in the Re Indalex Limited case (Indalex).1 The decision addresses the interplay between the deemed trust provision in the Ontario Pension and Benefits Act (PBA)2 and the federal Companies’ Creditors Arrangement Act (CCAA),3 as well as the fiduciary duties of pension plan administrators in CCAA proceedings. Indalex is important for pension plan sponsors and administrators for a number of reasons:

  • First, the Court of Appeal has diverged from prior case law and adopted a more expansive interpretation of the deemed trust (effectively, a security interest given statutory priority) created by subsection 57(4) of the PBA. Accordingly, the deemed trust now applies to all amounts owed by an employer as a result of the wind-up of a pension plan, without regard to when the employer is required to pay those amounts;
  • Second, the decision emphasizes that an order made under the CCAA that purports to provide creditors with a “super-priority” charge ranking in priority to a PBA deemed trust may not be effective unless the parties affected by the order are given proper notice, and the necessity of creating the super-priority in the circumstances, as well any issue of paramountcy of federal bankruptcy law, is properly addressed before the Court; and
  • Third, the decision cautions that in circumstances of a CCAA restructuring, an employer’s duties as pension plan sponsor and administrator may conflict. A company that wears only its sponsor “hat” in such circumstances may thereby breach its fiduciary duties to plan members and beneficiaries.


The Indalex case involved co-ordinated restructuring proceedings commenced by the Indalex group of companies under Chapter 11 of the U.S. Bankruptcy Code in the United States and under the CCAA in Canada (the Proceedings). The restructuring strategy on both sides of the border was directed by the Chief Restructuring Officer of the Indalex companies in the U.S. (Indalex U.S.), and it was contemplated throughout that the Proceedings would be used to stabilize the Indalex business so that it could be sold off as a going concern.

At issue in the Indalex decision was the interplay between a debtor-in-possession (DIP) loan authorized in the course of the CCAA proceeding for the Canadian Indalex entity (Indalex Canada) and Indalex Canada’s obligations as sponsor and administrator of two pension plans – one for salaried employees (the Salaried Plan) and another for executives (the Executive Plan). Each of the plans had a funding deficiency at the time that the Proceedings were commenced. The Salaried Plan had already been ordered wound up and had a wind-up deficiency of approximately $1.8 million, which Indalex Canada was entitled to fund over five years in accordance with the PBA regulations. The Executive Plan had not yet been wound up (though it was ordered to be wound up after the Proceedings were commenced); however, it had a funding deficiency of approximately $3.2 million calculated on a wind-up basis.

At the commencement of the CCAA proceedings, Indalex Canada had made all payments into the plans as required, though annual payments would continue to be required in the case of the Salaried Plan, and liability for further payments would be triggered upon wind-up of the Executive Plan.

The DIP loan was authorized by court order at the outset of the CCAA proceedings and permitted Indalex Canada to borrow $24.4 million (subsequently increased to U.S. $29.5 million) to support operations during the period of the going concern restructuring. The court order authorizing the loan provided the DIP lenders with a “super-priority” charge ranking in priority to all other security interests, statutory or otherwise, and without which the DIP lenders would not have advanced the funds. The lenders also obtained a guarantee of the loan from Indalex U.S.  

A sale of the Indalex business was ultimately achieved as a result of the Proceedings. The total consideration was approximately U.S. $151 million for the Indalex assets in both the U.S. and Canada, but the proceeds for Indalex Canada specifically were insufficient to repay the DIP lenders in full. Indalex U.S. paid off the remainder of the loan in accordance with the guarantee.

Notably, the beneficiaries of the Indalex Canada pension plans did not receive notice of the initial court hearing to approve the DIP loan, nor was the CCAA court notified of the potential effect of the DIP super-priority charge on the entitlements of the beneficiaries of Indalex Canada’s pension plans. However, at the hearing of the motion to approve the sale of Indalex Canada assets, the United Steelworkers and a group of retired executives appeared as representatives for certain beneficiaries of the two pension plans and contested payment of the DIP loan in priority to the company’s pension plan funding obligations. They argued that the deemed trust created by subsection 57(4) of the PBA takes priority to the DIP “super-priority” charge, and that Indalex Canada had breached its fiduciary duties as administrator of the pension plans, including by abdicating its responsibilities once the CCAA proceedings had been commenced.

The CCAA judge approved the sale, subject to a reserve of $6.75 million to be withheld from the proceeds pending a determination of priorities as between Indalex U.S. (which was subrogated to the position of the DIP lenders upon payment of the guarantee) and the pension plans.


In circumstances where a pension plan is wound up, subsection 57(4) of the PBA deems the employer to hold in trust an amount of money equal to employer contributions “accrued to the date of wind up but not yet due under the plan or regulations.”

The Superior Court of Justice in Indalex held that since a plan sponsor is entitled amortize wind-up liabilities over a period of years, the liabilities are not accrued at the date of wind-up. However, the Court of Appeal reversed, and held that when a pension plan is wound up, all payments required to be made into the plan are accrued immediately, because the events that create plan liabilities “crystalize on the wind up date”. Furthermore, given this interpretation there is no reason to distinguish between the wind up liabilities in clause 75(1)(a) of the PBA, which relate to payments already due or accrued at wind up, and those in clause 75(1)(b), which establish additional liabilities if there are insufficient assets in the plan to fund certain specified pension benefits. Accordingly, all payments required to be made by the employer as a result of a wind-up are captured by the deemed trust provision.


Possibly more important than its interpretation of the PBA deemed trust provision was the Court of Appeal’s determination that the deemed trust took priority to the DIP lender’s super-priority charge. In making this determination the court was careful to recognize that a CCAA court has jurisdiction to create a super-priority charge ranking in priority to a deemed trust under the PBA, and that “it is important that the courts not address the interests of pension plan beneficiaries in a manner that thwarts or even discourages DIP funding in future CCAA proceedings.”  

However, it appears from the Court of Appeal’s judgment that in order for such a charge to rank in priority to a PBA deemed trust, the CCAA court will have to be fully apprised of the consequences of making such an order, so that the “paramountcy” of the CCAA over provincial statutory provisions may be properly invoked. Such a determination “depends on the applicant clearly raising the issue of paramountcy, which will alert affected parties to the risks to their interests and put them in a position where they can take steps to protect their rights.”

By contrast, in the Indalex case the Court of Appeal stated that “[t]he documents before the court at that time did not alert the court to the issue or suggest that the PBA deemed trust would have to be overridden in order for Indalex [Canada] to proceed with its DIP financing while under CCAA protection.” Moreover, the beneficiaries of the pension plans were not put on notice of the hearing requesting the super-priority. Finally, the Court held that there was nothing in the record to suggest that giving the deemed trust priority would have frustrated Indalex’s efforts to sell itself as a going-concern business.

It is important to note that the result may have been different if the liquidation of Indalex Canada had proceeded under the Bankruptcy and Insolvency Act.4


At common law, and by virtue of section 22 of the PBA, a pension plan administrator is subject to fiduciary obligations in respect of plan members and beneficiaries. An employer is often both sponsor and administrator of a pension plan, and consequently wears “two hats” in respect of the plan. In such cases, it has been held that the employer’s obligations depend on which hat the employer wears in making the decisions at issue.

The Court of Appeal’s decision in Indalex blurs this issue by holding that in the unique circumstances of the case, Indalex Canada simultaneously wore both its corporate sponsor hat and its administrator hat. While the corporate decision to sell the business under CCAA protection would normally attract only the sponsor’s hat, the Court held that in the particular circumstances before it,

Indalex could not simply ignore its obligations as the Plan’s administrator once it decided to seek CCAA protection. Shortly after initiating CCAA proceedings, Indalex moved to obtain DIP financing, in which it agreed to give the DIP lenders a super-priority charge. At the same time, Indalex knew that the Plans were underfunded and that unless more funds were put in to the Plans, pensions would have to be reduced. The decisions that Indalex was unilaterally making had the potential to affect the beneficiaries’ rights, at a time when they were particularly vulnerable.

The Court of Appeal held that Indalex Canada breached its fiduciary obligations by failing to take any steps to protect the vested pension benefits of its plan members, and by taking active steps to undermine the possibility of obtaining additional funding for the plans. In particular, the Court noted that Indalex Canada did the following:  

  • applied for CCAA protection without notice to plan beneficiaries;  
  • obtained a CCAA order that gave priority to DIP lenders over “statutory trusts” without notice to the plans’ beneficiaries;  
  • sold its assets without making any provisions for the pension plans;  
  • knew the purchaser was not taking over the pension plans; and  
  • moved to obtain orders approving the sale and distributing the sale proceeds to the DIP lenders, knowing that no payment would be made to the underfunded pension plans.  

The Court of Appeal also indicated that Indalex Canada’s corporate duties to act in the best interests of the corporation were in conflict with its duties to act in the pension plan beneficiaries’ best interests. Indalex Canada was not “at liberty to resolve the conflict in its duties by simply ignoring its role as administrator.” Rather, “at the point where its duty to the corporation conflicted with its duties as administrator, it was incumbent on Indalex [Canada] to take steps to address the conflict.”

The Court of Appeal does not indicate what steps would need to be taken in these circumstances; however, the decision is suggestive that it may be necessary to take “formal steps through the Superintendent, plan amendment, the courts, or some combination thereof, to transfer [the administrator’s] role to a suitable person.” By analogy to conflict of interest situations in the corporate context, it may also be prudent for employers to consider striking an independent committee with independent legal advice for the plan administrator’s role.