Publication
Legal Alert: SCC Delivers Indalex Decision With Significant Implications for Lenders, Pension Administrators & Unions
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February 1, 2013
On February 1, 2013 the Supreme Court of Canada released its decision in Sun Indalex Finance, LLC v. United Steelworkers, with significant and far ranging implications for pension administrators, lenders and unions:
Statutory Deemed Trust Over Full Pension Plan Wind Up Deficits. In a split decision, the majority of the SCC decided that, with respect to the salaried pension plan, section 57(4) of the Pension Benefits Act (Act) creates a deemed trust over wind‑up deficits, even if the amount is not yet calculated, and Indalex is deemed to hold in trust the amount necessary to satisfy the wind‑up deficiency.
Federal Court Ordered Insolvency Priority Trumps Provincial Deemed Trust Pension Priority. The SCC decided that a statutory deemed trust under provincial legislation (like the Act) continues to apply in Companies’ Creditors Arrangement Act (CCAA) proceedings, subject to the doctrine of federal paramountcy: federal law prevails over provincial law in the case of a conflict. The court‑ordered priority to the debtor in possession (DIP) loan based on the CCAA has the same effect as a statutory priority thus the DIP loan supersedes the deemed trust based on the doctrine of federal paramountcy.
Fiduciary Duty Breached But Constructive Trust Not Appropriate Remedy Here. In another split decision, the majority of the SCC decided that Indalex, the employer-administrator, breached its fiduciary duty by failing to take steps to ensure the pension plans had the opportunity to be represented in the CCCA proceedings, at least when it sought the DIP financing approval. However, a constructive trust was not the appropriate remedy; there was no evidence that Indalex’s breach of its fiduciary duty resulted in any property or asset directly related or traced to the wrong.
Click here to read the SCC’s decision in Sun Indalex Finance, LLC v. United Steelworkers.
Watch for our full analysis of this case to be published soon.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Bankruptcy and Insolvency Team or our Pensions and Benefits Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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