Indalex Limited (Re), 2011 ONCA 265, released today online, is a lengthy and important pension decision. It deals with a Canadian company that is insolvent. Its pension plans are underfunded and in the process of being wound up. The company is the administrator of the pension plans.
The company obtains protection under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (CCAA). A court order enables it to borrow funds pursuant to a debtor-in-possession (DIP) credit agreement. The order creates a "super-priority" charge in favour of the DIP lenders. The obligation to repay the DIP lenders is guaranteed by the company's U.S. parent company (the Guarantee).
The company is sold through the CCAA proceedings but the sale proceeds are insufficient to repay the DIP lenders. The U.S. parent company covers the shortfall, in accordance with its obligations under the Guarantee.
The CCAA monitor holds some of the sale proceeds in a reserve fund. The pension plan beneficiaries claim the money based on the deemed trust provisions in the Pension Benefits Act, R.S.O. 1990, c. P.8 (PBA). The U.S. parent company claims the money based on its payment under the Guarantee.
The Court holds the money in the reserve fund must be used to pay the deficiencies in the pension plans in preference to the secured creditor.
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