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SCC Reverses Indalex Decision
February 1, 2013

On the eve ofGroundhog Day the Supreme Court of Canada recognized the long shadow of trouble castby the Ontario Court of Appeal’s decision in Re Indalex Limited, reversing what many in the pension and insolvencyindustries viewed as an overreaching decision favouring pensioners over securedcreditors.

Despite the super-priority charge granted to debtor-in-possession(DIP) court-authorized loans under the CompaniesCreditors Arrangement Act (Canada), in 2011 the Ontario of Appeal Courtordered proceeds from the sale of Indalex assets be reserved to cover unsecuredpension fund deficiencies in two Indalex employee pension plans. The controversial order was based on thedeemed trust provisions in the Ontario PensionBenefits Act (PBA) and common law constructive trust principles.

With respect to the deemed trust, the SupremeCourt applied the doctrine of paramountcy whereby the DIP charge supersedes the PBA statutorytrust. The Supreme Court dismissed theconstructive trust remedy as being inappropriate in the circumstances.

Sun Indalex Finance,LLC v. United Steelworkers

For questions concerning the information in this article, please contact Claude Marchessault.