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This article was published 1/2/2013 (1272 days ago), so information in it may no longer be current.
OTTAWA -- The Supreme Court of Canada has ruled against the pension plan members of a bankrupt Ontario company, saying they do not have priority over secured creditors.
The landmark pension ruling on Friday represented a boost for companies with pension obligations that face tough restructuring issues. It was a partial setback for workers whose employers fall on hard times and have to wind up once-lucrative pension plans.
The ruling centres on the financial troubles of Indalex, a Toronto-based aluminum company that sought bankruptcy protection in 2009 with shortfalls in its two pension plans.
Pensioners are usually at the end of the line to be paid when the assets of a failed company are sold, but the Ontario Court of Appeal changed that in a 2011 ruling on the Indalex case.
The Supreme Court, by a 5-2 margin, overturned that decision of Friday.
When the company, a Canadian subsidiary of a U.S. firm, entered creditor protection, it was ordered to borrow money to pay lenders, leaving the pension members further down the payout line.
The employees will still receive what they paid into the plan, but they will lose about half of what they would have received under their full pensions.
The total amount of money involved in this case is relatively low, about $7 million.
But the ruling has much bigger implications.
It offers broad relief for companies facing hard times and steep pension obligations to their employees.
Business groups were watching the case closely because they saw the Ontario Court of Appeal ruling as a threat in the current economic climate, where restructuring is often a necessity.
The case also strikes a raw nerve with workers everywhere, especially in light of the freeze-out that hit retirees at Nortel Networks after the telecom giant folded.
"Insolvency can trigger catastrophic consequences," Justice Marie Deschamps, who has since retired, wrote for the majority. "In insolvency situations, the promise of defined benefits made to employees during their employment is put at risk."
But in the complex, lengthy ruling, a majority of the justices sided with the company's creditors against the pensioners.
"Although the employer in this case breached a fiduciary duty, the harm suffered by the pension plans' beneficiaries results not from that breach, but from the employer's insolvency," Deschamps wrote.
Two justices, Louis LeBel and Rosalie Abella, disagreed with the majority. They said the breach of fiduciary duty should have been remedied with the creation of a constructive trust to protect the pensions.
But five justices disagreed with them, saying that, even though there had been a breach, that did not override the priority given to the lenders who helped keep the company going.
-- The Canadian Press