The Supreme Court of Canada has overturned the Ontario Court of Appeal decision in the Sun Indalex Finance, LLC v. United Steelworkers case, which said that pensioners should be paid before creditors. The Supreme Court sided with the original ruling by the provincial court, which indicated that the profits of the Indalex assets need to be used to pay debtor-in-possession (DIP) lenders before the company’s pensioners.
More to come on what this means for DB plans in Canada.
- Indalex case: protection of underfunded pension entitlements
- Indalex case to be heard by Supreme Court
James Pierlot, a principal with Pierlot Pension Law, said that the original ruling from the provincial court was made with the traditional interpretations of the Pension Benefits Act. When the Ontario Court of Appeal overturned its ruling, it also turned tradition on its head.
Although Friday’s decision from the high court has reinforced previous jurisprudence, plan sponsors can’t just sit back on their haunches. This case will have lasting effects on DB plan sponsors and administrators.
“Creditors decided whether or not they are going to loan you money and what interest they are going to charge you based on what they think your other liabilities are,” said Pierlot, emphasizing that this case raises awareness of pension liabilities for that group. And, he adds, “It is still an issue for a plan sponsor with a fully funded plan; the creditors are still going to look at it because a fully funded plan can turn into a plan with a deficit.”
Andrew Harrison, partner and head of national pension group, with BLG, adds that this case will heighten awareness for plan sponsors and administrators about their fiduciary roles.
“I think it’s important that the highest court in the land recognized and emphasizes that companies that do have pension plans have fiduciary duties in respect with those plans, that conflicts can and do arise and companies need to take steps to resolve them when they do come up.”
Watch for more in-depth analysis on this issue next week, and in the March issue of Benefits Canada.