The long-awaited and highly anticipated decision of the Supreme Court of Canada in the Indalex case was released today. The decision stems from an appeal of an Ontario Court of Appeal decision dealing with a priority dispute between a court-ordered debtor-in-possession (DIP) charge granted under the Companies’ Creditors Arrangement Act (Canada) (CCAA) and a deemed trust for a wind-up pension deficiency asserted under the Pension Benefits Act (Ontario)(PBA).
The decision is lengthy, with concurring and dissenting opinions, and will have a significant impact on stakeholders of insolvent corporations. In summary, the Supreme Court allowed the appeal on the basis that the doctrine of federal paramountcy protected the priority of the DIP lender’s charge granted under the federal CCAA to the proceeds of sale of the Indalex business. However, in a split decision, the Supreme Court affirmed the Ontario Court of Appeal’s finding that the PBA provides a deemed trust for the deficiency in a pension plan on a wind-up.
In addition, the Supreme Court overturned the Court of Appeal’s holding that there was a constructive trust for the benefit of the pension claimants arising from a breach of fiduciary duty. The Supreme Court set out some guidance on how corporations which are also the administrators of pension plans must conduct themselves to comply with their fiduciary duties.