February 06, 2013
The Supreme Court of Canada’s recent pension ruling in the case of Indalex Ltd. should have financial lenders taking a nervous look at companies with big defined-benefit pension plans, lawyers say.
In its split decision last week, the court sided with the lenders who offer last-ditch financing to companies in distress, and turned down a bid by retirees of the insolvent Toronto aluminum company for the firm’s last $6.75-million in order to cover a pension plan shortfall.
In overturning a controversial 2011 Ontario Court of Appeal ruling, the Supreme Court said the money should instead go to pay off the last-ditch debtor-in-possession (DIP) loans made to the company after it sought court protection from its creditors in 2009 – loans made on the condition they be paid off before other creditors.
Mitch Frazer, a pension lawyer with Torys LLP, said some lenders will have companies that want to borrow money go into bankruptcy protection more quickly than before, in order to have a court declare them as the favoured creditor ahead of any pension shortfall.
But he didn’t think lending would freeze up over the new priority for pensioners: "If you have people willing to lend money, and you have people looking to borrow money, there is always going to be that business of lending money. ... It will probably just be more expensive."
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