Pensions Need Better Bankruptcy Protection
Last week, the Supreme Court delivered another blow to beleaguered pensioners, ruling Canadian law prioritizes bankers and hedge funds over retired people facing drastic reductions in their income.
In a 5-2 decision, the Supreme of Court of Canada rejected an Ontario Court of Appeal decision that gave an underfunded pension plan first dibs on money from assets sold during bankruptcy restructuring.
In 2009, Indalex Limited sought Companies' Creditors Arrangement Act protection. As a result, 170 of its former employees saw their pensions slashed in half.
But two years later, the Ontario court ruled the firm, which administrated the pension plan, broke its fiduciary responsibility to the pensioners. Indalex failed to keep retirees' pension plans fully funded or to give proper notice that they were going under.
As such, the Ontario court granted the pensioners $6.75 million in assets sold during bankruptcy restructuring, which the Canadian subsidiary had planned to send to its U.S. parent company to pay back last-ditch "debtor-in-possession" loans.
In overturning the lower court's decision, the Supreme Court agreed (unanimously) Indalex breached its fiduciary responsibility to the pensioners.
Nonetheless, the highest court ruled the provincial pension law under which the Ontario court applied its ruling was overridden by the Companies' Creditors Arrangements Act, federal rules that provide a super-priority to "debtor-in-possession" financing whereby banks and hedge funds lend to distressed companies.
The Supreme Court's decision is of significant import. Over the past few years, tens of thousands of Canadian retirees have seen their pensions wiped out during bankruptcy proceedings.
In a particularly odious example, 800 retirees of Fraser Papers lost between 30 per cent and 40 per cent of their pensions when the company filed for protection under the CCAA four years ago.
The company's secured creditors, including Brookfield Asset Management, CIT Bank, CIBC and the Government of New Brunswick, were paid the $110 million owed them. …