Law Times

Law timeS • September 3, 2012 Conflicting rulings create uncertainty in insolvency world A NEWS BY KENDYL SEBESTA Law Times complex web of rul- ings from Ontario' pension and insolvency law on its head have leſt many lawyers with unanswered questions about the status of pension plan members and lenders in restruc- turing proceedings. In 2011, the Ontario Court of courts that have turned the world of s debtor-in-possession lenders. The decision shook the world of pension and insolvency lawyers because it upset the traditional or- der under the Companies' Credi- tors Arrangement Act that placed lenders before pension plan mem- bers in insolvency proceedings. The Supreme Court of Canada Appeal ruled in Re Indalex Ltd. that pension-plan deficiency claims could have priority over the company' s other creditors such as known as the Timminco entities. The entities obtained protection under the CCAA in January. At the time, they sponsored one under- funded pension plan registered in Ontario and two in Quebec. The unions involved in both proceedings had argued that the entities had two hats as an ad- ministrator and sponsor of the pension plans, a fact that created a conflict of interest in the duty they owed to their plan members. However, the Superior Court ruled that the suspension of spe- cial payments didn't prejudice the pension plan members because the entities would likely go bank- rupt if the CCAA restructuring failed. Because of that, the court ruled the relief wouldn't infringe the two-hats doctrine from In- dalex and decided it could over- ride provincial legislation. The conflicting decisions raise granted leave to appeal in Indalex and a hearing took place on June 5. However, the Supreme Court has yet to release its decision, a situation that' ser Milner Casgrain LLP, says while Timminco addressed the more immediate issues of the so-called two-hats conflict held by the Timminco entities, it leſt many long-term questions un- resolved that some lawyers hope the Supreme Court' Indalex will address. "Timminco didn't tell us how to s decision in deal with the two-hats conflict in the weeks and months following insolvency, ers' dual role as administrators and sponsors of pension plans. According to Picard, while In- " says Picard of employ- dalex pointed out the conflicting duties held by employers, it gave no roadmap for resolving them. "Does the employer who ad- Our eReference Library is Growing Again ministers a pension plan even have to try to resolve the two- hats issue?" asks Picard. "Indal- ex pointed out the conflicting duties but gave no roadmap. One option would be to give up the pension plan entire- ly. But that could be irrevoca- bly damaging to pension plan members. I hope we get guid- ance from Indalex because I think these conflicting duties can be reconciled. Justice ruled in Timminco in Feb- ruary that super-priority status might apply to some claims and thereby put them ahead of pro- vincial statutory deemed trusts related to pension amounts in cer- tain circumstances. The decisions related to the ongoing insolvency proceedings of Timminco Ltd. and Bécancour Silicon Inc., both The Ontario Superior Court of " Carswell-33184_LT_Sep3_12.indd 1 Carswell eReference Library® is a virtual library that allows subscribers to access print looseleaf products in an online format. New titles have been added to help you get the content you need faster. EXPERIENCE ALL THE BENEFITS OF eREFERENCE RESEARCH: Register and request password access for an unlimited number of users at the same location* Reduced Administrative tasks: Product updates are automatically integrated and filed online Multiple Search Options: Quickly search all content for faster, better results CARSWELL eREFERENCE LIBRARY TITLES ARE AVAILABLE IN TWO SUBSCRIPTION OPTIONS Print plus Online – Print looseleaf plus online access for an unlimited number of users at the same location Online Only – Subscribing to the online only option offers a discount off the print price plus online access for an unlimited number of users at the same location Unleash the power of looseleafs To learn more about the Carswell eReference library visit www.carswell.com/ereference among pension and insolvency lawyers, lenders, and pension plan members who don't know how conflicting decisions in recent cas- es like Re Timminco Ltd. will factor into the issue. Most recently, the Ontario Court of Appeal denied leave to appeal of a Superior Court ruling in Timminco. Mary Picard, a partner at Fra- s creating confusion a number of important questions, particularly when it comes to the Court of Appeal' s handing of the doctrine of federal paramountcy in Indalex, says McCarthy Tétrault LLP associate Mark Firman. "The where it is impossible to simul- taneously comply with validly enacted federal and provincial legislation, the federal legislation prevails," says Firman. "In Indalex, the CCAA judge doctrine holds that a change in the law since it was previously not seen as necessary to specifically invoke the doctrine for it to apply, had made an order pursuant to federal legislation that granted the DIP lender super priority over all trusts, statutory or otherwise, which would appear to include trusts in respect of pension plans arising under the Pension Ben- efits Act. Many would expect the doctrine of federal paramountcy to give effect to this order, but the Court of Appeal found that it did not do so in this case. peal found instead that the doc- trine of paramountcy wasn't in- voked when the creditor parties sought their initial order. "To many, this appeared to be Firman says the Court of Ap- " to view Indalex as a decision that was very specific to its facts. He notes Indalex involved unique issues such as the creditor and the insolvent employer being related companies and the pen- sion plan members not receiv- ing proper notice that the lender was claiming super priority. "In Timminco, however, the Still, Firman says most tend " says Firman. An Aug. 20 Law Times story, "Crown delay costs taxpayers $125K, lawyer says," incorrectly identified Crown lawyers John Kelly and William MacLarkey as the Crowns involved in the months leading up to the Seed v. Ontario case that re- cently held the government liable for $125,000 in costs. Kelly and MacLarkey first became involved in the file on March 9, 2012, approximately one month before they argued the certification motion, and did not stall the certification motion for five months. MacLarkey and Kelly also were not involved in any of- fer to settle. MacLarkey and Kelly were not the counsel who argued the costs issue. Kirk Baert, who represented the plaintiffs in the case, did not suggest Kelly and MacLarkey were involved at that time. Law Times regrets the error. CORRECTION PAGE 3 aggravating facts of Indalex were not present," says Firman. "The DIP lender was not simply the parent company of the borrower but a commercially independent third party. As well, notice to pension plan members does not appear to have been an issue. Instead, we see the Ontario Superior Court rely on the Court of Appeal' sufficient principle that a CCAA judge can award super priority to non-pen- sion claims. The Superior Court in Timminco did just that." s statement of general LT www.lawtimesnews.com 12-08-29 3:11 PM

• Cover