CITATION:
Indalex
Limited (Re), 2011 ONCA 265

DATE:
          20110407

DOCKET: C52187 & C52346

COURT OF APPEAL FOR ONTARIO

MacPherson, Gillese and Juriansz JJ.A.

In the
          Matter of the
Companies Creditors
          Arrangement Act
, R.S.C. 1985, c. C-36, as amended

And in the
          Matter of a Plan of Compromise or Arrangement of
Indalex
Limited,
Indalex
Holdings (B.C.) Ltd., 6326765 Canada Inc. and Novar Inc.

Applicants/Respondents

Andrew J.
Hatnay
and
Demetrios

Yiokaris
for the Former
          Executives, appellants

Darrell L. Brown for the United Steelworkers, appellants

Mark Bailey for the Superintendent of Financial Services

Hugh OReilly and Adam Beatty for
Morneau

Sobeco
Limited Partnership, Intervenor

Fred Myers and Brian
Empey
for Sun
Indalex
Finance, LLC

Ashley Taylor and Lesley Mercer for the
Monitor,
          FTI Consulting Canada ULC

Harvey
Chaiton
and George
Benchetrit
for George L. Miller, the Chapter 7 Trustee of
          the Bankruptcy Estates of the US
Indalex
Debtors

Heard: November 23 and 24, 2010

On appeal from the orders of Campbell J., of the Superior
          Court of Justice, dated February 18, 2010.

Gillese J.A.:

[1]

A Canadian company is insolvent.  Its pension plans are underfunded and in the
    process of being wound up.  The company
    is the administrator of the pension plans.

[2]

The company obtains protection under the
Companies'
    Creditors Arrangement Act,
R.S.C. 1985, c. C-36, as amended (
CCAA
).  A court order enables it to borrow funds pursuant to a
    debtor-in-possession (DIP) credit agreement.  The order creates a super-priority charge in favour of the DIP
    lenders.  The obligation to repay the DIP
    lenders is guaranteed by the companys U.S. parent company (the Guarantee).

[3]

The company is sold through the
CCAA
proceedings but the sale proceeds are insufficient to repay
    the DIP lenders.  The U.S. parent company
    covers the shortfall, in accordance with its obligations under the Guarantee.

[4]

The
CCAA
monitor
    holds some of the sale proceeds in a reserve fund.  The pension plan beneficiaries claim the money
    based on the deemed trust provisions in the
Pension
    Benefits Act,
R.S.O. 1990, c. P.8 (
PBA
).  The U.S. parent company claims the money based
    on its payment under the Guarantee.

[5]

Must the money in the reserve fund be used to pay the
    deficiencies in the pension plans in preference to the secured creditor?  What fiduciary obligations, if any, does the
    company have in respect of its underfunded pension plans during the
CCAA
proceeding?  These appeals wrestle with these difficult questions.

OVERVIEW

[6]

Indalex
Limited was the sponsor
    and administrator of two registered pension plans: the Retirement Plan for
    Salaried Employees of
Indalex
Limited and Associated
    Companies (the Salaried Plan) and the Retirement Plan for Executive Employees
    of
Indalex
Limited and Associated Companies (the
    Executive Plan) (collectively, the Plans).

[7]

On March 20, 2009,
Indalexs
parent company and its U.S. based affiliates (collectively,
Indalex
U.S.) sought Chapter 11 protection in the United States.

[8]

On April 3, 2009,
Indalex
Limited,
Indalex
Holdings (B.C.) Ltd., 6326765 Canada
    Inc. and Novar Inc. (
Indalex
or the Applicants)
    obtained protection from their creditors under the
CCAA
.  At that time, the
    Salaried Plan was in the process of being wound up.  Both Plans were underfunded.  FTI Consulting Canada ULC (the Monitor) was
    appointed as monitor.

[9]

On April 8, 2009, the court authorized
Indalex
to borrow funds pursuant to a DIP credit agreement.  The court order gave the DIP lenders a
    super-priority charge on
Indalexs
property.
Indalex
U.S.
    guaranteed
Indalexs
obligation to repay the DIP
    lenders.

[10]

On July 20, 2009,
Indalex
moved for approval of the sale of its assets on a going-concern basis.  It also moved for approval to distribute the
    sale proceeds to the DIP lenders, with the result that there would be nothing
    to fund the deficiencies in the Plans.  Without further payments, the underfunded status of the Plans will
    translate into significant cuts to the retirees pension benefits.

[11]

At the sale approval hearing, the United Steelworkers appeared
    on behalf of its members who had been employed by
Indalex
and are the beneficiaries of the Salaried Plan (the USW).  In addition, a group of retired executives appeared
    on behalf of the beneficiaries of the Executive Plan (the Former Executives).

[12]

Both the USW and the Former Executives objected to the
    planned distribution of the sale proceeds.  They asked that an amount representing the total underfunding of the
    Plans (the Deficiencies) be retained by the Monitor as undistributed proceeds,
    pending further court order.  Their
    position was based on, among other things, the deemed trust provisions in the
PBA
that apply to unpaid amounts owing
    to a pension plan by an employer.

[13]

The court approved the sale.  However, as a result of the USW and Former
    Executives reservation of rights, the Monitor retained an additional $6.75
    million of the sale proceeds in reserve (the Reserve Fund), an amount
    approximating the Deficiencies.
[1]

[14]

The sale closed on July 31, 2009.  The sale proceeds were insufficient to repay
    the DIP lenders.
Indalex
U.S. paid the shortfall of approximately US$10.75 million, pursuant to its
    obligations under the Guarantee.

[15]

In accordance with a process designed by the
CCAA
court, the USW and the Former
    Executives brought motions returnable on August 28, 2009, based on their deemed
    trust claims.  They claimed the Reserve Fund
    was subject to deemed trusts in favour of the Plans beneficiaries and should be
    paid into the Plans in priority to
Indalex
U.S.  They also claimed that during the
CCAA
proceedings,
Indalex
breached its fiduciary obligations to the Plans beneficiaries.

[16]

Indalex
then brought a motion
    in which it sought to lift the stay and assign itself into bankruptcy (the
Indalex
bankruptcy motion).  This motion was directed to be heard on August 28, 2009, along with the
    USW and Former Executives motions.

[17]

By orders dated February 18, 2010, (the Orders under
    Appeal), the
CCAA
judge dismissed the
    USW and Former Executives motions on the basis that, at the date of sale, no deemed
    trust under the
PBA
had arisen in
    respect of either plan.  He found it
    unnecessary to decide the
Indalex
bankruptcy motion.

[18]

The USW and the Former Executives (together, the
    appellants) appeal.  They ask this court
    to order the Monitor to pay the Reserve Fund to the Plans.

[19]

On November 5, 2009, the Superintendent of Financial
    Services (Superintendent) appointed the actuarial firm of
Morneau

Sobeco
Limited Partnership (
Morneau
)
    as administrator of the Plans.

[20]

Morneau
was granted
intervenor
status.  It supports the appellants.

[21]

The Superintendent also appeared.  He, too, supports the appellants.

[22]

Sun
Indalex
, as the principal
    secured creditor of
Indalex
U.S., asks that the
    appeals be dismissed and the Reserve Fund be paid to it.  As a result of its payment under the
    Guarantee,
Indalex
U.S. is subrogated to the rights
    of the DIP lenders.  Its claim to the
    Reserve Fund is based on the super-priority charge.

[23]

The Monitor appeared.  It supports Sun
Indalex
and asks that the
    appeals be dismissed.  The Monitor and
    Sun
Indalex
will be referred to collectively as the
    respondents.

[24]

George L. Miller, the trustee of the bankruptcy estates
    of
Indalex
U.S., appointed under Chapter 7 of Title
    11 of the United States Bankruptcy Code (the U.S. Trustee), was given leave to
    intervene.  He joins with the Monitor and
    Sun
Indalex
in opposing these appeals.

[25]

For the reasons that follow, I would allow the appeals
    and order the Monitor to pay, from the Reserve Fund, amounts sufficient to
    satisfy the deficiencies in the Plans. For ease of reference, the various statutory
    provisions to which I make reference can be found in the schedules at the end
    of these reasons.

BACKGROUND

[26]

Indalex
Limited is a Canadian
    corporation.  It is the entity through
    which the
Indalex
group of companies operates in
    Canada.  It is a direct wholly-owned subsidiary
    of its U.S. parent,
Indalex
Holding Corp., which in
    turn is a wholly-owned subsidiary of
Indalex
Finance.

[27]

Together, the group of companies referred to as
Indalex
and
Indalex
U.S. were the
    second largest manufacturer of aluminum extrusions in the United States and
    Canada.  Aluminum is a durable, light
    weight metal that can be strengthened through the extrusion process, which
    involves pushing aluminum through a die and forming it into strips, which can
    then be customized for a wide array of end-user markets.

[28]

Indalex
Limited produced a
    portion of the raw material used in the extrusion process, called aluminum
    extrusion billets, through its casting division located in Toronto.  It also processed the raw extrusion billets
    into extruded product at its Canadian extrusion plants, for sale to end
    users.  In 2008,
Indalex
Limited accounted for approximately 32% of the
Indalex
group of
companies
total sales to third parties.

[29]

Indalex
Limited provided
    separate pension plans for its executives and salaried employees.  The Plans were designed to pay pension
    benefits for the lives of the retirees and those of their designated
    beneficiaries.
Indalex
Limited was the sponsor and administrator of both Plans.  The Plans were registered with the Financial
    Services Commission of Ontario (FSCO) and the Canadian Revenue Agency.

The Salaried Plan

[30]

The
    USW has several locals certified as bargaining agents on behalf of members
    employed with
Indalex
, including members who are
    beneficiaries of the Salaried Plan.  It
    was certified to represent certain
Indalex
employees,
    seven of whom were members of the Salaried Plan and have deferred vested
    entitlements under that plan.

[31]

The
    Salaried Plan contains a defined benefit and defined contribution
    component.

[32]

Unlike
    the Executive Plan,
the Salaried Plan was in the process of being wound
    up when
Indalex
began
CCAA
proceedings.
The effective date of wind up is December
    31, 2006.  Special wind up payments were
    made in 2007 ($709,013), 2008 ($875,313) and 2009 ($601,000).  As of December 31, 2008, the wind up
    deficiency was $1,795,600.

[33]

All
    current service contributions have been made to the Salaried Plan.

[34]

Article
    4.02 of the Salaried Plan obligates
Indalex
to make
    sufficient contributions to the Salaried Plan.  Article 14.03 of the Salaried Plan requires
Indalex
to remit amounts due or that have accrued up to the effective date of the
    wind-up and which have not been paid into the Fund, as required by the Plan and
    Applicable Pension Legislation.

The Executive Plan

[35]

The Executive Plan is a defined benefit plan.  Effective September 1, 2005,
Indalex
closed the Executive Plan to new members.

[36]

As of January 1, 2008, there were eighteen members of
    the Executive Plan, none of whom were active employees.

[37]

The Executive Plan is underfunded.

[38]

As of January 1, 2008, the Executive Plan had an
    estimated funding deficiency, on an ongoing basis, of $2,535,100.  On a solvency basis, the funding deficiency
    was $1,102,800 and on a windup basis, the deficiency was $2,996,400.  An actuarial review indicated that as of July
    15, 2009, the wind up deficiency had increased to an estimated $3,200,000.

[39]

In 2008,
Indalex
made total
    special payments of $897,000 to the Executive Plan.  No further special payments were due to be made
    to the Executive Plan until 2011.  All
    current service contributions had been made.

[40]

Due to its underfunded status, the Former Executives monthly
    pension benefits have already been cut by 30-40%.   Unless money is paid into the Executive
    Plan, these cuts will become permanent.  The
    Former Executives have also lost their supplemental pension benefits which were
    unfunded and terminated by
Indalex
after it obtained
CCAA
protection.  Between the two cuts, the Former Executives have
    lost between one half and two-thirds of their pension benefits.

[41]

On June 26, 2009, counsel for the Former Executives
    sent a letter to counsel to
Indalex
and the Monitor,
    advising that the Former Executives reserved all rights to the deemed trust
    under s. 57(4) of the
PBA
in the
CCAA
proceedings.  There was no response or objection to that
    letter from
Indalex
, the Monitor or any other
    party.

[42]

At the time the Orders under Appeal were made, the
    Executive Plan had not been wound up.  However, a letter from counsel for the Monitor dated July 13, 2009,
    indicated that it was expected that the Executive Plan would be wound up.

[43]

On March 10, 2010, the Superintendent issued a Notice
    of Proposal to wind up the Executive Plan effective as of September 30, 2009.  The wind up process is currently underway.

Pension
    and Corporate Governance
During
the CCAA Proceedings

[44]

Keith Cooper, the Senior Managing Director of FTI
    Consulting Inc., was a key advisor to the
Indalex
group of companies prior to and during the
CCAA
proceedings.  On March 19, 2009, he
    was appointed the Chief Restructuring Officer for all of the
Indalex
U.S. based companies.  However, he was responsible not only for
Indalex
U.S. but for the entire
Indalex
group of companies and subsidiaries, including the Applicants.  Mr. Cooper described his role as being to
    maximize recovery for
Indalex
as a whole.

[45]

Mr. Cooper was the primary negotiator of the DIP credit
    agreement on behalf of
Indalex
.  He does not recall discussing
Indalexs
pension obligations in respect of the Salaried and
    Executive Plans during the negotiation of the DIP credit agreement.  He was aware that the Plans were underfunded
    and that pensions would be reduced if the shortfalls were not met.

[46]

FTI Consulting
    Inc., the company for which Mr. Cooper works, and the Monitor are affiliated
    entities.  The Monitor (FTI Consulting
    Canada ULC) is a wholly-owned subsidiary of FTI Consulting Inc.

[47]

On July 31, 2009, all of the directors of
Indalex
resigned.  On
    that same day,
Indalex
Holding Corp. (part of
Indalex
U.S.) became the management of
Indalex
.  Thus, as of July 31, 2009,
Indalex
and
Indalex
U.S. formally
    had the same management.

[48]

On August 12, 2009, a Unanimous Shareholder Declaration
    was executed in which Mr. Cooper was appointed to direct the affairs of all
Indalex
entities.

[49]

On August 13, 2009,
Indalex
(which was now under the management of
Indalex
U.S.)
    announced its intention to bring a motion to bankrupt the Canadian
    company.

THE
CCAA
PROCEEDINGS

The Initial Order, as amended (April 3 and 8,
    2009)

[50]

On April 3, 2009, pursuant to the order of Morawetz J.,
Indalex
obtained protection from its creditors under
    the
CCAA
(the Initial Order).  A stay of proceedings against
Indalex
was ordered.

[51]

On April 8, 2009, the Initial Order was amended to authorize
Indalex
to borrow funds pursuant to a DIP credit
    agreement among
Indalex
,
Indalex
U.S. and a syndicate of lenders (the DIP lenders).  JP Morgan Chase Bank, N.A. was the
    administrative agent (the DIP Agent).  The DIP credit agreement contemplated that the DIP loan would be repaid
    from the proceeds derived from a going-concern sale of
Indalexs
assets on or before August 1, 2009.

[52]

Indalexs
obligation to repay
    the DIP borrowings was guaranteed by
Indalex
U.S.
The Guarantee was a condition to the
    extension of credit by the DIP lenders.

[53]

Paragraph 45 of the Initial Order, as amended, is the
    super-priority charge.  It provides that the
    DIP lenders charge shall rank in priority to all other security interests, trusts,
    liens, charges and encumbrances, statutory or otherwise, other than the
    Administration Charge and the Directors Charge, as those terms are defined in
    the Initial Order.

The Initial Order is Further Amended (June
    12, 2009)

[54]

On June 12, 2010, Morawetz J. heard and granted a
    motion by the Applicants for approval of an amendment to the DIP credit agreement
    to increase the borrowings by about $5 million, from US$24.36 million to
    US$29.5 million.  This resulted in an
    order dated June 12, 2009, further amending the Initial Order (the June 12,
    2009 order).

[55]

Counsel for the Former Executives was served with
    motion material on June 11, 2009, at 8:27 p.m.  In response to an email from the Former Executives counsel questioning
    the urgency of the motion, the Monitors counsel responded that the motion was
    simply directed at obtaining more money under the DIP credit agreement.

[56]

At the hearing of the motion on June 12, 2010, the
    Former Executives initially sought to reserve their rights to confirm that the motion
    was about an increase to the DIP and nothing more.  When that was confirmed, the Former
    Executives withdrew their reservation and the motion proceeded later that
    afternoon.

The Sale Approval Order (July 20, 2009)

[57]

Indalex
brought two motions
    that were heard on July 20, 2009, by Campbell J. (the
CCAA
judge).

[58]

First,
Indalex
sought approval
    of a sale of its assets, as a going concern, to SAPA Holdings AB (SAPA).  Total consideration for the sale of
Indalex
and
Indalex
U.S. was approximately
    US$151,183,000.00.  The Canadian sale
    proceeds were to be paid to the Monitor.

[59]

As a term of the sale, SAPA assumed no responsibility
    or liability for the Plans.

[60]

Second,
Indalex
moved for
    approval of an interim distribution of the sale proceeds to the DIP lenders.

[61]

Both the Former Executives and the USW objected to the
    planned distribution of the sale proceeds.  They asserted statutory deemed trust claims in respect of the
    underfunded pension liabilities in the Plans, arguing that preference was to be
    given for amounts owing to the Plans pursuant to ss. 57 and 75 of the
PBA
.  They also relied on s. 30(7) of the Ontario
Personal Property
    Security Act,
R.S.O. 1990, c. P.10 (
PPSA)
, which expressly gives priority to the deemed trust in the
PBA
over secured creditors.

[62]

The Former Executives and the USW further argued that
Indalex
had breached its fiduciary duty to the Plans
    beneficiaries by failing to adequately meet its obligations under the Plans and
    by abdicating its responsibilities as administrator once
CCAA
proceedings had been undertaken.

[63]

The court approved the sale in an order dated July 20, 2009 (the Sale
    Approval order).  However, as
a
    result of the USW and Former Executives reservation of rights, the Monitor
    retained an additional $6.75 million of the sale proceeds in reserve, an amount
    approximating the Deficiencies.

[64]

It was agreed that an expedited hearing process would
    be undertaken in respect of the USW and Former Executives deemed trust claims and
    that the Reserve Fund held by the Monitor would be sufficient, if required, to
    satisfy the deemed trust claims.

The
    Guarantee is
Called
on

[65]

On July 31, 2009, the sale to SAPA closed.  The sale proceeds available for distribution
    were insufficient to repay the DIP loan in full.  The Monitor made a payment of
    US$17,041,391.80 to the DIP Agent.  This
    resulted in a shortfall of US$10,751,247.22 in respect of the DIP borrowings.  The DIP Agent called on the Guarantee for the
    amount of the shortfall, which
Indalex
U.S. paid.

The Orders under Appeal (August 28, 2009)

[66]

The USW and Former Executives brought motions to
    determine their deemed trust claims.  The
    motions were set for hearing on August 28, 2009.
Indalex
then filed its
    bankruptcy motion, in which it sought to file a voluntary assignment in bankruptcy.

[67]

By orders dated February 18, 2010, the
CCAA
judge dismissed the USW and Former Executives
    motions.

[68]

The
CCAA
judge
    found it unnecessary to deal with
Indalexs
bankruptcy
    motion.

THE REASONS OF THE
CCAA
JUDGE

The Former Executives Motion

[69]

The CCAA judge dismissed the Former Executives motion
    on the basis that since the wind up of the Executive Plan had not yet taken
    place, there were no deficiencies in payments to that plan as of July 20, 2009.  As there were no deficiencies in payments, there
    was no basis for a deemed trust.

The USW Motion

[70]

Because the Salaried Plan was in the process of being
    wound up, the CCAA judge dismissed the USW motion for different reasons.

[71]

The CCAA judge saw the issue raised on the USW motion
    to be whether the
PBA
required
Indalex
to pay the windup deficiency in the Salaried Plan as
    at the date of closing of the sale and transfer of assets, namely, July 20,
    2009.  In resolving the issue, the
CCAA
judge considered ss. 57 and 75 of
    the
PBA
.  He called attention to the words accrued to
    the date of the wind up but not yet due in s. 57(4).

[72]

The
CCAA
judge
    also considered ss. 31(1) and (2) of R.R.O. 1990, Reg. 909 (the Regulations).  He concluded that because s. 31 of the
    Regulations permitted
Indalex
to make up the
    deficiency in the Salaried Plan over a period of years, the amount of the
    yearly payments did not become due until it was required to be paid.  Were it not for s. 31 of the Regulations, the
CCAA
judge stated that
Indalex
would have had an obligation under the
PBA
to pay in any deficiency as of the
    date of wind up.

[73]

The CCAA judge concluded:

[49]  I find that as of the date of closing and
    transfer of assets there were no amounts that were "due" or
    "accruing due" on July 20, 2010.  On that date,
Indalex
was not required under
    the
PBA
or the Regulations
thereunder
to pay any amount into the [Salaried] Plan.
    There was an annual payment that would have become payable as at December 31,
    2009 but for the stay provided for in the Initial Order under the CCAA.

[50] Since as of July 20, 2009, there was no amount
    due or payable, no deemed trust arose in respect of the remaining deficiency
    arising as at the date of wind-up.

[51] Since under the initial order priority was
    given to the DIP Lenders, they are entitled to be repaid the amounts currently
    held in escrow.  Those entitled to windup
    deficiency remain as of that date unsecured creditors.

The
Indalex
Bankruptcy Motion

[74]

Having found that the deemed trust claims failed, the
CCAA
judge considered that the question
    of
Indalexs
assignment into bankruptcy might be
    moot.  He went on, in para. 55 of his
    reasons for decision, to state:

[55]  In
    my view,
a voluntary assignment under
    the
BIA
should not be used to defeat
    a secured claim under valid Provincial legislation
, unless the Provincial
    legislation is in direct conflict with the provisions of Federal Insolvency
    Legislation such as the
CCAA
or the
BIA
.  For that reason I did not entertain the bankruptcy assignment motion
    first. [Emphasis added.]

[75]

He found no conflict between the federal and provincial
    legislative regimes and allowed the Applicants to renew their request for
    bankruptcy relief in a further motion.

THE ISSUES

[76]

The
    central issue raised on these appeals is whether the
CCAA
judge erred in his interpretation of s. 57(4) of the
PBA
and, specifically, in finding that
    no deemed trust existed with respect to the Deficiencies as at July 20, 2009.

[77]

The
    USW and the Former Executives ask the court to decide a second issue: whether during
    the
CCAA
proceedings
Indalex
breached the fiduciary obligations
    that it owed to the Plans beneficiaries by virtue of being the Plans
    administrator.
[2]

[78]

The U.S. Trustees submission raises two additional
    issues.  Does the collateral attack rule
    bar the appellants deemed trust motions?  Do the principles of cross-border insolvencies apply to these appeals?

[79]

The final
    issue that arises is that of remedy: how is the Reserve Fund to be distributed?

[80]

Given the centrality of the wind up process to these
    appeals, I will briefly outline the salient aspects of the wind up process
    before turning to a consideration of each of these issues.

WINDING UP A PENSION PLAN

[81]

To understand the wind up process, one must first
    understand how the pension plan operates while it is ongoing.

[82]

A pension plan to which the employees contribute is
    called a contributory plan.  In the case
    of contributory plans, the employer is obliged to remit the employee
    contributions, including payroll deductions, within a specified time
    frame.  This aspect of an employers
    obligations does not arise in these appeals.

[83]

In addition to remitting the employee contributions, if
    any, while a defined benefit pension plan is ongoing, the employer must make
    two types of contributions to ensure that the plan is adequately funded and
    capable of paying the promised pension benefits.

1.
Current service or normal cost contributions
 the employer
    contributions necessary to pay for current service costs in respect of benefits
    that are currently accruing to members as a result of their ongoing
    participation in the plan as active employees.  These must be made in monthly instalments within 30 days after the month
    to which they relate.

2.
Special payments
 a plan
    administrator must file an actuarial report annually in which the pension plan
    is valued on two different bases:  a
    going-concern basis, where it is assumed the plan will continue to operate
    indefinitely; and a solvency basis, where it is assumed that the employer
    will discontinue its business and wind up its plan.  If the actuarial report discloses a going-concern
    liability, the employer is required to make monthly special payments over a 15
    year period to fund the unfunded liability.  If the actuarial report discloses a solvency deficiency, the employer is
    required to make monthly special payments over a 5 year period to fund the
    deficiency.

[84]

It is important to understand that the solvency
    valuation is not the same thing as a wind up report.  To repeat, the solvency valuation is prepared
    while the pension plan is ongoing.  A
    solvency valuation is required while the plan is ongoing because it is crucial
    that there be adequate funds with which to pay pensions if the company becomes
    insolvent and the plan is wound up.

[85]

The wind up of a pension plan is defined in the
PBA
as the termination of the pension
    plan and the distribution of the assets of the pension fund (s. 1(1)).  At the effective date of wind up, the plan
    members cease to accrue further entitlements under the plan.  Naturally, no new members may join the plan
    after the wind up date.  The pension fund
    of a plan that is wound up continues to be subject to the
PBA
and the Regulations until all of the assets of the fund have
    been disbursed (s. 76).

[86]

Winding up a pension plan must be distinguished from
    closing the plan, which simply means that no new entrants are permitted to join
    the plan.

[87]

Under the
PBA
,
    there are two ways that a pension plan can be wound up.  First, s. 68(1) recognizes that an employer
[3]
can voluntarily wind up the pension plan.  Second, under s. 69(1), in certain circumstances, the Superintendent may
    order the wind up of the plan.

[88]

The
PBA
contains
    a detailed statutory scheme that must be followed when a pension plan is to be
    wound up.  This scheme imposes
    obligations on the employer and plan administrator, including the following:

-

The administrator has to give written notice of
    proposal to wind up to various people, including the Superintendent, and the
    notice must contain specified information (s. 68(2) and (4));

-

A wind up date must be chosen and the administrator
    must file a wind up report showing, among other things, the plans assets and
    liabilities as at that date (s. 70(1));

-

No payments can be made out of the pension fund until
    the Superintendent has approved the wind up report (s. 70(4));

-

Plan members with a certain combination of age and
    years of service or membership in the plan are entitled to additional benefits
    on wind up (grow-ins) (s. 74).

[89]

Importantly, s. 75 requires an employer to make two
    different categories of payment on plan wind up.  Sections 75(1)(a) and (b) read as follows:

Liability of
    employer on wind up

75.
(1)
Where
a pension plan is wound up in whole or in part, the employer shall pay into the
    pension fund,

(a)

an
          amount equal to the total of all payments that, under this Act, the
          regulations and the pension plan, are due or that have accrued and that have
          not been paid into the pension fund; and

(b)

an
          amount equal to the amount by which,

(
i
)

the
          value of the pension benefits under the pension plan that would be guaranteed
          by the Guarantee Fund under this Act and the regulations if the
          Superintendent declares that the Guarantee Fund applies to the pension plan,

(ii)

the
          value of the pension benefits accrued with respect to employment in Ontario
          vested under the pension plan, and

(iii)

the
          value of benefits accrued with respect to employment in Ontario resulting
          from the application of subsection 39 (3) (50 per cent rule) and section 74,

exceed
the value of the assets of the pension fund
          allocated as prescribed for payment of pension benefits accrued with respect
          to employment in Ontario.

[90]

Section 75(1
)(
a) requires the
    employer to make all payments that are due immediately or that have accrued and
    not been paid into the pension fund.  Any
    unpaid current service costs and unpaid special payments are caught by this subsection.  In other words, by virtue of this subsection,
    any payments that the employer had to make while the plan was ongoing must be
    paid.  It will be recalled that while the
    plan was ongoing, some special payments could be made over time.

[91]

Section 75(1)(b) requires the employer to pay additional
    amounts into the pension fund if there are insufficient assets to cover the
    value of the pension benefits in the three categories set out in s. 75(1)(b).

[92]

It will be apparent that on wind up, an employer will
    often be faced with having to make significant additional contributions under
    s. 75(1)(b), in addition to being required to bring all contributions up to
    date because of s. 75(1)(a).  Section
    75(2) stipulates that the employer shall pay the money due under subsection
    (1) in the prescribed manner and at the prescribed times.  Section 31 of the Regulations prescribes the
    manner and timing for the s. 75 wind up payments.  It provides that the amounts an employer is
    to contribute under section 75 shall be by annual special payments, commencing
    at the effective date of the wind up, over not more than five years.

THE
PBA
DEEMED
    TRUST

[93]

The
    central issue in these appeals is whether the
CCAA
judge erred in his interpretation of s. 57(4) of the
PBA
.  Section 57(4) reads as follows:

57.
(4)

Where
a pension plan is wound up
in whole or
    in part,
an employer who is required to
    pay contributions to the pension fund shall be deemed to hold in trust
for
    the beneficiaries of the pension plan
an
    amount of money equal to employer contributions accrued to the date of the wind
    up but not yet due under the plan or regulations.
[
emphasis
added]

[94]

The modern approach to statutory construction dictates
    that in interpreting s. 57(4), the words must be read

in
their entire context
    and in their grammatical and ordinary sense harmoniously with the scheme of the
    Act, the object of the Act, and the intention of Parliament.
[4]

[95]

Section
    57(4) deems an employer to hold in trust an amount equal to the contributions accrued
    to the date of wind up but not yet due under the plan or regulations.
The question is: what employer
    contributions are caught by s. 57(4) and, thus, are subject to the deemed trust?

[96]

The introductory words of s. 57(4) refer to where a
    pension plan is wound up.  Therefore,
    to answer this question, one must refer to the wind up regime created by the
PBA
and Regulations, a summary of which is
    set out above.

[97]

It will be recalled that when a pension plan is wound
    up, an actuarial calculation is made of the assets and liabilities, as of the
    wind up date.  Because the plan liabilities
    relate to service that was provided up to the wind up date and not beyond, it
    is clear that all plan liabilities are accrued as of the wind up date.  Put another way, no additional liability can
    accrue following the wind up because all events crystallize on the windup date
     all pension benefit accruals by members cease and all amounts that an
    employer is required to pay into a pension plan are calculated as of the wind up
    date.  For the same reason, the amounts that
    s. 75 requires an employer to contribute to the pension fund, on wind up, are
    accrued to the date of wind up.  The
    required contributions are the amounts that an employer must make to the
    pension fund so that the accrued pension benefits of the plan members can be
    paid.

[98]

It will be further recalled that s. 31 of the
    Regulations gives the employer up to five years in which to make all of the required
    s. 75 contributions.  However, the fact
    that an employer is given time in which to pay the requisite contributions into
    the pension fund does not change the fact that the liabilities accrued by the
    wind up date.

[99]

This point is reinforced when one distinguishes amounts
    that are accrued from amounts that are not yet due.  In
Hydro-Electric Power Commission
(
Ontario
)
v. Albright
(1922), 64 S.C.R. 306, at
    para. 23, the Supreme Court of Canada explains that money is due when there
    is a legal obligation to pay it, whereas payments are accrued when the rights
    or obligations are constituted and the liability to pay exists, even if the
    payment does not need to be made until a later date (
i.e.
is not due until a later date).

[100]

Thus, just as s. 57(4) contemplates, while the amounts
    that the employer must contribute to the pension fund pursuant to s. 75
    accrued to the date of wind up, because of s. 31 those contributions are not
    yet due under the  regulations.

[101]

There is nothing in the wording of s. 57(4) to suggest
    that its scope is confined to the amounts payable under only s. 75(1)(a), as
    the respondents contend.   On the contrary, the words of s. 57(4), given
    their grammatical and ordinary meaning, contemplate that all amounts owing to
    the pension plan on wind up are subject to the deemed trust, even if those
    amounts are not yet due under the plan or regulations.  Therefore, the deemed trust in s. 57(4)
    applies to all employer contributions that are required to be made pursuant to s.
    75.  In short, the words employer contributions
    accrued to the date of wind up but not yet due in s. 57(4) include all amounts
    owed by the employer on the wind up of its pension plan.

[102]

This interpretation accords with a contextual analysis
    of s. 57(4).

[103]

As these appeals demonstrate, during the five-year
    grace period permitted by s. 31 of the Regulations, the rights of plan
    beneficiaries are at risk.  Sections
    57(4) and (5) provide some protection to the plan beneficiaries during that
    period.  The employees interest is in
    receiving their full pension entitlements.  For that to happen, all s. 75 employer contributions must be made into
    the pension fund.  The employer, on the
    other hand, has an interest in having a reasonable period of time within which
    to make the requisite s. 75 contributions.  Section 31 of the Regulations gives the employer up to five years to
    make the contributions, during which time the deemed trust in s. 57(4) and the
    lien and charge in s. 57(5) provide a measure of protection for the employees
    over the amount of the unpaid employer contributions, contributions that had
accrued
to the date of wind up
but [were] not yet due under the regulations
.

[104]

Further, this interpretation is consistent with the
    overall purpose of the
PBA
, which is
    to establish minimum standards,
[5]
safeguard the rights of pension plan beneficiaries,
[6]
and ensure the solvency of pension plans so that pension promises will be
    fulfilled.
[7]
As the Supreme Court of Canada said in
Monsanto
,
    at para. 38:

The Act is public policy legislation that
    recognizes the vital importance of long-term income security.  As a legislative intervention in the
    administration of voluntary pension plans, its purpose is to establish minimum
    standards and regulatory supervision in order to protect and safeguard the
    pension benefits and rights of members, former members and others entitled to
    receive benefits under private pension plans (citations omitted).

[105]

Much reference has been made to the two cases in which
    s. 57(4) has been discussed:
Re
Ivaco
(2005), 12 C.B.R. (5th) 213 (Ont. S.C.),
affd
(2006), 83 O.R. (3d) 108 (C.A.), and
Toronto-Dominion Bank v.
Usarco
(1991), 42 E.T.R. 235 (Ont. Ct. (Gen. Div.)).  In my view, these decisions are of little assistance in deciding this
    issue.

[106]

Factually,
Ivaco
and
Usarco
differ
    from the present case.  In
Ivaco

and
Usarco
, the prospect of
    bankruptcy was firmly before the court whereas in this case, at its highest,
    there is a motion to lift the stay and file for bankruptcy.

[107]

Moreover,
    there are conflicting statements in
Ivaco

and

Usarco

regarding
    the applicability of the deemed trust to wind up deficiencies.  In
Usarco
, a bankruptcy petition had been filed but no steps
    had been taken to proceed with the petition.  The company was not under
CCAA
protection.  In that context, Farley J., the motion judge,
    held that the deemed trust provision referred only to the regular contributions
    together with special contributions that were to have been made but had not
    been.
[8]
In
Ivaco
, the major financers and creditors wished to have the
CCAA
proceeding, which was functioning
    as a liquidation, transformed into a bankruptcy proceeding.  The case was focused primarily on whether
    there was a reason to defeat the bankruptcy petition.  In
Ivaco
,
Farley J.
    took a different view of the scope of the s. 57(4) deemed trust, stating that
    in a non-bankruptcy situation, the companys assets were subject to a deemed
    trust on account of unpaid contributions and wind up liabilities.
[9]
On appeal, although this court indicated that
    it thought that Farley J.s statement in
Usarco

was correct, it found it unnecessary to decide the matter.  Accordingly, these decisions are not determinative
    of the scope of the deemed trust created by s. 57(4) of the
PBA
.

[108]

The
CCAA
judge
    concluded that because
Indalex
had made the going-concern
    and special payments to the Salaried Plan at the date of closing, there were no
    amounts due to the Salaried Plan.  Therefore, there could be no deemed trust.  Respectfully, I disagree.  As I have explained, the deemed trust in s.
    57(4) is not limited to the payment of amounts contemplated by s. 75(1
)(
a).  It applies to
    all payments required by s. 75(1), including payments mandated by s. 75(1
)(
b).

[109]

Accordingly, the deficiency in the Salaried Plan had
    accrued as of the date of wind up (December 31, 2006) and, pursuant to s. 57(4)
    of the
PBA
, was subject to a deemed
    trust.  The
CCAA
judge erred in holding that no deemed trust existed with
    respect to that deficiency as at July 20, 2009.  The consequences that flow from this conclusion are explored in the
    section below on how the Reserve Fund is to be distributed.

[110]

Are the unpaid liability payments owing to the
    Executive Plan also subject to the s. 57(4) deemed trust?  The Former Executives, Superintendent and
Morneau
all contend that they are.  On the plain wording of s. 57(4), I find it
    difficult to accept this argument  the introductory words of the provision
    speak to where a pension plan is wound up.  In other words, wind up of the pension plan appears to be a requirement
    for s. 57(4) to apply.  If that is so, no
    deemed trust could arise unless and until a plan wind up occurred.      As
    has been noted, the Executive Plan had not been wound up at the relevant time.

[111]

Having said this, I am troubled by the notion that
Indalex
can rely on its own inaction to avoid the
    consequences that flow from wind up.  In
    its letter of July 13, 2009, counsel for the Monitor confirmed that the
    Executive Plan would be wound up.  Indeed, the
CCAA
judge acknowledged that the material filed with the court
    showed an intention on the part of the Applicants to wind up the plan.  If the deemed trust does not extend to the
    Executive Plan, in the circumstances of this case, it appears that the result would
    be a triumph of form over substance.

[112]

In the end, however, the question that drives these
    appeals is whether the Monitor should be directed to distribute the Reserve
    Fund to the Plans.  As I explain below in
    the section on how the Reserve Fund should be distributed, in my view, such an
    order should be made.  Consequently, it
    becomes unnecessary to decide whether the deemed trust applies to the
    deficiency in the Executive Plan and I decline to do so.  It is a question that is best decided in a
    case where the result depends on it and a fuller record would enable the court
    to appreciate the broader implications of such a determination.

DID INDALEX BREACH ITS
    FIDUCIARY OBLIGATION?

[113]

The appellants say that
Indalex
, as administrator of the Plans, owed a fiduciary duty
    to the Plans members and beneficiaries.  Both appellants list a number of actions that
Indalex
took or failed to take during the
CCAA
proceedings
    that they say amounted to breaches of its fiduciary obligation.  They contend that the appropriate remedy for
    those breaches is an order requiring the Reserve Fund to be paid into the
    Plans.

[114]

The Monitor acknowledges that
    pension plan administrators have both a statutory and common law duty to act in
    the best interests of the plan beneficiaries and to avoid conflicts of interest,
    and that these duties are fiduciary in nature.  However, the Monitor contends that
Indalex
took all of the impugned actions in its role as
    employer and, therefore, could not have breached the fiduciary duties it owed
    to the Plans beneficiaries as administrator.  In any event, the Monitor adds, the issue is moot because any such breaches
    would merely give rise to an unsecured claim outside the ambit of the deemed
    trusts created by the
PBA
.

[115]

Sun
Indalex
echoes the Monitors latter argument and says that the allegations of breach of
    fiduciary duty are irrelevant in these appeals.  Its submission on this issue is summarized in para. 79 of its factum:

[79]  There is no provision in the PBA that creates
    a deemed trust in respect of any claim for damages based on an alleged breach
    of fiduciary duty by an employer and there is no basis in the PBA for
    conferring a priority with respect to such a claim.  If a claim for breach of fiduciary duty on
    the part of
Indalex
exists, it is merely an unsecured
    claim outside the ambit of the deemed trusts created by the PBA that does not
    have priority over Suns secured claim or the super-priority DIP Lenders
    Charge.

[116]

For the reasons that follow, I
    accept the appellants submission that
Indalex
breached its fiduciary obligations as administrator during the
CCAA
proceedings.  I deal with the question of what flows from
    that finding when deciding the issue of remedy.

[117]

It is clear that the administrator
    of a pension plan is subject to fiduciary obligations in respect of the plan
    members and beneficiaries.
[10]
These obligations arise both at common law
    and by virtue of s. 22 of the
PBA
.

[118]

The common law governing fiduciary relationships
    is well known.  A fiduciary relationship will
    be held to exist where, given all the surrounding circumstances, one person could
    reasonably have expected that the other person in the relationship would act in
    the formers best interests.
[11]
The key factual characteristics of a
    fiduciary relationship are: the scope for the exercise of discretion or power;
    the ability to exercise that power unilaterally so as to affect the beneficiarys
    legal or practical interests; and, a peculiar vulnerability on the part of the beneficiary
    to the exercise of that discretion or power.
[12]

[119]

It is readily apparent that these characteristics
    exist in the relationship between the pension plan administrator and the plan
    members and beneficiaries.  The
    administrator has the power to unilaterally make decisions that affect the
    interests of plan members and beneficiaries as a result of its responsibility
    for the administration of the plan and management of the fund.  Those decisions affect the beneficiaries
    interests.  The plan members and
    beneficiaries reasonably rely on the administrator to ensure that the plan and
    fund are properly administered.  And, as
    these appeals demonstrate, they are peculiarly vulnerable to the
    administrators exercise of its powers.  Thus,
    at common law,
Indalex
as the Plans administrator owed
    a fiduciary duty to the Plans members and beneficiaries to act in their best
    interests.

[120]

Section 22 of the
PBA
also imposes a fiduciary duty on the
    administrator in the administration of the plan and fund.  As well, it expressly prohibits the
    administrator from knowingly permitting its interest to conflict with its duties
    in respect of the pension fund.  The
    relevant provisions in s. 22 read as follows:

Care,
    diligence and skill

22.

(1)
The
administrator of a pension plan shall exercise the care, diligence and skill in
    the administration and investment of the pension fund that a person of ordinary
    prudence would exercise in dealing with the property of another person.

Special
    knowledge and skill

(2) The administrator of a pension plan shall use
    in the administration of the pension plan and in the administration and
    investment of the pension fund all relevant knowledge and skill that the
    administrator possesses or, by reason of the administrators profession,
    business or calling, ought to possess.

Conflict of
    interest

(4) An administrator  shall not knowingly permit
    the administrators interest to conflict with the administrators duties and
    powers in respect of the pension fund.

[121]

In Ontario, an employer is expressly
    permitted to act as the administrator of its pension plan: see ss. 1 and 8 of
    the
PBA
.
[13]
It is self-evident that the two roles can conflict
    from time to time.  In
Imperial Oil Ltd. v. Ontario (Superintendent
    of Pensions)
(1995), 18 C.C.P.B. 198 (
Imperial
    Oil
), the Pension Commission of Ontario (PCO) grappled with this
    statutorily sanctioned conflict in roles.

[122]

In that case, the employer Imperial
    Oil was the administrator of two employee pension plans.  Imperial Oil sought to file amendments to the
    pension plans with the PCO.  Prior to the
    amendments, a plan member with 10 or more years of service with Imperial Oil
    whose employment was terminated for efficiency reasons was entitled to an
    enhanced early retirement annuity (the enhanced benefit).  The effect of the amendments was to deny such
    an employee the enhanced benefit unless the employee would have been able to
    retire within five years of termination.  Put another way, after the amendments, in addition to the other
    requirements, an employee had to be 50 years of age or older at the time his or
    her employment was terminated for efficiency reasons in order to receive the
    enhanced benefit.

[123]

The Superintendent accepted the
    amendments for registration.

[124]

Some six months after the amendments
    were
passed,
Imperial Oil terminated the employment of
    a large number of employees for efficiency reasons.  A number of the affected employees had 10 or
    more years of service but, because they had not reached the age of 50, they
    were denied the enhanced benefit.

[125]

A group of former employees (the
    Entitlement 55 Group) objected to the registration of the amendments.  They brought an application to the PCO,
    seeking a declaration that the amendments were void and an order compelling
    Imperial Oil to administer the pension plans according to the terms of the
    plans in place before the amendments were passed.

[126]

Among other things, the Entitlement
    55 Group argued that when Imperial Oil amended the plans, it was acting in both
    its capacity as employer and its capacity as administrator of the plans.  Thus, they contended, Imperial Oil placed
    itself in a conflict of interest situation prohibited by s. 22(4) of the
PBA
because in its role as employer it
    wished to reduce pension fund liabilities but in its role as administrator it
    had a duty to protect the interests of the beneficiaries who had reached the 10
    year service qualification and thereby qualified for the enhanced
    benefit.

[127]

The PCO dismissed the application.  In so doing, it rejected the submission that Imperial
    Oil had contravened s. 22(4) by passing the amendments.  It held that Imperial Oil had acted solely in
    its capacity as employer when it passed the amendments.

[128]

The PCO acknowledged that the
PBA
allows an employer to wear two
    hats  one as employer and the other as administrator.  However, at para. 33 of its reasons, the PCO explained
    that an employer plays a role in respect of the pension plan that is distinct
    from its role as administrator:

Its
    role as employer permits it to make the decision to create a pension plan, to
    amend it and to wind it up.  Once the
    plan and fund are in place, it becomes an administrator for the purposes of
    management of the fund and administration of the plan.  If we were to hold that an employer was an
    administrator for all purposes once a plan was established, of what use would a
    power of amendment be?  An employer could
    never use the power to amend the plan in a way that was to its benefit, as
    opposed to the benefit of the employees.  Section 14 presupposes this power is with an employer as it created
    parameters around the exercise of a power of amendment.

[129]

The two hats analogy in
Imperial Oil
assists in understanding
    the parameters of the dual roles of an employer who is also the administrator
    of its pension plan.  The employer, when
    managing its business, wears its corporate hat.  Although the employer
qua
corporation
    must treat all stakeholders fairly when their interests conflict, the directors
    ultimate duty is to act in the best interests of the corporation: see
BCE Inc. v. 1976
Debentureholders
,
    [2008] 3 S.C.R. 560, at paras. 81-84
.  On
the other hand, when acting as the pension
    plan administrator, the employer wears its fiduciary hat and must act in the
    best interests of the plans members and beneficiaries.

[130]

The question raised by these appeals
    is whether, as the respondents contend,
Indalex
wore
    only its corporate hat during the
CCAA
proceedings.  In my view, it did not.  As I will explain, during the
CCAA
proceedings, in the unique
    circumstances of this case,
Indalex
wore both its
    corporate and its administrators hats.

[131]

I begin from the position that
Indalex
had the right to make the decision to commence
CCAA
proceedings wearing solely its
    corporate hat.  That decision is not part
    of the administration of the pension plan or fund nor does it necessarily engage
    the rights of the beneficiaries of the pension plan.  For example, an employer might sell its
    business under
CCAA
protection, with
    the purchaser agreeing to continue the pension plan.  In that situation, there should be no effect
    on the payment of pension benefits.  Similarly, if the pension plan were fully funded,
CCAA
proceedings should have no effect on pension entitlements.

[132]

However, just because the initial
    decision to commence
CCAA
proceedings
    is solely a corporate one that does not mean that all subsequent decisions made
    during the proceedings are also solely corporate ones.  In the circumstances of this case,
Indalex
could not simply ignore its obligations as the
    Plans administrator once it decided to seek
CCAA
protection.  Shortly
    after initiating
CCAA
proceedings,
Indalex
moved to obtain DIP financing, in which it agreed
    to give the DIP lenders a super-priority charge.  At the same time,
Indalex
knew that the Plans were underfunded and that unless more funds were put into
    the Plans, pensions would have to be reduced.  The decisions that
Indalex
was unilaterally
    making had the potential to affect the Plans beneficiaries rights, at a time
    when they were particularly vulnerable.  The
    peculiar vulnerability of pension plan beneficiaries was even greater than in
    the ordinary course because they were given no notice of the
CCAA
proceedings, had no real knowledge
    of what was transpiring and had no power to ensure that their interests were
    even considered  much less protected  during the DIP negotiations.

[133]

In concluding that
Indalex
was subject to its fiduciary duties as
    administrator as well as its corporate obligations during the
CCAA
proceedings, two points need to be
    made.

[134]

First, it is significant that
Indalex
is unclear as to what it thinks happened to its
    role as administrator during the
CCAA
proceedings.  When cross-examined on this matter, Mr.
    Cooper gave various responses as to whom he believed filled that role:
Indalex
, a combination of him and the Monitor, and a
    combination of him and his staff.  This
    confusion is understandable, given the number of roles that Mr. Cooper played in
    these proceedings.  It will be recalled that
    prior to the commencement of the
CCAA
proceedings,
    he became the Chief Restructuring Officer for
Indalex
U.S., a position which included responsibility for the Canadian group of
Indalex
companies.  In
    this position, he served as
Indalexs
primary negotiator
    of the DIP credit agreement.  But, at the
    same time, he worked for FTI Consulting Inc.  The Monitor is a wholly-owned subsidiary of FTI Consulting Inc.  This blending of roles no doubt contributed
    to the apparent disregard for the obligations owed by the Plans
    administrator.

[135]

In any event, it is not apparent to
    me that
Indalex
could ignore its role as
    administrator or divest itself of those obligations without taking formal steps
    through the Superintendent, plan amendment, the courts, or some combination
    thereof, to transfer that role to a suitable person.  However, I will not consider this particular
    question further because it was not squarely raised and argued by the parties
    and, in any event, even if Mr. Cooper became the administrator, through his
    various roles, including as Chief Restructuring Officer for
Indalex
U.S., he is so clearly allied in interest with
Indalex
that the following analysis remains applicable.

[136]

Second, the respondents submission
    that
Indalex
wore only its corporate hat during the
    proceedings is implicitly premised on the notion that an employer will wear its
    corporate hat or its administrators hat, but never both.  I do not accept this premise.  Nor do I accept that the reasoning in
Imperial Oil
, which the respondents rely
    on, supports this submission.

[137]

In
Imperial Oil
, the PCO had to decide whether certain acts taken in
    respect of a pension plan were those of the employer or the administrator.  Because the provision of pension plans is
    voluntary in Canada, the employer has the right to decide questions of plan design,
    including whether to offer a pension plan and, if it does, whether to end
    it.  In part because of the wording of s.
    14 of the
PBA
and in part because the
    amendments at issue in
Imperial Oil
were
    a matter of plan design, the PCO concluded that the employer was found to be
    acting solely in its corporate role when it passed the amendments.  There is nothing in
Imperial Oil
to suggest that an employer cannot find itself in a
    position where it is wearing both hats at the same time.

[138]

I turn next to the question of
    breach.

[139]

As
    previously noted, when
Indalex
commenced
CCAA
proceedings, it knew that the Plans
    were underfunded and that unless additional funds were put into the Plans, pensions
    would be reduced.
Indalex
did nothing in the
CCAA
proceedings to
    fund the deficit in the underfunded Plans.  It took no steps to protect the vested rights of the Plans
    beneficiaries to continue to receive their full pension entitlements.  In fact,
Indalex
took
    active steps which undermined the possibility of additional funding to the
    Plans.  It applied for
CCAA
protection without notice to the
    Plans beneficiaries.  It obtained a
CCAA
order that gave priority to the DIP
    lenders over statutory trusts without notice to the Plans beneficiaries.  It sold its assets without making any
    provision for the Plans.  It knew the
    purchaser was not taking over the Plans.
[14]
It moved to obtain orders approving the sale
    and distributing the sale proceeds to the DIP lenders, knowing that no payment would
    be made to the underfunded Plans.  And,
Indalex
U.S. directed
Indalex
to
    bring its bankruptcy motion with the intention of defeating the deemed trust
    claims and
ensuring that the Reserve Fund was transferred to it.  In short,
Indalex
did nothing
    to protect the best interests of the Plans beneficiaries and, accordingly, was
    in breach of its fiduciary obligations as administrator.

[140]

Further, in my view,
Indalex
was in a conflict of interest position.  As has been mentioned,
Indalexs
corporate duty was to treat all stakeholders fairly when their interests
    conflicted, but its ultimate duty was to act in the best interests of the
    corporation.
Indalexs
duty as administrator was to act in the Plans beneficiaries best interests.  It is apparent that in the circumstances of
    this case, these duties were in conflict.

[141]

The
    common law prohibition against conflict of interest is not confined to
    situations where the fiduciarys personal interest conflicts with those of the
    beneficiaries.  It also precludes the
    fiduciary from placing itself in a position where it acts for two parties who
    are adverse in interest:
Davey v.
    Woolley,
Hames
, Dale &
Dingwall

(1982), 35 O.R. (2nd) 599 (C.A.), at para. 8.  In
Davey
,
    a solicitor who acted for both sides of a business transaction was found to be
    in breach of his fiduciary obligations.  Wilson J.A., writing for this court, explained that the conflict arose
    because the solicitor could not fulfill his duties in respect of both clients
    at the same time.  At para. 18, she
    concluded that the solicitor was bound to refuse to act for the plaintiff in
    the circumstances.

[142]

The
    prohibition against a fiduciary being in a position of conflicting duties
    governs the situation in which
Indalex
found itself
    in during the
CCAA
proceedings.

[143]

Indalex
was not at liberty to resolve the conflict in
    its duties by simply ignoring its role as administrator.  A fiduciary relationship does not end simply
    because it becomes impossible of performance.  At the point where its duty to the corporation conflicted with its
    duties as administrator, it was incumbent on
Indalex
to take steps to address the conflict.

[144]

Even
    if I am in error in concluding that
Indalex
was in
    breach of its common law fiduciary obligations, I would find that its actions amounted
    to a breach of s. 22(4) of the
PBA
.  Section 22(4) prohibits an administrator from
    knowingly permitting its interest to conflict with its duties and powers in
    respect of the pension fund.  Under s.
    57(5) of the
PBA
, as administrator,
Indalex
had a lien and charge on its assets for the amount
    of the deemed trust.  Any steps that it
    might have taken pursuant to s. 57(5), as administrator, would have been in
    respect of the pension fund.  Thus, if nothing
    else,
Indalexs
actions during the
CCAA
proceedings demonstrate that it
    permitted its corporate interests to conflict with the administrators duties
    and powers that flow from the lien and charge.

[145]

Having
    found that
Indalex
breached its fiduciary obligations
    to the Plans beneficiaries, the question becomes: what flows from such a
    finding?  I address that question below
    when considering the issue of how to distribute the Reserve Fund.  At that time I will return to the arguments
    of the Monitor and Sun
Indalex
to the effect that
    such a finding is largely irrelevant in these proceedings.

DOES THE COLLATERAL ATTACK RULE BAR THE DEEMED TRUST
    MOTIONS?

[146]

The
    U.S. Trustee submits that even if the
PBA
creates a deemed trust for any wind up deficiencies in the Plans, the
    appeals should be dismissed because the underlying motions are an impermissible
    collateral attack on previous orders made in the
CCAA
proceedings.  His
    argument runs as follows.

[147]

The Initial Order, the June 12, 2009
    order and the Sale Approval order (the Court Orders) are all valid, enforceable
    court orders.  The Court Orders gave
    super-priority
rights to the DIP lenders and
Indalex
U.S. is
subrogated to those rights.  None of the Court Orders were appealed and no
    party sought to have them set aside or varied.  As the appellants motions seek to alter the priorities established by
    the Court Orders, they should be barred because they are an impermissible
    collateral attack on those orders.

[148]

I do not accept this submission for three reasons, the
    first two of which can be shortly stated.

[149]

First, this submission is an attack on the underlying motions.  As such, it ought to have been raised below.  The Former Executives say that the collateral
    attack doctrine was raised for the first time on appeal.  Certainly, if it was raised below, the
CCAA
judge makes no reference to
    it.  As a general rule, it is not
    appropriate to raise an issue for the first time on appeal.  The exceptions to this general rule are very
    limited and do not apply in this case: see
Cusson
v.
Quan
,
    [2009] 3 S.C.R. 712, at paras. 36-37.

[150]

Second, the USW and the Former Executives raised the
    matter of the deemed trusts in the
CCAA
proceedings.  The
CCAA
judge designed a process by which their claims would be resolved.  They followed that process.  The USW and Former Executives can scarcely be
    faulted for complying with a court-designed process.  Further, the Sale Approval order acknowledged
    the deemed trust issue in that it required the Monitor to hold funds in reserve
    that were sufficient to satisfy the deemed trust claims. That acknowledgment is
    inconsistent with a subsequent claim of impermissible collateral attack.

[151]

Third, as I will now explain, an appreciation of the
CCAA
regime makes it apparent that the
    collateral attack rule does not apply in the circumstances of this case.

[152]

The collateral attack rule rests on the need for court
    orders to be treated as binding and conclusive unless they are set aside on
    appeal or lawfully quashed.  Court orders
    may not be attacked collaterally.  That
    is, a court order may not be attacked in proceedings other than those whose
    specific object is the reversal, variation, or nullification of the order.  See
Wilson
    v. The Queen
, [1983] 2 S.C.R. 594, at para. 8.

[153]

The fundamental policy behind the
    rule against collateral attacks is to maintain the rule of law and to preserve
    the repute of the administration of justice: see
R. v. Litchfield
, [1993] 4 S.C.R. 333, at para. 22.  If a party could avoid the consequences of an
    order issued against it by going to another forum, this would undermine the
    integrity of the justice system.  Consequently, the doctrine is intended to prevent a party from
    circumventing the effect of a decision rendered against it: see
Garland v. Consumers Gas Co
., [2004] 1
    S.C.R. 629, at para. 72.

[154]

The
CCAA
regime is designed to deal with all matters during an insolvent companys
    attempt to reorganize.  The court-ordered
    stay of proceedings ensures that there is only one forum where parties can put
    forth their arguments and claims.  By pre-empting
    other legal proceedings, the stay gives a corporation breathing space, which promotes
    the opportunity for reorganization.

[155]

The
CCAA
regime
    is a flexible, judicially supervised reorganization process that allows for
    creative and effective decisions: see
Century
    Services Ltd.
v.
Canada
(
Attorney General
), [2010] 3 S.C.R. 379,
    at para. 21.  The
CCAA
judge is accorded broad discretion because the proceedings are
    a fact-based exercise that requires ongoing monitoring and because there is
    often a need for the court to act quickly.  There is an underlying assumption, however, that the
CCAA
proceedings will provide an
    opportunity for affected persons to participate in the proceedings.

[156]

This assumption finds voice in para. 56 of the Initial
    Order, as amended, which permits any interested party to apply to the
CCAA
court to vary or amend the Initial
    Order (the come-back clause).  That is
    precisely what the appellants did.  As interested
    parties, they went to the
CCAA
court
    to ask that the super-priority charge be varied or amended so that their claims
    could be properly recognised.

[157]

Moreover, I do not accept that the appellants failed to
    act promptly in asserting their claims.  It
    was only when
Indalex
brought a motion for approval
    of the sale of its assets to SAPA and for a distribution of the sale proceeds
    to the DIP lenders that it became clear that
Indalex
intended to abandon the Plans in their underfunded states.  The appellants immediately took steps to
    assert their claims in the very forum in which all of the Court Orders had been
    made, namely, the
CCAA
court.

[158]

The U.S. Trustees argument that the Court Orders were
    never appealed is not persuasive.  In
Algoma Steel Inc. Re
(2001), 147 O.A.C.
    291, at paras. 7-9, this court stated that it is premature to grant leave to
    appeal from an initial order  brought on an urgent basis to deal with
    seemingly desperate circumstances  when the order specifically opens the
    proceeding to all interested parties and invites dissatisfied parties to bring
    their concerns to the court on a timely basis using a come-back provision.

[159]

As the Former Executives point out, had the appellants sought
    to advance their deemed trust claims by bringing a motion challenging the paragraph
    of the Initial Order that established the DIP super-priority charge, it is
    likely that they would have been met by a response that their motions were
    premature.  Depending on the amount paid
    for the company and/or the arrangements made in respect of the Plans, the
    interests of the Plans beneficiaries might not have been affected by a sale.  Indeed, on July 2, 2009, when
Indalex
brought a motion to have the bidding procedures
    approved for the asset sale and the Former Executives objected because of concerns
    that the Plans were underfunded, the
CCAA
judge endorsed the record as follows: The issues can be raised by the retirees
    on any application to approve a transaction  but that is for another
    day.

[160]

The appellants followed that direction.  When
Indalex
moved
    to have the sale transaction approved and the jeopardy to the appellants
    interests became apparent, they went to the
CCAA
court and raised the deemed trust issue.
[15]

[161]

Thus, as I have said, I do not view the deemed trust
    motions as collateral attacks on the Court Orders.  The motions were raised in a timely manner in
    the same court in which the orders were made.  They can scarcely be termed attempts to circumvent decisions rendered
    against the USW and the Former Executives when no decision had ever been
    rendered in which their claims had been squarely raised and addressed.  The process the USW and the Former Executives
    followed is exactly that which is contemplated in
CCAA
proceedings and, specifically, the come-back clause.

[162]

Even if the collateral attack rule were applicable, however,
    this is not a case for its strict application.

[163]

In
Litchfield
,
    the Supreme Court of Canada recognized that there will be situations in which
    the collateral attack rule should not be strictly applied.  In that case, a physician had been charged
    with a number of counts of sexual assault on his patients.  On motion, a judge (not the trial judge)
    ordered that the counts be severed and divided and three different trials be
    held.  After one trial, the physician was
    acquitted.  The Crown appealed.  One of the grounds of appeal related to the
    pre-trial severance order.  The question
    arose as to whether the Crowns challenge to the validity of the severance order
    violated the collateral attack rule.

[164]

At paras. 16-19 of
Litchfield
,
    Iacobucci J., writing for the majority, explains that some flexibility is
    needed in the application of the rule against collateral attacks.  Strictly applied, the rule would prevent the
    trial judge from reviewing the severance order because the trial was not a
    proceeding whose specific object was the reversal, variation or nullification
    of the severance order.  However, Iacobucci
    J. noted, the rule is not intended to immunize court orders from review.  He reiterated the powerful rationale behind
    the rule: to maintain the rule of law and preserve the repute of the
    administration of justice.  This promotes
    certainty and finality, key aspects of the orderly and functional
    administration of justice.  However, he
    concluded that flexibility was warranted because permitting a collateral attack
    on the severance order did not offend the underlying rationale for the rule.

[165]

Similarly, in
R.
    v.
Domm
(1996), 31 O.R. (3d) 540, at para. 31, Doherty
    J.A., writing for this court, states that if a collateral attack can be taken
    without harm to the interests of the rule of law and the repute of the
    administration of justice, the rule should be relaxed.  At para. 36 of
Domm
, he says that the rule must
    yield where a person has no other effective means of challenging the order in
    question.

[166]

I acknowledge that certainty and finality are necessary
    to the proper functioning of the legal system.  And, I recognize that permitting the appellants motions to proceed has generated
    some degree of uncertainty as to the priorities established by the Court
    Orders.  However, in the circumstances of
    this case, there was no other effective means by which the appellants could assert
    their claims to a deemed trust.  As has
    been mentioned, it was only when
Indalex
brought a
    motion for approval of the sale of its assets to SAPA and for a distribution of
    the sale proceeds to the DIP lenders that it became clear that
Indalex
intended to abandon the Plans in their underfunded
    states.  The appellants immediately took
    steps to assert their claims in the very forum in which all of the Court Orders
    had been made, namely, the
CCAA
court.  By permitting their motions to be heard, the
CCAA
judge did not damage the repute of
    the administration of justice.  On the
    contrary, he strengthened it.  He enabled
    the sale to proceed while ensuring that the competing claims to the Reserve Fund
    would be decided on the merits and expeditiously.

[167]

Nor can it be said, for the reasons already given about
    the nature of
CCAA
proceedings, that
    the deemed trust motions jeopardize the rule of law.  Given the nature of a
CCAA
proceeding, the court must often make orders on an urgent and
    expedited basis, with little or no notice to creditors and other interested
    parties.  Its processes are sufficiently
    flexible that it can accommodate situations such as the one that arose here.  A strict application of the rule would preclude
    the appellants from having the opportunity to meaningfully challenge the
    super-priority charge in the Initial Order, as amended.  In my view, that result would be a
    fundamental flaw in the
CCAA
process,
    one in which procedure triumphed over substance.  As Iacobucci J. said in
Litchfield
, at para. 18, such a result cannot be accepted.

[168]

Accordingly, in my view, while the collateral attack
    rule does not apply, even if it did, there are compelling reasons in this case to
    relax its strict application.

DO THE PRINCIPLES OF CROSS-BORDER INSOLVENCIES APPLY?

[169]

The
    U.S. Trustee also submits that the principles of cross-border insolvencies
    should be applied when deciding these appeals.  He contends that n
otwithstanding
that separate proceedings were commenced in Canada and the U.S., those
    principles apply because the Applicants were direct and indirect subsidiaries
    of certain of the U.S. debtors, who commenced proceedings under Chapter 11 of
    Title 11 of the United States Bankruptcy Code in March 2009.  Further, the U.S. Trustee contends that
if
    the appellants claims were to succeed, it would seriously undermine
the basic principles underlying
    cross-border insolvencies and the confidence of foreign creditors and courts in
    the Canadian insolvency system.

[170]

While this argument provides context
    for the U.S. Trustees collateral attack submission, I do not see it as
    disclosing any legal grounds relevant to these appeals.  By order dated May 12, 2009, Morawetz J.
    approved a cross-border protocol in these proceedings that stipulates that the
    U.S. and Canadian courts retain exclusive jurisdiction over the proceedings in
    their respective jurisdictions.  Furthermore,
    there is no evidence to support the U.S. Trustees claim that allowing these
    appeals would impair future lending practices by U.S. companies.  Finally, nothing has been raised which
    supports the notion that upholding valid provincial law in the circumstances of
    these appeals will undermine the principles of cross-border insolvencies.

HOW IS THE RESERVE
    FUND TO BE DISTRIBUTED?

The
    Salaried Plan

[171]

Having
    concluded that a
deemed trust exists with respect to the deficiency in
    the Salaried Plan as at July 20, 2009, the question becomes whether the Monitor
    should be ordered to pay the amount of that deficiency, from the Reserve Fund,
    into the Salaried Plan.

[172]

The USW argues, on behalf of the beneficiaries of the
    Salaried Plan, that the deemed trust ranks in priority to all secured creditors
    and, therefore, the order should be made.  Its argument rests on s. 30(7) of the
PPSA
, which reads as follows:

30. (7
)

A
security interest
in an account or inventory and its
    proceeds
is subordinate to the interest
    of a person who is the beneficiary of a deemed trust
arising under the
    Employment
Standards Act
or
under the
Pension Benefits Act
.
[
emphasis
added]

[173]

The USW contends that as s. 30(7) gives priority to the
PBA
deemed trust and no finding of
paramountcy
was made in these proceedings, it must be given
    effect.

[174]

The respondents argue that the super-priority charge
    has priority over any deemed trusts and, therefore, the Reserve Fund should be
    paid to Sun
Indalex
, as the principal secured
    creditor of
Indalex
U.S.  They point to well-established law that
    authorizes the court to grant super-priority to DIP lenders in
CCAA
proceedings and argue that without such
    a charge, DIP lenders will no longer provide financing to companies under
CCAA
protection.  Without DIP funding they say, many companies
    under
CCAA
protection will be unable
    to continue in business until a compromise or arrangement has been worked out.  Consequently, companies will file for
    bankruptcy where deemed trusts have no priority.  This, they say, will frustrate the very
    purpose of the
CCAA
, which is to
    facilitate the making of compromises or arrangements between insolvent debtor
    companies and their creditors.

[175]

There is a great deal of force to the respondents
    submissions.  Indeed, in general, I agree
    with them.  It is important that the
    courts not address the interests of pension plan beneficiaries in a manner that
    thwarts or even discourages DIP funding in future
CCAA
proceedings.  Nonetheless,
    in the circumstances of this case, it is my view that the Monitor should be
    ordered to pay the amount of the deficiency, from the Reserve Fund, into the
    Salaried Plan.

[176]

The
CCAA
court
    has the authority to grant a super-priority charge to DIP lenders in
CCAA
proceedings.
[16]
I fully accept that the
CCAA
judge can make an order granting a super-priority charge that
    has the effect of overriding provincial legislation, including the
PBA
.  I also accept that without such a charge, DIP lenders may be unwilling
    to provide financing to companies under
CCAA
protection.  However, this does not
    mean that the super-priority charge in question has the effect of overriding
    the deemed trust.  To decide whether it
    does, one must turn to the doctrine of
paramountcy
.

[177]

Valid provincial laws continue to apply in federally
    regulated bankruptcy and insolvency proceedings absent an express finding of federal
paramountcy
.  The
    onus is on the party relying on the doctrine of
paramountcy
to demonstrate that the federal and provincial laws are incompatible by
    establishing either that it is impossible to comply with both laws or that to
    apply the provincial law would frustrate the purpose of the federal law: see
Canadian Western Bank v. Alberta
, [2007]
    2 S.C.R. 3, at para. 75 and
Nortel
    Networks Corp. (Re)
(2009), 99 O.R. (3d) 708 (C.A.), at para.
38,
leave to appeal to S.C.C. refused, [2009] S.C.C.A. No.
    531.

[178]

In this case, there is nothing in the record to suggest
    that the issue of
paramountcy
was invoked on April 8,
    2009, when Morawetz J. amended the Initial Order to include the super-priority
    charge.  The documents before the court at
    that time did not alert the court to the issue or suggest that the
PBA
deemed trust would have to be
    overridden in order for
Indalex
to proceed with its
    DIP financing efforts while under
CCAA
protection.  To the contrary, the affidavit of Timothy
    Stubbs, the then CEO of
Indalex
, sworn April 3, 2009,
    was the primary source of information before the court.  In para. 74 of his affidavit, Mr. Stubbs
    deposes that
Indalex
intended to comply with all
    applicable laws including regulatory deemed trust requirements.

[179]

While the super-priority charge provides that it ranks
    in priority over trusts, statutory or otherwise, I do not read it as taking
    priority over the deemed trust in this case because the deemed trust was not
    identified by the court at the time the charge was granted and the affidavit
    evidence suggested such a priority was unnecessary.  As no finding of
paramountcy
was made, valid provincial laws continue to operate: the super-priority charge
    does not override the
PBA
deemed
    trust.  The two operate sequentially,
    with the deemed trust being satisfied first from the Reserve Fund.

[180]

Does this conclusion thwart the purpose of the
CCAA
regime, which is to facilitate the
    restructuring of failing businesses to avoid bankruptcy and liquidation?  It does not appear that would have happened
    in the present case.  The granting of a
    stay in a
CCAA
proceeding provides a
    company with breathing space so that it can restructure.  In this case, the stay of proceedings gave
Indalex
the breathing space it needed to
effect
a sale of its business.  Recall that t
his was a liquidating CCAA from
    the outset. There was no restructuring of the company.  There was no plan of compromise or
    arrangement prepared and presented to creditors.  Within days of obtaining
CCAA
protection,
Indalex
began a
    marketing process to sell itself.  Very
    shortly thereafter, it
sold its business as a going-concern.  There is nothing in the record to suggest
    that giving the deemed trust priority would have frustrated
Indalexs
efforts to sell itself as a going-concern business.

[181]

What of the
    contention that recognition of the deemed trust will cause DIP lenders to be
    unwilling to advance funds in
CCAA
proceedings?  It is important to recognize that the conclusion
    I have reached does not mean that a finding of
paramountcy
will never be made.  That determination must
    be made on a case by case basis.  There
    may well be situations in which
paramountcy
is invoked
    and the record satisfies the
CCAA
judge
    that application of the provincial legislation would frustrate the companys
    ability to restructure and avoid bankruptcy.  But, this depends on the applicant clearly raising the issue of
paramountcy
, which will alert affected parties to the risks
    to their interests and put them in a position where they can take steps to
    protect their rights.  That, however, is
    not this case.

[182]

Nor am I persuaded by the argument that if the deemed
    trust is given effect in the unique circumstances of this
case,
companies will file for bankruptcy instead of moving for
CCAA
protection.  This
    argument suggests that companies will act based on the desire to avoid their
    pension obligations.  That motivation
    does not conform with the obligations that directors owe to the corporation.  The obligation to act in the best interests
    of the corporation suggests that companies will choose the route that maximizes
    recovery for creditors.  As the
    respondents point out,
Indalex
sought a going-concern
    sale for exactly that reason.  In
    addition, by selling its business as a going concern,
Indalex
preserved value for suppliers and customers who can continue to do business
    with the purchaser and preserved approximately 950 jobs for its former
    employees.  Surely the desire to maximize
    recovery for their creditors  along with those other considerations  would have
    prevailed had
Indalex
known it would have to satisfy the
    deemed trust when considering whether to pursue bankruptcy or
CCAA
proceedings.  In this regard, it is worth recalling that
    consideration for the sale exceeded $151 million, all DIP lenders were repaid
    in full, the Reserve Fund consists of undistributed proceeds, and the total
    deficiencies in the Plans appear to be approximately $6.75 million.

[183]

As for the suggestion that
Indalex
will pursue its bankruptcy motion in order to defeat the deemed trust, I would
    simply echo the comments of the
CCAA
judge
    that a voluntary assignment into bankruptcy should not be used to defeat a
    secured claim under valid provincial legislation.  I would add this additional
    consideration:  it is inappropriate for a
CCAA
applicant with a fiduciary duty
    to pension plan beneficiaries to seek to avoid those obligations to the benefit
    of a related party by invoking bankruptcy proceedings when no other creditor
    seeks to do so.

[184]

There is also the matter of
Indalex
U.S.s apparent reliance on the super-priority charge when it gave the
    Guarantee.  As explained more fully
    above,
Indalex
U.S. was fully aware of
Indalexs
obligations to the Plans when it entered into the
    Guarantee.  Again as explained more fully
    above, there were a number of different steps that
Indalex
could have taken to deal with these obligations.  It chose not to.  This is not a case in which the secured
    creditor is an arms length third party taken by surprise by the claims of the
    Plans beneficiaries.

[185]

A final consideration that must be addressed at this
    stage arises from the recent decision of the Supreme Court of Canada in
Century Services
, which was released after
    the oral hearing of the appeals.  The
    parties were invited to make written submissions on the impact of
Century Services
, if any, on these
    appeals.  I am grateful for the
    excellence of those submissions, which mirrors the quality of the original
    submissions.

[186]

Century Services
deals
    with conflicting provisions in two pieces of federal legislation:  s. 222(3) of the
Excise Tax Act
, R.S.C. 1985, c. E-15, which gives the federal Crown
    a deemed trust for unpaid GST, and s. 18.3(1) (now s. 37) of the
CCAA
, which expressly excludes deemed
    trusts in favour of the Crown from applying in
CCAA
proceedings.  Deschamps
    J., for the majority, conducted a comprehensive analysis of the two conflicting
    sections and held that s. 18.3(1) of the
CCAA
prevails.  In sum,
Century Services
stands for the
    proposition that s. 18.3(1) of the
CCAA
excludes
    the deemed trust for unpaid GST created by s. 222 of the
Excise Tax Act
from applying in a
CCAA
proceeding.

[187]

It will be readily apparent that
Century Services
is distinguishable from the present case in a
    number of ways.  Three significant
    differences between it and the present appeals are worthy of note.

[188]

First, in
Century
    Services
, reorganization efforts had failed and the company sought leave to
    make an assignment into bankruptcy.  Liquidation on a piecemeal basis through bankruptcy was inevitable.  The
CCAA
proceedings in the present case, on the other hand, were successful  they resulted
    in the sale of
Indalexs
assets and the continuation
    of the business, albeit through another entity.  It is not a situation in which transition to the bankruptcy regime was
    inevitable because efforts under the
CCAA
had failed.

[189]

Second,
Century
    Services
deals with competing provisions in two federal statutes.  The conflict between the two provisions was
    patent:  one or the other had to prevail.  They could not be read together.  Section 18.3(1) was found to prevail, in part
    because of its wording, which expressly excludes a deemed trust in favour of
    the Crown.  The present appeals involve a
    consideration of the doctrine of federal
paramountcy
and whether a deemed trust under provincial legislation applies to a charge
    granted in a
CCAA
proceeding.  Significantly, unlike the situation in
Century Services,
there is nothing in
    the
CCAA
that expressly excludes the
    provincial deemed trust for unpaid pension contributions from applying in
CCAA
proceedings.  In these appeals, exclusion of the provincial
    deemed trust is dependent on the
CCAA
judge
    engaging in a factual examination and a determination that preservation of
    pension rights through the deemed trust would frustrate the purpose of the
CCAA
proceeding.  Moreover, it is difficult to see how a
    finding of
paramountcy
would have been made on the
    record at the time the super-priority charge was made, given the evidence that
Indalex
intended to comply with all regulatory deemed trust
    requirements.
[17]

[190]

Third, no issue of fiduciary duty arose in
Century Services
.  In the present case, as discussed previously
    and again below, the impact of fiduciary duties during the
CCAA
proceeding plays a significant role.

[191]

The respondents contend that
Century Services
is crucial in the disposition of these appeals because
    it stands for the proposition that federal priorities under the
Bankruptcy and Insolvency Act
, R.S.C.
    1985, c. B-3 (
BIA
) apply in
CCAA
proceedings.  If
Century
    Services
stood for that proposition, I would agree.  In a series of cases, the Supreme Court of
    Canada has repeatedly said that a province cannot, by legislating a deemed
    trust, alter the scheme of priorities under the
BIA
: see, for example,
British
    Columbia v.
Henfrey
Samson
Belair
Ltd
., [1989] 2 S.C.R. 24.

[192]

However, in my
    view,
Century Services
does not stand
    for that unqualified proposition.  In
Century Services
, Deschamps J. explains that
    the
CCAA
and
BIA
are to be read in an integrated fashion but she is at pains to
    say that the
BIA
scheme of
    liquidation and distribution is the backdrop for what happens
if
a CCAA
reorganization is unsuccessful
.
[18]
Here, as I have noted, the
CCAA
proceedings were successful.

[193]

Moreover, Deschamps J. repeatedly distinguishes the two
    regimes on the basis that the
BIA
is
    characterized by a rules-based approach
[19]
whereas the
CCAA
offers a more
    flexible mechanism with greater judicial discretion.
[20]
Permitting the
PBA
deemed trust to survive, absent an express finding of
paramountcy
, is consistent with both those key features of
    the
CCAA
proceedings  greater
    flexibility and greater judicial discretion on the part of the
CCAA
court.  This flexibility and discretion on the part
    of the
CCAA
court enables it to
    meaningfully assess the baseline considerations of appropriateness, good faith
    and due diligence, referred to by Deschamps J. at para. 70 of
Century Services
.

[194]

The respondents point to paras. 47,
    48 and 76 of
Century Services
, in
    which Deschamps J. notes the strange asymmetry that would occur if the
ETA
Crown priority were interpreted
    differently in
CCAA
proceedings than
    in
BIA
proceedings.  She says this would encourage forum shopping
    in cases where the debtors assets cannot satisfy both the secured creditors
    and the Crowns claims.  No strange
    asymmetry would occur in cases such as the present appeals.  If the
CCAA
judge found that recognition of the
PBA
deemed trust would frustrate the purpose of the
CCAA
proceeding and
paramountcy
had been
    invoked, the
CCAA
judge would be free
    to make a super-priority charge that overrode the deemed trust.  This approach leaves the
CCAA
court with greater flexibility and the ability to be
    cognizant of the various interests at stake in the reorganization, which can
    extend beyond those of the debtor and creditors to include employees.
[21]

[195]

In para. 70 of her reasons,
    Deschamps J.
exhorts
the
CCAA
courts to be mindful that chances for successful
    reorganizations are enhanced where participants achieve common ground and
all stakeholders are treated as
    advantageously and fairly as the circumstances permit
 [emphasis added].  The Plans beneficiaries are
    stakeholders.  And, once the deemed trust
    claims are recognized, they are not to be treated as mere unsecured
    creditors.  If, as the respondents
    contend based on
Century Services
,
    the deemed trusts are automatically overridden, there will be no incentive for
    companies that are similarly situated to
Indalex
to
    attempt to deal with their underfunded pension plans.  There will be no incentive to treat pension
    plan beneficiaries as advantageously and fairly as the circumstances permit.  The incentive will be to do as
Indalex
did  go to court without notice to the affected
    pension plan beneficiaries and negotiate as if the pension obligations did not
    exist.

[196]

Justice Deschamps also says that no
    gap should exist between the
BIA
and
    the
CCAA
and approves of Laskin J.A.s
    reasoning to that effect at paras. 62-63 of
Ivaco
.
[22]
She explains that the gap is a situation
    which would allow the enforcement of property interests at the conclusion of
CCAA
proceedings that would be lost in
    bankruptcy.  When the facts of the
    present case are considered carefully, it can be seen that a gap of this sort
    will not occur should the appeals be allowed.  As I see it, the deemed trusts continued to exist during the
CCAA
proceedings although no steps could
    be taken to enforce them during the proceedings because of the stay.  By the time of the Sale Approval Order, the
CCAA
court had become aware of the
    deemed trust claims.  It dealt with the
    deemed trust claims as part of the
CCAA
proceedings,
    by deciding whether the undistributed sales proceeds held by the Monitor should
    go to
Indalex
U.S. or to the Plans beneficiaries.  Thus, rather than being a situation in which
    property interests that would be lost in bankruptcy were enforced at the conclusion
    of the
CCAA
proceedings, the property
    interests were dealt with as part of the
CCAA
proceedings.

[197]

However,
    even if I am wrong in concluding that the deemed trust has priority over the
    secured creditor in this case, I would make the order on the basis that it is
    the appropriate remedy for the breaches of fiduciary obligation.

[198]

It
    is important to keep in mind that the contest over the Reserve Fund is not a
    fight between the DIP lenders and the pensioners.  The DIP lenders have been paid in full.  The dispute is between the pensioners and Sun
Indalex
, the principal secured creditor of
Indalex
U.S.  It is
    in that context that the court must consider the competing equities.

[199]

The
CCAA
was not designed to allow a company to avoid its pension
    obligations.  To give effect to
Indalex
U.S.s claim would be to sanction
Indalexs
breaches of fiduciary obligation.  In the circumstances of this case, such a
    result would work an injustice.  The
    equities are not equal.  The Plans
    beneficiaries were vulnerable to the exercise of power by
Indalex
.  They were not part of the negotiations for
    the DIP financing nor were they involved in the sale negotiations.  They had no opportunity to protect their
    interests and, as a result of
Indalexs
actions,
    there was no one who fulfilled the administrators role.
Indalex
, on the
    other hand, was fully aware of the Plans underfunding and the result to the
    pensioners of a failure to inject additional funds.  It was
Indalex
who
    advised the
CCAA
court that it
    intended to comply with regulatory deemed trust requirements.  To permit Sun
Indalex
to recover on behalf of
Indalex
U.S. would be to
    effectively permit the party who breached its fiduciary obligations to take the
    benefit of those breaches, to the detriment of those to whom the fiduciary
    obligations were owed.

[200]

I
    do not accept the respondents argument that a finding that
Indalex
breached its fiduciary obligation is irrelevant because it would merely give
    rise to an unsecured claim and there is no basis for conferring a priority for
    such a claim.  This view fundamentally
    misunderstands the rights of the pension plan beneficiaries.  Even if there is no deemed trust, the Plans
    beneficiaries are not mere unsecured creditors.  They are unsecured creditors to whom
Indalex
owed a fiduciary duty by virtue of its role as the Plans administrator.  There is a significant difference, in my
    view, between being a mere unsecured creditor and being an unsecured creditor
    to whom a fiduciary duty is owed.

[201]

Further, the Supreme Court has
    repeatedly stated that equitable remedies are sufficiently flexible that they can
    be molded to meet the requirements of fairness and justice:  see, for example,
Canson
Enterprises v.
Boughton

& Co
.,
[1991] 3 S.C.R. 534, at para. 86 and
Soulos
v.
Korkontzilas
,
    [1997] 2 S.C.R. 217, at para. 34.

[202]

In
Soulos
, at
para
. 36,
McLachlin
J. (as she then was) writing for the majority,
    held that constructive trusts may be imposed where good conscience requires
    it.  She went on to identify two
    different types of cases in which constructive trusts may be ordered: 1) those
    in which property is obtained by a wrongful act of the defendant, notably
    breach of fiduciary duty or breach of the duty of loyalty; and, 2) those in
    which there may not have been a wrongful act, but where there has been unjust
    enrichment.  While the second type of
    case  one in which there is unjust enrichment  is not relevant to these
    appeals, the first is.

[203]

At
    para. 45 of
Soulos
,
McLachin
J. sets out four conditions that should
    generally be satisfied if a constructive trust based on wrongful conduct is
    to be ordered:

(1)
the
defendant must have been
    under an equitable obligation in relation to the activities giving rise to the
    assets in his or her hands;

(2)
the
assets in the hands of the
    defendant must be shown to have resulted from deemed or actual agency
    activities of the defendant in breach of his or her equitable obligation to the
    plaintiff;

(3)  the
    plaintiff must show a legitimate reason for seeking a proprietary remedy, either personal or related to the need to
    ensure that others like the defendant             remain
    faithful to their duties; and

(4)
there
must be no factors which would render imposition of a
    constructive trust          unjust in all
    the circumstances of the case; e.g., the interests of intervening     creditors must be protected.

[204]

As I have already explained, in the
    circumstances of this case,
Indalexs
fiduciary
    obligations as administrator were engaged in relation to the
CCAA
proceedings and it is those proceedings
    that gave rise to the asset (
i.e.
the
    Reserve Fund) (condition 1).  The assets
    that would flow to
Indalex
U.S., absent the
    constructive trust, are directly connected to the process in which
Indalex
committed its breaches of fiduciary obligation
    (condition 2).  Without the proprietary
    remedy, the Plans beneficiaries have no meaningful remedy.  Moreover, there must be some incentive to
    require employers who are also the administrators of their pension plans to
    remain faithful to their duties (condition 3).  And, because
Indalex
U.S. is not an arms
    length innocent third party, imposing a constructive trust in favour of the
    Plans beneficiaries is not unjust (condition 4).

The Executive Plan

[205]

As I explained above, it is not
    clear to me that a deemed trust arose in respect of the underfunded amounts in the
    Executive Plan because it had not been wound up at the time of sale.  However, based on the breaches of fiduciary
    duty, the court is entitled to consider the equities of the parties competing
    for the Reserve Fund.  For the reasons
    given in respect of the Salaried Plan in respect of those equities, I would
    make the same order in respect of the Executive Plan, namely, that the Monitor
    pay the deficiency from the Reserve Fund to the Executive Plan in priority to
    those entitled under the super-priority charge.

[206]

In light of this conclusion, I find
    it unnecessary to deal with the Former Executives submission that the doctrine
    of equitable subordination applies to remedy
Indalexs
breaches of fiduciary duty.  In any
    event, I would decline to decide that issue as it was not argued below. It
    offends the general rule that appellate courts are not to entertain new issues
    on appeal.

DISPOSITION

[207]

Accordingly, I would allow the
    appeals and declare that the claims of the USW and the Former Executives take
    priority over the claim asserted by
Indalex
U.S
./
Sun
Indalex
.  I would order the Monitor to pay from the
    Reserve Fund into each of the Salaried Plan and the Executive Plan an amount
    sufficient to satisfy the deficiencies in each plan.  I understand that the Reserve Fund is
    sufficient to satisfy the Deficiencies but if this proves problematic, the
    parties may return to the court for direction on that matter.

[208]

If the
    parties are unable to agree on costs, they may make brief written submissions on
    that matter.  The appellants,
Morneau
and the Superintendent shall file their submissions
    within fifteen days of the date of release of these reasons.  The respondents shall have a further seven
    days within which to file their submissions.

RELEASED:  APR 07 2011
    (JCM)

E. E. Gillese J.A.

I agree. J. C. MacPherson
    J.A.

I agree. R. G. Juriansz J.A.

Schedule A

Pension
    Benefits Act,
R.S.O. 1990, c. P.8, ss. 1(1), 8, 14(1), 22, 57(1)  (5), 70(1),
    74(1), 75(1), (2), 76

Definitions

1.
(1)
In
this Act,

administrator
 means the person or persons that administer
    the pension plan;

wind
up means the termination of a pension plan and the
    distribution of the assets of the pension fund;

Administrator

Requirement

8.
(0.1)
A
pension plan must be administered by a person
    or entity described in subsection (1).

Prohibition

(0.2)  No person or
    entity other than a person or entity described in subsection (1) shall
    administer a pension plan.

Administrator

(1)  A pension plan is
    not eligible for registration unless it is administered by an
administrator
who is,

(a)
the
employer or, if there is more than one employer,
    one or more of the employers;

(b)
a
pension committee composed of one or more
    representatives of,

(
i
)
the
employer or employers, or any person, other than the employer or employers,
    required to make contributions under the pension plan, and

(ii)
members
of the pension
    plan;

(c)
a
pension committee composed of representatives of
    members of the pension plan;

(d)
the
insurance company that provides the pension
    benefits under the pension plan, if all the pension benefits under the pension
    plan are guaranteed by the insurance company;

(e)
    if the pension plan is a multi-employer pension plan established pursuant to a
    collective agreement or a trust agreement, a board of trustees appointed
    pursuant to the pension plan or a trust agreement establishing the pension plan
    of whom at least one-half are representatives of members of the multi-employer
    pension plan, and a majority of such representatives of the members shall be
    Canadian citizens or landed immigrants;

(f)
a
corporation, board, agency or commission made
    responsible by an Act of the Legislature for the administration of the pension
    plan;

(g)
a
person appointed as administrator by the
    Superintendent under section 71; or

(h)
such
other person or entity as may be prescribed.

Additional members

(2)  A pension
    committee, or a board of trustees, that is the administrator of a pension plan
    may include a representative or representatives of persons who are receiving
    pensions under the pension plan.

Interpretation

(3)  For the purposes of
    clause (1) (b), employer includes the following persons and entities:

1.
    Affiliates within the meaning of the
Business Corporations Act
of the
    employer.

2.
    Such other persons or entities, or classes of persons or entities, as may be
    prescribed.

Reduction
    of benefits

14.
(1)
An
amendment to a pension plan is void if the
    amendment purports to reduce,

(a)
the
amount or the commuted value of a pension benefit
    accrued under the pension plan with respect to employment before the effective
    date of the amendment;

(b)
the
amount or the commuted value of a pension or a
    deferred pension accrued under the pension plan; or

(c)
the
amount or the commuted value of an ancillary
    benefit for which a member or former member has met all eligibility
    requirements under the pension plan necessary to exercise the right to receive
    payment of the benefit.

Care,
    diligence and skill

22.
(1
)The
administrator of a pension
    plan shall exercise the care, diligence and skill in the administration and
    investment of the pension fund that a person of ordinary prudence would
    exercise in dealing with the property of another person.

Special knowledge and skill

(2)The administrator of a pension plan
    shall use in the administration of the pension plan and in the administration
    and investment of the pension fund all relevant knowledge and skill that the
    administrator possesses or, by reason of the administrators profession,
    business or calling, ought to possess.

Member of pension committee, etc.

(3)Subsection (2) applies with
    necessary modifications to a member of a pension committee or board of trustees
    that is the administrator of a pension plan and to a member of a board, agency
    or commission made responsible by an Act of the Legislature for the
    administration of a pension plan.

Conflict of interest

(4)An administrator or, if the
    administrator is a pension committee or a board of trustees, a member of the
    committee or board that is the administrator of a pension plan shall not
    knowingly permit the administrators interest to conflict with the
    administrators duties and powers in respect of the pension fund.

Employment of agent

(5)Where it is reasonable and prudent
    in the circumstances so to do, the administrator of a pension plan may employ
    one or more agents to carry out any act required to be done in the
    administration of the pension plan and in the administration and investment of
    the pension fund.

Trustee of pension fund

(6)No person other than a prescribed
    person shall be a trustee of a pension fund.

Responsibility for agent

(7)An administrator of a pension plan
    who employs an agent shall personally select the agent and be satisfied of the
    agents suitability to perform the act for which the agent is employed, and the
    administrator shall carry out such supervision of the agent as is prudent and
    reasonable.

Employee or agent

(8)An employee or agent of an
    administrator is also subject to the standards that apply to the administrator
    under subsections (1), (2) and (4).

Trust property

57.
(1)  Where an employer receives
    money from an employee under an arrangement that the employer will pay the
    money into a pension fund as the employees contribution under the pension
    plan, the employer shall be deemed to hold the money in trust for the employee
    until the employer pays the money into the pension fund.

Money
    withheld

(2)  For
    the purposes of subsection (1), money withheld by an employer, whether by
    payroll deduction or otherwise, from money payable to an employee shall be
    deemed to be money received by the employer from the employee.

Accrued
    contributions

(3)  An
    employer who is required to pay contributions to a pension fund shall be deemed
    to hold in trust for the beneficiaries of the pension plan an amount of money
    equal to the employer contributions due and not paid into the pension fund.

Wind Up

(4)  Where a pension plan
    is wound up in whole or in part, an employer who is required to pay
    contributions to the pension fund shall be deemed to hold in trust for the
    beneficiaries of the pension plan an amount of money equal to employer contributions
    accrued to the date of the wind up but not yet due under the plan or
    regulations.

Lien
    and charge

(5)  The administrator of
    the pension plan has a lien and charge on the assets of the employer in an
    amount equal to the amounts deemed to be held in trust under subsections (1),
    (3) and (4).

Wind up report

70.
(1)  The
    administrator of a pension plan that is to be wound up in whole or in part
    shall file a wind up report that sets out,

(a)
the
assets and liabilities of the pension plan;

(b)
the
benefits to be provided under the pension plan to
    members, former members and other persons;

(c)
the
methods of allocating and distributing the assets
    of the pension plan and determining the priorities for payment of benefits; and

(d)
such
other information as is prescribed.

Combination of age and years of
    employment

74.
(1)  A
    member in Ontario of a pension plan whose combination of age plus years of
    continuous employment or membership in the pension plan equals at least
    fifty-five, at the effective date of the wind up of the pension plan in whole
    or in part, has the right to receive,

(a)
a
pension in accordance with the terms of the pension plan,
    if, under the pension plan, the member is eligible for immediate payment of the
    pension benefit;

(b)
a
pension in accordance with the terms of the pension plan,
    beginning at the earlier of,

(
i
)
the
normal retirement date
    under the pension plan, or

(ii)
    the date on which the member would be entitled to an unreduced pension under
    the pension plan if the pension plan were not wound up and if the members
    membership continued to that date; or

(c) a
    reduced pension in the amount payable under the terms of the pension plan
    beginning on the date on which the member would be entitled to the reduced
    pension under the pension plan if the pension plan were not wound up and if the
    members membership continued to that date.

Liability of employer on wind up

75.
(1)
Where
a pension plan is wound up in whole or in
    part, the employer shall pay into the pension fund,

(a) an
    amount equal to the total of all payments that, under this Act, the regulations
    and the pension plan, are due or that have accrued and that have not been paid
    into the pension fund; and

(b)
an
amount equal to the amount by which,

(
i
)
the
value of the pension benefits under the pension plan
    that would be guaranteed by the Guarantee Fund under this Act and the
    regulations if the Superintendent declares that the Guarantee Fund applies to
    the pension plan,

(ii)
the
value of
    the pension benefits accrued with respect to employment in Ontario vested under
    the pension plan, and

(iii)
the
value of benefits accrued with respect to
    employment in Ontario resulting from the application of subsection 39 (3)
    (50 per cent rule) and section 74,

exceed
the value of
    the assets of the pension fund allocated as prescribed for payment of pension
    benefits accrued with respect to employment in Ontario.

Payment

(2)  The employer shall pay
    the money due under subsection (1) in the prescribed manner and at the
    prescribed times.

Pension fund continues subject to Act and regulations

76.
The pension fund of a pension plan that is wound up
    continues to be subject to this Act and the regulations until all the assets of
    the pension fund have been disbursed.

Schedule B

Pension Benefits Act,
Regulation
    909, R.R.O. 1990, s. 31(1), (2) and (3)

31.
(1)  The
    liability to be funded under section 75 of the Act shall be funded by annual
    special payments commencing at the effective date of the wind up and made by
    the employer to the pension fund.

(2)  The special payments under subsection (1) for
    each year shall be at least equal to the greater of,

(a)   the amount
    required in the year to fund the employers liabilities under section 75 of the
    Act in equal payments, payable annually in advance, over not more than five
    years; and

(b)   the minimum
    special payments required for the year in which the plan is wound up, as
    determined in the reports filed or submitted under sections 3, 4, 5.3, 13 and
    14, multiplied by the ratio of the basic Ontario liabilities of the plan to the
    total of the liabilities and increased liabilities of the plan as determined
    under clauses 30(2
)(
b) and (c).

(3)   The special payments referred to in
    subsections (1) and (2) shall continue until the liability is funded.

[1]
The
    Monitor retained the Reserve Fund as part of the Undistributed Proceeds.  The Undistributed Proceeds also include
    amounts for the payment of cure costs, other costs associated with the
    completion of the SAPA transaction, legal and professional fees, and amounts
    owing under the DIP charge.

[2]
The
    appellants had raised this issue below but it had not been dealt with by the
CCAA
judge.

[3]

Or, in the case of a multi-employer plan, the administrator.

[4]

Bell
ExpressVu
Limited Partnership v. Rex.
, [2002] 2 S.C.R. 559, at para.
26.

[5]

Monsanto Canada Inc. v.
    Ontario
(
Superintendent of Financial
    Services
), [2004] 3 S.C.R. 152, at para.

13,
    relying on
Gencorp
Canada Inc
.
v
.
Ontario
(
Superintendent of Pensions
) (1998), 158 D.L.R.
    (4th) 497 (Ont. C.A.), at p. 503.

[6]

Ibid
.

[7]

Bourdon v.
Stelco
Inc.
, [2005] S.C.R. 279, at para. 24.

[8]

At para.
26.

[9]

At para.
11.

[10]

Burke v. Hudsons Bay Co
.,
    [2010] 2 S.C.R. 273, at paras.
39-41.

[11]

Hodgkinson
v. Simms
, [1994] 3
    S.C.R. 377, at para.
32.

[12]

Ibid
.,
at para.
    30;
Lac Minerals Ltd. v. International
    Corona Resources Ltd
., [1989] 2 S.C.R. 574, at p. 646.

[13]
In
    contrast, Quebec legislation requires that plan administration be entrusted to
    a pension committee of at least three persons, including a representative of
    each of the active and inactive members of the plan and an independent
    member.  See
Supplemental Pension Plans Act
, R.S.Q. c. R-15.1, s. 147.

[14]
On
    advice of counsel, Mr. Cooper refused to answer questions about what, if any,
    steps were taken to have the purchaser take over the Plans.

[15]
To the
    extent that the U.S. Trustee suggests that the Former Executives raised the
    deemed trust issue at the motion heard on June 12, 2010, I reject this
    submission.  As explained in the
    background portion of these reasons, the Former Executives reservation of
    rights on June 12, 2010, was to obtain time to confirm that the motion related
    solely to an increase in the DIP loan amount.

[16]
See,
    for example,
InterTAN Canada Ltd
.(
Re),
(2009), 49 C.B.R. (5th) 232 (Ont. S.C.).  And, the granting of super-priority charges
    is referred to with approval in
Century
    Services
, at para. 62.

[17]
See
    para.
178 of these reasons.

[18]
See,
    for example, para. 23.

[19]

At para.

13, for example.

[20]
See,
    for example, para. 14.

[21]

Century Services
, at para. 60.

[22]

At para.
78.