As the Northern Transportation Co. Ltd. seeks protection from its creditors amid financial difficulties, the Public Service Alliance of Canada and the Union of Canadian Transportation employees have retained a law firm to represent the pension interests of its employee members and retirees as insolvency proceedings move forward.
The company, which provides shipping services to communities and exploration projects throughout the Northwest Territories and the western Arctic, has cited the deficit in its defined benefit pension plan as a major financial concern.
According to a statement from the company, the economic and operating conditions it operates under have changed dramatically over the past 15 years. It cited the almost complete decline of oil and gas activity in the Mackenzie Valley and Beaufort Sea, the extension of roads in the Northwest Territories and low water levels.
“During these challenging times, NTCL continued to subsidize operations by up to $10 million per year in order to ensure continued service delivery of critical goods to the people of the western Arctic,” the company said in a statement. “This has meant absorbing substantial costs for increased fuel prices, fair wages for employees and contributing to the employee pension fund in a time of historically low interest rates. All of which, combined, were a significant drain on NTCL financial resources.”
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In August 2011, all participants and retirees of the pension plan received a formal written notification indicating the company believed the projected payments required to fund the existing pension solvency deficit would have a significant adverse impact on it. Consequently, it said it would pursue the Pension Benefits Standards Act’s provisions for distressed pension plan workout schemes.
The move “created a 10-year schedule of special pension payments that would amortize the deficit in the company’s defined benefit pension plan,” says Simon Archer, a lawyer at Koskie Minsky LLP, the firm appointed to represent the interests of union members.
“We’re a few years into that schedule now. Since that time, interest rates haven’t risen appreciatively . . . so the solvency hasn’t shrunk, just due to market conditions. I understand that from the latest valuation, which I believe is December 2015, the deficit is [around] $20 million in the plan. It’s a significant amount of money for the company.”
According to the company’s most recent actuarial valuation in December 2015, the defined benefit pension has approximately 90 active and 530 inactive or deferred members. The valuation projected a solvency deficit of $18.9 million. Since 2011, the company has regularly made additional contributions to the plan, totalling approximately $14.9 million, in order to eliminate the deficiency.
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The company obtained an order granting it protection under the Companies’ Creditors Arrangement Act in April. At the end of June, the company announced it was accepting “non-binding indications of interest for the business, marine assets and real property,” with a deadline of Aug. 19, 2016.
A lawyer for the organization determined it would be, in his view, appropriate for the company to terminate the schedule for special pension payments under the distressed workout rules. Unions representing pension plan members are opposing a motion to that effect.
“As long as the company was a going concern, we were content to monitor the process,” says Archer. “If the company is not going to be sold as a going concern or there is some other process — it ends up in insolvency or receivership — we will seek to protect the plan and the employees’ other claims: wages, severance and so forth.
“How we’re going to do that is still to be determined, but we’ll be going to court to argue that the plan should have a priority in receiving distribution from the proceeds of whatever the sale of the business will be.”
The nature of the business is a significant factor in driving the timeline for the case, according to Archer. “My understanding is that the shipping season ends some time in September and the rivers will begin to freeze up after that, so I believe the end of September is a loose target for the end of business for the year or the most active part of the business for the year and then, after that, I imagine they’ll determine what to do with the assets and the CCAA procedure and so forth.”
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