Pension plan members have super-priority when it comes to normal costs but not to special costs owed to bankrupted plans, the Supreme Court of Newfoundland and Labrador finds in a recent ruling.
In the case, Anthony Capital Corporation (Re), between the trustees of the defunct Anthony Capital Corp.’s executive pension plan and representatives for the Bank of Montreal, the court ruled that only normal costs have super-priority in the case of plan windup.
Following Anthony Capital’s bankruptcy in 2019, the BMO sold two of the executive defined benefit pension plan’s properties in which it held mortgages. According to the pension trustees, its beneficiaries were owed about $572,000 from the sales. The claim was split between normal costs, special payments and windup deficiencies. In this case, ‘normal costs’ refers to the cost of funding benefits in a particular year, while the costs described by the court as ‘special costs’ are payments related to unfunded liabilities and deficiencies above those covered under the term ‘normal costs.’
In the decision, the Supreme Court of Newfoundland and Labrador’s justices cited the Pension Benefits Standards Act, a federal law that allocates super-priority to pension funds’ normal costs in the event of a plan wind down. The justices found the pension was owed only for the amount attributed to normal costs — $454,100.
“It confirms that certain payments due to a pension fund, particularly those with respect to normal costs, have a super-priority over other secured claims against the employer participating in the pension plan,” wrote Level Chan and Joe Thorne, lawyers and partners at the Nova Scotia law firm Stewart McKelvey LLP.
“By declaring a super-priority over certain amounts due to the pension plan, the Bankruptcy and Insolvency Act does provide protection for pension plan beneficiaries. In the decision, the court confirmed the super-priority of $454,100 in normal costs owed to the pension plan, which was almost 80 per cent of the total amount of $571,900 that was owed when the plan was terminated.”
For Mike Powell, president of the Canadian Federation of Pensioners, who has long campaigned for the extension of plan beneficiary super-priority, the finding is indicative of Canada’s lack of concern for retirees. Or, as he puts it, “that the tens of thousands yet to be victims of insolvency — vulnerable seniors — are really not a priority.
“Anthony Capital is another case that illustrates that the federal government has made a choice to leave the pensions of vulnerable seniors unprotected in insolvency. The federal government believes that the financial hardship that tens of thousands of Canadian seniors have already experienced, [including] pensioners of [Nortel Networks Corp., Sears Canada, Cliffs Natural Resources Inc., Co-op Atlantic] and others, is acceptable collateral damage in insolvency.”
In recent months, the debate around a federal bill that would, if passed, extend super-priority to members in the event of a pension plan windup, has faced broad criticism within the pensions and investment sectors.
In a recent open letter, Natasha Trainor, chair of the Pension Investment Association of Canada, raised concerns about a federal bill, C-253, which aimed to extend super-priority. According to Trainor, the bill would raise the cost of credit for private sector DB plans reliant on banks and capital market financing. “For companies facing severe business challenges, preferred creditor status would likely reduce the availability of new capital to effect a turnaround, likely putting the business in further danger leading to further job losses.”
Ross Dunlop, the president of the Association of Canadian Pension Management, also expressed his own concerns about the bill, writing in his own open letter that it “will make the ability of companies to obtain and maintain financing at competitive rates nearly impossible for DB sponsors.
“While we realize that bankruptcy is a bad experience for everyone involved, a super-priority approach will negatively and significantly affect struggling DB sponsors and make Canada’s iconic companies that sponsor DB plans un-financeable.”