How to Advise Your Client When It Is in Financial Difficulty and Operates a Pension Plan for Employees
Article originally published in The Six-Minute Debtor-Creditor and Insolvency Lawyer 2011
In April of this year, the Ontario court of Appeal released Re Indalex Limited (“Indalex”) and, to say the least, this decision generated tidal waves in the Ontario insolvency bar. Indalex surprised many insolvency and pension lawyers by recognizing a deemed trust for the entire wind up deficiency of a pension plan and using the device of a remedial constructive trust to give pension plan deficiency claims priority over all other creditors including debtor-in-possession (“DIP”) lenders in insolvency restructuring proceedings. Indalex also contains some troubling and puzzling commentary on the duties of corporate directors who administer defined benefit pension plans. The decision is subject to an application for leave to appeal to the Supreme Court of Canada. A factual overview of this decision is provided as the final section of this article for the benefit of those in search of a more detailed analysis of the litigation proceedings. Rather than dealing with an analysis of the legal issues in the case, the balance of this article will be forward-looking and consider what a debtor’s lawyer should do if a debtor is in financial difficulty and operates a defined benefit pension plan.