On the eve of Groundhog Day the Supreme Court of Canada recognized the long shadow of trouble cast by the Ontario Court of Appeal’s decision in Re Indalex Limited, reversing what many in the pension and insolvency industries viewed as an overreaching decision favouring pensioners over secured creditors. Despite the super-priority charge granted to debtor-in-possession (DIP) court-authorized loans under the Companies Creditors Arrangement Act (Canada), in 2011 the Ontario of Appeal Court ordered proceeds from the sale of Indalex assets be reserved to cover unsecured pension fund deficiencies in two Indalex employee pension plans. The controversial order was based on the deemed trust provisions in the Ontario Pension Benefits Act (PBA) and common law constructive trust principles.
With respect to the deemed trust, the Supreme Court applied the doctrine of paramountcy whereby the DIP charge supersedes the PBA statutory trust. The Supreme Court dismissed the constructive trust remedy as being inappropriate in the circumstances.