Law Times

Page 10 March 18, 2013 Law Times • FOCUS SCC's Indalex ruling Complex case went beyond DIP priority having trouble finding the money to do so," says Ari Kaplan of Toronto's Koskie Minsky LLP. The court ruled that Ontario's Pension Benefits Act creates a statutory deemed trust that covers not only contributions paid and due to the date of the windup but any deficiency in windup benefits as well. "The deemed-trust provision is a remedial one," the majority wrote. "Its purpose is to protect the interests of plan members. This purpose militates against adopting the limited scope proposed by Indalex and some of the interveners. In the case of competing priorities between creditors, the remedial purpose favours an approach that includes all windup payments in the value of the deemed trust in order to achieve a broad protection." This aspect could give rise to various issues for certain sectors of the lending community. "The court's confirmation of BY Julius Melnitzer For Law Times T he Supreme Court of Canada's landmark decision in Sun Indalex Finance LLC v. United Steelworkers is a complex one. It engages insolvency, pension, and constitutional law as well as the law of constructive trust. While much of the attention so far has focused on the top court's answer to the question of whether defined-benefit pension plan shortfalls take priority over debtor-in-possession security, there are at least three other important elements of the decision. Here's a look at the important rulings in the case. 1. Where do pension shortfalls stand on the windup of a plan in relation to other creditors? "The key question here is what happens when an employer is winding up a pension plan and Security Act expressly makes such interests subordinate to deemed trusts under the [Pension Benefits Act]," says James Gage of McCarthy Tétrault LLP's Toronto office. Although some observers have expressed that lenders will adjust to this reality, Gage doesn't share that view. "Some lenders have taken a very conservative approach in assessing their risk while awaiting the Indalex decision," says Gage. "Now it's clear that they're going to face a priority issue and there is no guarantee that they can reverse that priority as part of a restructuring. So I'm not at all sure the issue is going to go away." As well, because the deemed trust covers not only payments due to the pension fund but also to the shortfall between the value of benefits payable and the assets available to satisfy them, lenders will find it difficult to assess their risk. 'In essence, the court said that when a judge acting under the CCAA, a federal statute, makes an order, that order is the equivalent of a federal statutory provision,' says Ari Kaplan. the existence of a constructive trust may have significant ramifications for lenders relying on security interests in accounts receivable and inventory because the Ontario Personal Property TOP AKERS NEWSMAND CASES C ION SURVEY COMPENSAT VILEGE LIMITS OF PRI July 2012 ENT A LAW TIMES SUPPLEM DECEMBER 2012 TUDENTS 4S $7.00 COUNSEL COUNSEL OUNSE COMPLAI NT Crown wasted $125K 11/22/12 3:29 PM SOCIAL ME DIA L AW TIM Khadr's ES lawyers no stran g P4 How to Legal du o have been in volved BY SIOB For Law T LELLAND hey are the nal defe two Torontobased crim nce only Can lawyers repr iesen Guantan adian still imp ting the amo Bay, risoned in a holding Their client, Om Cuba. ar Khadr, Minister pattern as he is stuc wait Canada Vic Toews to deci s for Public k in to Safety de on his year priso complete the retu rem and pub n sentence. With ainder of his rn to lic eigh should retu opinion divid Toews taking his ted over whether time mo Bay, rn to Canada or Khadr lawyers are putt John Nor remain in Gua ing ntanagovernm political and ris and Brydie Beth ent lega The conn to make a deci l pressure on ell the leged link ection with sion. Afghanis the gove to Al Qaeda are tan and rnment the that it is is using factors Norris belie al"to justi taking with fy the hard ves cumstan out look ces line every inter of the case." He ing at all of the da's stan national body notes that prac circe in has cond tically emned "There' this matter. CanaCanada s probably no othe today that that [this involves r case going on case] the in "In my view does," says Beth kinds of issue ell. s , Omar has been is a governm abused at every Canadian citiz en who turn and ent the She adds has failed him so incredib Canadian : "I've alwa guys in ly." ys belie Canada and I have ved we're the been prof good oundly See Pair, page 5 John Norris rebuffs C BY MIC F profile FOCUS ON P7 Pension s Law P8 in infam ous mat ter UTER RELM IN PE ight MART Spotlight rs' S otl t'l cases Speake since 20 06 Resea and Brydi IERNAN r LinkedIn L AM AN AD SE n Ltd. CONR In Motio rch I e Bethell first met BA call fo HAEL McK Law Time s up you ers to in HAN McC Times Nicholson spruce at a meeti ng organ ized by Huma ATIVE ALTERN S PTION r legal aid O . view CBA, page 5 A we've got law Photo: Laura Pedersen University of Faculty of Law UBCLASS? S E AR E WHO BUT THER TIONS FOR THOS OP . CAREER LLB OR JD HAVE AN NEW THE www.canad T RNING TO R ARE TU D EVEN AW FIRMS MANY LAW SHIP STRUCTURES AN RS R TNER RTNE NERS. TWO-TIER PA -EQUITIZATION OF PART DE EQUIT THE COVERED Manulife MAYO MORAN Toronto ' SN'T AW ISN'T LA ISN N LAW CTISING ACTISING NE PRACTISI YONE. ON O ER FOR EVER E LOTS OF OTHER n Rights Watch funding re $560 mill tem," he ion to the lega ederal said l aid sysJusti "It's a diffi . Rob Nich ce Minister funding incre his gove olson defended of governm cult time for all flat. He note ases were rnment's ent. essen levels d as well to approach our funding We've main that the tially tained ly enacted omn ing at his criminal legal level recenttime of aid restraint. s even in this soon cause a ibus crime bill Associati annual Canadia fundwould " Earl gal aid serv spike in dem on grill and for leing calls ing whil n Bar CBA ier at the conf ices. from the e rebuff's council erence, "Clearly, a review of federal organization for urging the govepassed a reso the where ther we have a lution situation funding. At the e will be rnment the crisi on rem to s in lega more peop ence, Nich CBA's annual l aid fund "address and and requiring syste basically duty coun le lawyers olson told the confer- effic mic issue that jeop ing as a will strai sel gathered lega crowd of iency and ardizes Convent at the will l aid plans in such n provincial ion Cen the Vancouver entire justice effectiveness cut into a way that of the that the tre on system." tion 'We've maint Conserv it il system the poorly fund Aug has boo ative gove . 13 hens also demande The resoluained our ed civthis time d a "com MacRury that we have at sted fede ive revie rnment of restraint,' funding levels this time criminal w" preral fund said. even says Rob ," legal aid ing for for criminal lega of federal fund "It' Nicholson. in from to $111 ing wor s clear that for l aid. $81 On Aug k, we need the syste . in power. million during million sor Photo: Gail m to enhanced Dan Mac 11, resolution to the J. Cohen its time funding "There's CBA's natio Rury, chairman spon- fund criminal legal a total com aid to ensu amental nal crim of the tion, justice in mitment inal re of ing told the council justice sec- try." our coun inflation that after The CBA into acco tak- to unt, fede Saskatoo 's attention now ral n, which turns will host next See GI ORG L ODED Financi ial ianlawyerm ag.com/4stu 1 dents INHOUSE vol.7 • issue 4 • 08.12 AM 12-06-13 11:13 AT THE INTERSECTION OF LAW & BUSINESS From left: Brian Hilbers, Av Maharaj, Nathalie Clark, Mark Adams, Veta T. Richardson, Megan Evans >> >> >> MIND THE DISCLOSURE GAP RE AP RE GAP LA LAW DEPARTMENT LAW DEPARTMENT AW EP MANAGEMENT: THE EVOLUTION OF THE EXTERNAL RELATIONSHIP SEVENTH ANNUAL INHOUSE/A SEVENTH ANNUAL IN OUSE/ACC VENTH VENT L INHO A INHOUSE/ACC OUNSEL ROUNDTABLE U E UNDTAB UNSEL UNDTAB UNDTAB NDT NDTAB NDTA NDTA DTA GENERAL COUNSEL ROUNDTABLE GENERAL COUNSEL ROUNDTABLE P 18 P18 P18 P.18 1 MANAGING MANAGING RISK IIN-HOUSE RIS RISK N-HOUSE OUS CANADIANLAWYERMAG.COM General counsel play a significant role in managing l l significant ma man managi g man ing an t e risk f the organizations they work for, and have ri ri organization the work for, and hav ga zation they work zation zation hey or atio ation tio io on o n have a av the risk of the organizations they work for, and have becom rusted advise becom rusted advis become trusted advise becom trust d advisers he process. become trusted advisers in the process. ec ecome rus ecom rust c ust s dv s dvisers dvis dvis vi process. process. ro s roc ss. become trusted advisers in the process. LAWTIMESNEWS.COM IH_August_12.indd 1 PUBLICATIONS MAIL AGREEMENT 40766500 PUBLICATIONS MAIL AGREEMENT ##40766500 La er Lawyer awy says 500 766500 ENT 40766500 E T GREEMENT # 4076650 I AGR MENT S MAIL AGREEM PUBLICATIONS MAIL 2012_Newsmakers.indd 1 g 20 ing 2012 ue 1 • Spr Vol. 7 • Iss CANADIANLAWYERMAG.COM/LEGALFEEDS EDS WeGotYouCover_LT_Mar4_13.indd 1 www.lawtimesnews.com 13-02-26 11:17 AM "Even when the risk is small, the problem may be a mile deep because deficits can be enormous and extremely difficult to quantify," says Gage. 2. Where do pension shortfalls stand in relation to security for debtor-in-possession lending? On this question, the court turned to constitutional law and the doctrine of paramountcy. "In essence, the court said that when a judge acting under the CCAA, a federal statute, makes an order, that order is the equivalent of a federal statutory provision," says Kaplan. In the context of Indalex, then, the judge's order giving super priority to the debtor-in-possession lender amounted to a valid federal order that didn't negate the existence of the provincial trust but subordinated it under the doctrine of paramountcy. 3. What is the scope of the fiduciary duty of a company that's both the employer and plan sponsor? At the outset, the court noted that conflict was inherent in the dual role of employer and plan administrator. However, acting in both roles couldn't in itself be a conflict giving rise to a breach of fiduciary duty because the statute allowed one party to wear both hats. Nevertheless, a conflict did occur where there was a substantial risk that the duty to represent pensioners "would be materially and adversely affected" by any duties to the corporation. Seeking the initial CCAA order didn't give rise to any conflict of interest on the part of Indalex and failing to give notice of it wasn't a breach of fiduciary duty. But a conflict did arise when Indalex sought the debtor-inpossession order and subsequent sale approval without notice to the plan beneficiaries. "In short, the difficulty was not the existence of the conflict but the failure to address it," the court wrote. "An employer administrator who finds itself in a conflict must bring the conflict to the attention of the  CCAA  judge. It is not enough to include the beneficiaries in the list of creditors; Indalex breached its fiduciary duty by failing to take steps to ensure that the pension plans had the opportunity to be as fully represented in those proceedings as if there had been an independent plan administrator, particularly when it sought the DIP financing approval, the sale approval, and a motion to voluntarily enter into bankruptcy." But unfortunately for the pensioners, no remedy for the breach was available to them. "Regardless of this breach, a remedial constructive trust is only appropriate if the wrongdoer's acts give rise to an identifiable asset which it would be unjust for the wrongdoer (or sometimes a third party) to retain," the court wrote. LT

• Cover