Vite.bellpensionersgroup.ca





Supreme Court ranks DIP lenders ahead of pension funds in Indalex case

Feb 1, 2013 10:31 AM ET | Last Updated: Feb 1, 2013 6:27 PM ET

• Tumblr

• Pinterest

• Reddit

• Digg

• FarkIt

• StumbleUpon

The Supreme Court of Canada on Friday struck a blow to workers and retirees who want pension plans to rank first in line for payouts to creditors in corporate bankruptcies or restructurings.

In the landmark case, Sun Indalex Finance LLC vs. United Steelworkers et al., the court found that pension funds do not rank ahead of “debtor-in-possession” or “DIP” lenders in bankruptcy protection proceedings.

The case emerges from bankruptcy protection hearings that led to the restructuring and sale of the Canadian operations of Indalex Ltd., an aluminum manufacturer that employs about 750 people.

The Supreme Court’s ruling overturns a controversial Ontario Court of Appeal decision that had put pension plans first in line to receive funds following a court supervised sale of the company under a federal law called the Companies’ Creditors Arrangement Act or CCAA.

The Supreme Court said that it’s up to Parliament, and not the courts, to decide where pensions should rank in restructurings.

“There are good reasons for giving special protection to members of pension plans in insolvency proceedings. Parliament considered doing so before enacting the most recent amendments to the CCAA, but chose not to,” wrote Madam Justice Marie Deschamps.

The Ontario appellate ruling had been hailed as a victory for pensioners, who have been forced to take haircuts in numerous other court-supervised workouts, such as that for Nortel Networks. On the other hand, restructuring experts had worried that granting special status to pension plans would wipe out the protection DIP lenders require before extending high risk loans to distressed companies. Without such funds, insolvent companies would be forced out of business and have no chance to restructure.

“Bay Street will be happy. Main Street may not be,” said Domenico Magisano, a partner in the Toronto office of Lerners LLP. “While there’s short-term pain for these pensioners, the ability to restructure companies will continue as it was before.”

“It’s obviously disappointing for the pensioners, but I think it restores the status quo,” added Andrew Harrison, a partner with Borden Ladner Gervais LLP in Toronto.

Yet lawyers for the pensioners say Bay Street overreacted to the lower court ruling, which took the company to task for failing to protect the interests of the retirees.

“These people need their pensions paid,” said Andrew Hatnay of Koskie Minsky LLP, which represented one of the two pension plans in the case. “After Indalex came out, there was this hue and cry from the lenders’ side of the bar saying it was a catastrophe and there wasn’t going to be any lending. And it never came true.”

Indalex received DIP financing when it was granted protection from creditors under the CCAA. The funds were provided by a lender called Sun Indalex. The judge overseeing the CCAA case in Ontario granted the DIP lender a “super-priority” charge. This meant that once the company was restructured, the lender would be first in line to receive any funds.

Indalex was ultimately sold, and the lender demanded repayment of its loan. Pensioners and a union challenged this. They argued that Ontario’s provincial pension law required the funds be paid into the pension plan to clear up a forecast future deficit.

Ontario’s Court of Appeal agreed with the pensioners and ordered the funds be paid into the plan. But the Supreme Court on Friday overturned the Ontario appellate court ruling for several reasons. Perhaps the most important is something called the “doctrine of federal paramountcy.”

The Supreme Court acknowledged that there is a conflict between the federal CCAA and Ontario’s pension statute. The paramountcy doctrine says that federal legislation ranks ahead of provincial statutes, so the court ruled that any judicial orders granted under the CCAA must take precedence over provincial pension laws.

“That is an important legal principle, and I think it underlines the hierarchy of laws as they apply in an insolvency,” said Cliff Prophet, a partner with Gowling Lafleur Henderson LLP in Toronto.

“I have great sympathy for the pensioners, but on the facts of this case, this is the right decision,” said Lisa Mills, a partner in the Ottawa office of Hicks Morley Hamilton Stewart Storie LLP.

There are other notable aspects to the case.

While the decision clarifies that pension plan members rank beneath DIP lenders, the decision does not put pensions at the bottom of the pay out pile. Rather, the ruling seems to suggest that in a restructuring under the CCAA, a pension fund deficit would rank ahead of creditors who lent money before the company filed for court protection. Lenders might find this troubling. “The phones are burning up on Bay Street today,” said Edward Sellers, a partner with Osler, Hoskin & Harcourt LLP in Toronto.

Meanwhile, pension plan administrators took note of guidance in the decision that deals with situations where companies administer their own pension plans.

“There are inherent conflicts, and it’s really a matter of how you resolve them,” said Jeff Sommers, a partner with Blake, Cassels & Graydon LLP in Toronto. “The court gives some examples of ways of doing that.”

Financial Post



-----------------

Supreme Court rules against pensioners in Indalex case

Top court rejects pensioner appeal in 5-2 decision

Posted: Feb 1, 2013 10:42 AM ET

Last Updated: Feb 1, 2013 4:19 PM ET

The Supreme of Court of Canada has rejected a lower court's decision that the pension plan of restructured company Indalex should be reimbursed before financial backers and other stakeholders get a crack at assets.

The top court handed down its ruling Friday.

Indalex was an aluminum manufacturer that began restructuring proceedings under the Companies' Creditors Arrangement Act (CCAA) in 2009.

At the time, Indalex had two underfunded pension plans, but the United Steelworkers union — on behalf of the employees —had argued that those plans should be replenished before creditors received the proceeds, as has traditionally been the case in insolvencies under Canadian law.

'The employer … neglected its obligations towards the beneficiaries '—Supreme Court ruling

In 2011, the Ontario Court of Appeal ruled on the side of the pensioners. But in a 5-2 decision released Friday, Canada's top court overturned that decision.

"The United Steelworkers appeal should be dismissed," the court said in the ruling.

In the case, Indalex assets were sold to a U.S. company, Sapa Group, after the former ran into some financial difficulty in 2009. While that was happening, the company was ordered to pay back the creditors who had kept it afloat during CCAA proceedings, which moved the company's pensioners and their $6.75 million pension shortfall further down the hierarchy of who would be paid, and how much they would get.

That funding was known as a "debtor-in-possession" loan and is common in insolvencies and restructurings. DIP funding gives companies cash to keep the business going, and those who give them typically do so in part because they are guaranteed to get their money back ahead of other claimants should a dispute arise.

The original court sided with the DIP creditors, until an Ontario Court of Appeal ruling raised legal eyebrows by throwing a wrench into that long-held tradition. It decided the pensioners should take priority because they had formed an entity known as a trust, and should be considered secured creditors.

Precedent-setting case

The Ontario court also ruled that the people overseeing the company had breached their fiduciary duty to the employees by concealing the company's financial difficulties. In the 5-2 split decision, the dissenters on the Supreme Court agreed with that view.

"The employer not only neglected its obligations towards the beneficiaries, but actually took a course of action that was actively inimical to their interests," the court ruled. "The seriousness of these breaches amply justified the decision of the Court of Appeal to impose a constructive trust."

But ultimately, the court's decision largely upheld the status quo on a federal level.

"As a result of the application of the doctrine of federal paramountcy, the [creditors] supersedes the deemed trust," the court said. That's the Supreme Court's way of affirming that no provincial law should be able to supercede the federal legislation for companies that undergo restructuring through the Companies' Creditors Arrangement Act.

The case has implications for any Canadian company with a pension plan, because it reasserts the supremity of existing legislation, which holds that secured lenders always take precedence over other stakeholders when a company sells assets and divests the proceeds during a restructuring.

Business groups were watching the case closely because they saw the Ontario Court of Appeal ruling as a threat in the current economic climate, where restructuring is often a necessity.

"They restored the original order that pension plan members were unsecured creditors," lawyer Brian Rogers, who has no stake in the case, told CBC News. "The pensioners are now back where they were when this all started."

The employees will still receive what they paid into the plan, but they will lose about half of what they would have received under their full pensions.

With files from The Canadian Press



................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download