The Ontario Court of Appeal has decided that Indalex Limited is responsible for paying employee pensions even though the company sought protection from creditors under the Companies’ Creditors Arrangement Act (CCAA) in 2009. This ruling sets a precedent for pension plan members by providing greater benefits to them in cases of corporate insolvency.
In early 2009, Indalex filed for CCAA protection and obtained interim financing to continue operations while it sought to sell its assets. When the company did sell its assets in July 2009 at a court-approved sale, former staff argued that Indalex should put proceeds of the sale towards the pension plan, which had a shortfall of $6.75 million.
The judge rejected that argument, which led to an appeal from the United Steelworkers (USW) and other pension plan members.
Last Thursday, a panel of three Ontario Court of Appeal judges ruled in favour of the USW and pension plan members.
“Indalex knew that the plans were under-funded and that unless more funds were put into the plans, pensions would have to be reduced,” stated Madam Justice Eileen Gillese in the court’s decision. “The decisions that Indalex was unilaterally making had the potential to affect the plans’ beneficiaries’ right, at a time when they were particularly vulnerable.”
Last week’s ruling means that companies in a CCAA proceeding cannot ignore an under-funded pension plan and will have to make a case in court that they cannot meet their pension obligations. Prior to this ruling, employees and pensioners have suffered reductions in pensions as assets were distributed to creditors ranked ahead of pension plans.
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