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RELIEF MEASURES EXTENSIONOn November 27, 2013, the Government of Québec published the Regulation Providing New Relief Measures for the Funding of Solvency Deficiencies of Pension Plans in the Private Sector (the “New Regulation”), which will come into effect on December 31, 2013.The New Regulation seeks mainly to extend the relief measures which had been provided for in the Regulation Providing Temporary Relief Measures for the Funding of Solvency Deficiencies1 (the “2012 Regulation”) and which are set to expire by the end of 2013, for an additional two years.An employer may decide to avail itself of one or many of the relief measures discussed below by sending written instructions to this effect to the plan’s pension committee. As was the case with the 2012 Regulation, the New Regulation does not require the employer to obtain the consent of pension plan members in order to avail itself of the relief measures. Furthermore, an employer may elect to employ the relief measures even if it availed itself of one or more of the measures set out in the 2012 Regulation.The relief measures set out in the New Regulation are similar to those included in the 2012 Regulation and allow for the following:1- Asset Smoothing on a Solvency BasisAsset smoothing, which mainly consists of assessing assets by allocating the fluctuations of their value over a certain period, can be used for the purpose of evaluating the plan’s assets on a solvency basis. The smoothing method chosen must be set out in the written instructions provided by the employer to the pension committee and the smoothing period elected may not exceed five years. If the employer availed itself of asset smoothing under the 2012 Regulation and wishes to do so under the New Regulation, the smoothing method chosen must be the same as the one used in accordance with the 2012 Regulation.Notwithstanding this relief measure, the assets used for the purpose of establishing the solvency ratio of the pension plan must be taken at their liquidation value and therefore, without asset smoothing. It should be noted that some provisions of the Supplemental Pension Plans Act (the “SPPA”) and its regulations refer to the solvency ratio of a pension plan or require the use thereof for a number of purposes. For instance, when paying out the benefits of a member who requests the transfer of the value of his benefits out the pension plan, the SPPA provides that if the plan is not fully solvent at that time (i.e. if the solvency ratio is less than 100%), the value of the benefits can only initially be paid out in proportion to the solvency ratio of the plan.2- Consolidation of Solvency DeficitsThe New Regulation allows for the consolidation of all previous solvency deficits, that is to say it allows for the grouping of these previous deficits into a single solvency deficit. The 2012 Regulation did not permit the consolidation of a deficit related to an amendment made after December 30, 2008. This restriction was not included in the New Regulation.3- Extension of the Amortization Period of the Solvency Deficit over a Maximum Period of 10 YearsThe solvency deficit determined as of the date of the first actuarial valuation after December 30, 2013 (in most cases, as of December 31, 2013) may be amortized over a period ending, at the latest, 10 years after the date of its determination rather than over a five-year period. The same is true with respect to the solvency deficit determined as of the date of the actuarial valuation following the one referred to above.The choice to use or not to use the relief measures provided under the New Regulation must be made at the time of the first actuarial valuation of the plan occurring after December 30, 2013. Finally, pursuant to the New Regulation, application of the new relief measures will end on the earlier of the following dates:  The date of the first actuarial valuation showing that the plan is solvent; The end date of the plan’s first fiscal year beginning after 31 December 2014; The date set out in the written notice sent by the employer to the pension committee. This date must mark the end of the plan’s fiscal year.It should be noted that the New Regulation does not apply to pension plans in the municipal and university sectors. These plans are instead addressed by another regulation, which was also published on November 27, 20132 and which will come into effect on December 31, 2013. This regulation essentially provides for the extension of a relief measure for the pension plans in these sectors which has already been implemented, but with some modifications.THE PASSING OF BILL 39Bill 39 - Voluntary Retirement Savings Plans Act was passed by the National Assembly on December 3, 2013. However, as of the drafting of this article, the Bill has not yet received Royal Assent.Many amendments were made to this Bill during the detailed review conducted by the Commission des finances publiques. According to the amendments attached to the Commission’s report, it would appear that most of the provisions of the Act will come into effect on July 1, 2014 and that the deadline for employers to subscribe to a voluntary retirement saving plan (VRSP) will depend on the number of people they employ on a given date. Thus, an employer with 20 employees or more on June 30, 2016 will be required to subscribe to a VRSP no later than December 31, 2016 while an employer with between 10 and 19 employees on June 30, 2017 will have until December 31, 2017 to subscribe to such a plan. An employer with between 5 and 9 employees will be required to subscribe to a VRSP as of the date determined by regulation, but which cannot be earlier than January 1, 2018.________________________________1 This Regulation was published on May 30, 2012.2 That is, by the Regulation to Amend the Regulation Respecting the Funding of Pension Plans of the Municipal and University Sectors.

On September 17, 2013, after holding special consultations in June and August 2013,1 the Committee on Public Finance published its conclusions and recommendations on the report of the Expert Committee regarding the future of the Quebec Retirement System (the “D’Amours Report”). This Expert Committee was formed in December 2011 by the Régie des rentes du Québec2 (the “Régie”) with the goal of improving the Quebec Retirement System and making it more viable and more efficient, while also taking into account new economic and demographic realities. The D’Amours ReportThe D’Amours Report, which is more than 200 pages long, was released in April 2013. In the report, the Expert Committee begins by identifying a certain number of pressures and loopholes which have the effect of weakening the Quebec Retirement System. The Expert Committee goes on to make 21 recommendations which would facilitate the implementation of a new system. Among these recommendations, the Expert Committee proposes, among other things, the creation of a “longevity pension” which would be administered by the Régie and which would provide all workers with a defined benefit (“DB”) pension beginning at age 75. This pension would be funded by contributions made by both employers and employees.3 With respect to the other recommendations made by the Expert Committee in the D’Amours Report, suffice it to say that the majority of them seek to ensure the sustainability of DB pension plans registered with the Régie. The Expert Committee proposes measures such as the adoption of a single method for assessing the funding of all DB plans4 and the establishment of a 5-year period during which the parties can agree on certain modifications which should be made to the plan in order to ensure its sustainability. Finally, the Expert Committee also recommends the rapid implementation of the Voluntary Retirement Savings Plans (VRSP) provided for in Bill 39 (for more information on the recommendations made by the Expert Committee, we refer you to the D’Amours Report, which you can access by clicking here). The Report of the Committee on Public Finance (“CPF”)In its nine-page report, the CPF essentially concludes that a number of the measures proposed in the D’Amours Report will require either more extensive studies or that further steps be taken in cooperation with the federal government or the governments of the other provinces. The CPF recommends that further studies be conducted with respect to such measures as the “longevity pension” and the funding of DB plans. However, no timetable has been set in this regard. The CPF also indicates that a number of stakeholders adopted positions regarding the restructuring of DB plans which were diametrically opposed to one another. The CPF therefore recommends that the government focus greater attention on this problem. Finally, the CPF recommends that the necessary assessments and steps be taken in order to facilitate the rapid implementation of the VRSP’s as well as three more technical recommendations made with respect to DB plans.5 (for more information on the CPF’s recommendations, we refer you to its report, which you can access by clicking here). ConclusionIn sum, even if everyone seems to agree that the current Retirement System in Quebec is flawed and that we need to find solutions to improve it, there is little unanimity regarding the best way to achieve this goal. The D’Amours Report returned the very important issue of the future of pension plans to the forefront and in so doing, created an opportunity that should certainly be seized upon. Hopefully, concrete steps will be taken in this respect within a reasonable time following the release of the CPF’s recommendations and that at the end of this process, we will all be left with something show for it!_________________________________________1 During which the Committee heard representatives of groups, organizations, associations, businesses, cities, and actuarial firms.2 At the request of the Minister of Employment and Social Solidarity.3 The cost of this pension is assessed by the Expert Committee at 3.3% of salary, up to the maximum of eligible earnings (which have been fixed to $51,100 in 2013), to be shared equally between employers and employees.4 Such a method would more closely mirror actual costs.5 The method for calculating commuted values, the purchase of annuities with an insurer and the possibility of dividing the pension fund into two accounts.

On February 1, 2013, the Supreme Court overturned a controversial decision of the Ontario Court of Appeal which granted pension beneficiaries priority over DIP lenders in the context of a restructuring under the Companies’ Creditors Arrangement Act (“CCAA”).1 The Court of Appeal’s decision led many to worry that lenders would be reticent to advance funds to restructuring debtors for fear of not being able to secure charges which would outrank all other claims. However, the Supreme Court’s decision would appear to assuage many of those fears although it may raise serious concerns for secured lenders outside an insolvency situation.FACTSIn 2009, Indalex, a Canadian subsidiary of a US company which manufactured aluminum extrusions, became insolvent. The US company subsequently filed for Chapter 11 bankruptcy protection in the US and the Canadian subsidiary sought, and was granted, a stay under the CCAA. At the relevant time, Indalex was the administrator of two registered pension plans: one for the company’s salaried employees (the “Salaried Plan”) and one for the company’s executives (the “Executive Plan”). At the time the CCAA proceedings were instituted, the Salaried Plan was in the process of being wound up while the Executive Plan had been closed but not yet wound up. At the time the stay was issued, the plans faced funding deficiencies of $1.8 million and $3.0 million respectively.In April 2009, the CCAA court authorized Indalex to enter into an interim financing agreement with a group of DIP lenders in return for a charge which ranked ahead of all of the company’s other creditors. The DIP loan was further guaranteed by Indalex US.Indalex was successful in selling its assets on a going-concern basis but the accepted bid would not cover the DIP loan in full and the buyer refused to take on the pension plans. On July 20, 2009, both Indalex in Canada and the US applied to their respective courts to obtain an order authorizing the sale of the assets and approving the interim distribution of the proceeds of the sale to the DIP lenders. Members of both pension plans opposed Indalex’s motion, arguing that their claims had priority over that of the DIP lenders because the pension liabilities were covered by a statutory deemed trust under the Ontario Pension Benefits Act (“PBA”). They further argued that Indalex was in violation of its fiduciary obligations as administrator of the pension plans throughout the insolvency proceedings. The Court approved the sale but ordered the Monitor to hold $6.75 million in reserve leaving the determination of the pension beneficiaries’ claims for a later date.Having covered the DIP lenders’ shortfall, Indalex US was subrogated in the DIP lenders’ rights and became the debtor’s first ranking creditor by way of the DIP charge.THE LOWER COURT DECISIONSJustice Campbell of the Ontario Superior Court dismissed the Plan Members’ motions, concluding that the PBA deemed trust did not apply to the wind-up deficiencies as the payments in question were not “due” or “accruing due” as of the date of wind up and the Executive Plan did not have such a deficiency as it had not yet been wound up.2The Court of Appeal allowed the Plan Members’ appeals. Reversing the Superior Court, the Court held that s.57(4) of the PBA applies to all amounts due in respect of pension plan wind-up deficiencies. Moreover, it was held that a deemed trust existed for the Salaried Plan and that such deemed trust had priority over the charge granted in favour of the DIP lenders by virtue of s.30(7) of the Ontario Personal Property Security Act insofar as the doctrine of federal paramountcy had not been raised at the time the Initial Order which provided for the DIP charge was issued and that there was nothing to suggest that this would frustrate the debtor’s ability to restructure. The Court of Appeal also found that Indalex had breached its fiduciary obligations to Plan Members in a number of ways throughout the duration of the CCAA proceedings and that a constructive trust over the reserve fund in favor of Plan Members of the pension plans was an appropriate remedy for these breaches.3THE APPELLANTS’ POSITIONIndalex argued before the Supreme Court that the wind-up deficiency costs claimed by the Plan Members could not benefit from the PBA deemed trust as they are not calculated until well after the effective date of wind up. As such, they cannot be said to have accrued, as required by the legislation.4 Furthermore, they took the position that even if the pensioners benefitted from a deemed trust, the charge in favour of the DIP lenders would outrank any such claim.5With regards to the fiduciary obligations owed by the company, Indalex argued that the company plays two roles, one as administrator of the pension plans and another as employer making decisions in the best interests of the corporation. The argument advanced was that decisions made by an employer in its corporate capacity are not burdened by any fiduciary obligations owed to pension plan members.6 Moreover, Indalex also asserted that, in the event that the company was found to be in breach of its fiduciary duties as administrator of the pension plans, the constructive trust imposed by the Court of Appeal was not an appropriate remedy.7THE PBA DEEMED TRUST AND WIND-UP DEFICIENCIESThe first question addressed by the Supreme Court involved the application of section 57(4) of the Ontario PBA which 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 [Our emphasis].The question was whether the deemed trust provided for in this provision applies to the wind-up deficiency payments referred to in s.75(1)(b) of the Act. For the Salaried Plan’s wind-up deficiency payments to come under the purview of the statutory deemed trust, they must constitute employer contributions accrued to the date of the wind up but not yet due, as required under s.57(4) PBA.The majority of the Supreme Court upheld the Ontario Court of Appeal on this point, thus refusing to accept the more restrictive interpretation of the word “accrued” offered up by Indalex. Rather, in the Court’s view, the wording, context and purpose of the provision lead to the conclusion that the wind-up deficiencies set out at s.75(1)(b) are indeed protected by a deemed trust. While the entire Court agreed that the wind-up deficiencies were employer contributions which were not yet due, four of the seven sitting justices also concluded that they had “accrued”. Justice Deschamps, writing for the majority on this point, contrasted her view with that of the dissent, stating:The distinction between my approach and the one Cromwell J takes is that he requires that it be possible to perform the calculation before the date of the wind up, whereas I am of the view that the time when the calculation is actually made is not relevant as long as the liabilities are assessed as of the date of the wind up [Our Emphasis].8The majority also held that the legislative history of the PBA coupled with the remedial purpose of the deemed trust provision both lead to the conclusion that the exclusion of wind-up deficiency payments from the protection of the deemed trust would run contrary to the Ontario legislature’s intention.9 However, the entire Court agreed that the deemed trust can only apply with respect to the Salaried Plan and not to the Executive Plan as it had not yet been wound up.10STATUTORY DEEMED TRUSTS AND CCAA SUPERPRIORITY CHARGES: WHICH HAS PRIORITY?While the Court held that a deemed trust was created in respect of the Salaried Plan payments, this was not enough to dispose of the appeal. The question remains, does the provincial deemed trust created by s.57(4) of the PBA take precedence over the court-ordered charge in favour of the DIP lenders? The Court notes that the PBA provincial deemed trust continues to apply in CCAA proceedings, subject to the application of the doctrine of federal paramountcy which renders inoperative provincial legislation where it enters into conflict with federal law.11 Furthermore, the Court rejects the Court of Appeal’s refusal to apply this doctrine on the basis that it had not been explicitly raised by the appellants at the time of the Initial Order and the granting of the DIP charge. Rather, the Supreme Court concludes that paramountcy, as a question of law, can be raised regardless of whether it was invoked in an initial proceeding.12The Court concluded that such a conflict did arise in this case insofar as compliance with the provincial law necessarily entails defiance of the CCAA order made in accordance with federal law. As a result, the granting of priority to the DIP lenders had the effect of subordinating the claims of all other stakeholders, including those of the Plan Members. Moreover, the Court held that the court-ordered DIP charge granted in accordance with the CCAA has the same force as a statutory priority. Insofar as the federal and provincial schemes gave rise to conflicting orders of priority, by operation of the doctrine of paramountcy, the DIP charge ranks ahead of the deemed trust.13DID INDALEX BREACH ITS FIDUCIARY OBLIGATIONS?The Court also held that conflict of interest problems can arise where a company acts as both plan administrator and employer, especially in a restructuring context. More specifically, the company’s corporate interests can come into conflict with its duty as plan administrator to ensure that contributions are made when they are due.14 An employer cannot disregard its fiduciary obligations to plan members in order to privilege its duties to the corporation.15In the case at hand, the Court found that Indalex was indeed in a position of conflict of interest but the majority did not find that the fiduciary breaches committed by the debtor company were as wide-ranging as the Court of Appeal indicated.16 While the company was not in breach of its duties by filing for CCAA protection nor by failing to give notice to the Plan Members of its plan to commence CCAA proceedings, it was obligated to provide such notice when it sought the order approving the DIP loan which would outrank the pension claims.17The majority also provided important guidance for employer-administrators who are in a similar situation to that faced by Indalex. More specifically, Justices Deschamps and Cromwell both provided some means by which employer-administrators may address conflicts and thus avoid breaching their fiduciary duties. Justice Deschamps also added that the solution to address a conflict “has to fit the problem, and the same solution may not be appropriate in every case”.While the justices concluded that Indalex did not live up to its fiduciary obligations, the majority, with two justices dissenting, held that a constructive trust was not an appropriate remedy. In the words of Justice Cromwell, four conditions must be present before a remedial constructive trust may be ordered for breach of fiduciary duty, one of which being that the breach of fiduciary duty must have given rise to assets in the hands of the wrongdoer. According to the majority, to satisfy this second condition, it had to be shown that Indalex’s breach resulted in assets being placed in Indalex’s hands, and not simply, as the Court of Appeal found, that there was a “connection” between the assets and “the process” in which Indalex breached its fiduciary duty. The majority ruled that the failure of Indalex to meaningfully address the conflict of interest that arose in the course of the CCAA proceedings did not give rise to the assets which were retained by the Monitor in the reserve fund (those assets resulted from the sale, not from Indalex’s breach of fiduciary duty).SUMMARYThe Supreme Court could not reach a unanimous decision on all of the issues raised in Indalex. Three different sets of reasons were issued by the Court:  Deschamps J. (Moldaver J. concurring) Cromwell J.( McLachlin C.J. and Rothstein J. concurring) Le Bel J. (Abella J. concurring)On the issues, the Court was split as follows:  The PBA deemed trust applies to wind-up deficiencies: 4 to 3; The DIP charge supersedes the PBA deemed trust because of federal paramountcy: 7 to 0; Indalex breached its fiduciary obligations as plan administrator: 7 to 0; A constructive trust was not the appropriate remedy to the breach of fiduciary obligations: 5 to 2.A QUEBEC PERSPECTIVEQuebec pension legislation differs from the PBA. Under the Quebec Supplemental Pension Plans Act (SPPA), there is no deemed trust for pension deficits on wind up as the SPPA qualifies such deficit as a debt.Also, in Quebec, pension plans are, under the SPPA, administered by pension committees, unlike the Ontario situation in Indalex where the employer was the plan administrator. In cases where the pension committee has not delegated any of its powers and duties to the employer (the SPPA allows a pension committee to delegate all or part of its powers and duties to a third party, including the employer), it would be difficult to find a breach of fiduciary duty by the employer in a situation similar to the one in Indalex.Finally, the Indalex matter raised the application of equitable remedies, in particular the constructive trust. This remedy does not exist in the civil law regime of the Province of Quebec.CONCLUSIONThe Court’s conclusion that the DIP lenders’ charge took priority over the claims of the pension beneficiaries provides an answer to a very live controversy in insolvency law. Moreover, the decision provides restructuring companies with important direction regarding the proper management of conflicts of interest when facing insolvency issues. However, these conclusions may not be easily transported into Quebec law. As we noted above, the role of the employer with a private pension plan in Quebec differs from that of an employer-administrator in Ontario and the legislative framework is different in Quebec.18 As such, the Court’s conclusions in this respect may not be as relevant to restructuring companies in Quebec.The Court also made it clear that pension plan members in Ontario benefit from the protection of a provincial deemed trust even in respect of wind-up deficiencies. Perhaps more importantly, while the Supreme Court confirmed that the deemed trust in this case had to yield to the DIP lenders’ charge, the expansion of the PBA deemed trust and its continued operation absent any conflict with federal law will certainly raise concerns with secured lenders who may see their first ranking security take a bow before a PBA deemed trust for pension deficits on wind up.How will lenders react? Will they seek shelter from provincial deemed trusts in the Bankruptcy and Insolvency Act where most deemed trusts are inoperative? A perverse effect of this could be that lenders will tend to force bankruptcies instead of restructurings in situations where pension plan deficits are substantial. Lenders may impose additional covenants in their loan agreements to seek better protection from such potential pension plan deficits. The formidable flexibility and capacity to adapt which is a true characteristic of the insolvency and restructuring practice may be a silver lining to what may seem to be gloomy times for secured lenders._________________________________________  1 Sun Indalex Finance LLC v. United Steelworkers, 2013 SCC 6 [Indalex]. 2 2010 ONSC 1114. 3 2011 ONCA 265. 4 Indalex, supra note 1 at para 33. 5 Factum of the Appellant, Sun Indalex Finance, LLC, Court File No. 34308, at para 101 [Factum]. 6 Indalex, supra note 1 at para 63. 7 Factum, supra note 5 at para 89. 8 Indalex, supra note 1 at para 34. 9 Ibid at paras 43-44. 10 Ibid at para 46. 11 Ibid at para 52. 12 Ibid at para 55. 13 Ibid at para 60. 14 Ibid at para 182. 15 Ibid at para 65. 16 Ibid at para 74. 17 Ibid at para 73. 18 White Birch Paper Holding Company (Arrangement relatif à), 2012 QCCS 1679.

This publication was authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. The title of this newsletter gives a good summary of the explanatory notes that serve as an introduction to Bill 14, entitled An Act to amend the Charter of the French language, the Charter of human rights and freedoms and other legislative provisions (the “Bill”). The legislator is concerned that English is being used systematically in certain workplaces. The Bill was tabled on December 5, 2012 and the proposed amendments are designed to reaffirm the primacy of French as the official and common language of Quebec.

On August 9, 2012, the Supreme Court of Canada granted the application for leave to appeal filed by Vivendi Canada Inc. against the decision rendered in February 2012 by the Québec Court of Appeal. This decision authorized Mr. Michel Dell’Aniello to bring a class action against Vivendi Canada Inc. in connection with revisions made unilaterally by Vivendi Canada Inc. to the group medical insurance benefits plan for retirees.

On February 29, 2012, the Quebec Court of Appeal reversed the judgment of the Quebec Superior Court that had dismissed the motion to authorize the bringing of a class action filed by Mr. Michel Dell’Aniello (“Dell’Aniello”) in connection with changes made unilaterally by Vivendi Canada Inc. (“Vivendi”) to the extended medical insurance benefits plan for retirees.

On September 9, 2011, the Quebec Superior Court allowed an application for judicial review of Synertech Moulded Products, Division of Old Castle Building (« Synertech ») and quashed two judgments rendered by the Economic Affairs Section of the Tribunal administratif du Québec (Quebec Administrative Tribunal) (The “TAQ”).In 2009, the Régie des rentes du Québec (the « Régie ») refused to register and authorize the Amendments on the grounds that they significantly and retroactively reduced the vested rights of plan members Bérard and Pons in such a manner as to eliminate any deficit under the Bérard Plan and Pons Plan. In the opinion of the Régie, the Amendments contravened the objectives of the Supplemental Pension Plans Act (the « SPPA») relating to the protection of pension plan members’ rights (protection sanctioned in particular in section 228 of the SPPA). Synertech challenged the Régie’s decisions before the TAQ.

Defined Benefit Pension Plans : The Temporary Funding Relief Measures will Likely be Extended! A New Statutory Framework for Federal Not-for-profit Organizations Conversion of Debt into Shares by a Corporation in Financial Difficulty; Pay Attention to the Tax Consequences Conflicting Rights of Hypothecary Creditors and Tenants

On October 7, 2010, the Supreme Court of Canada rendered its judgment in the Burke v. Hudson’s Bay Co. case. The Supreme Court dismissed the appeal brought by certain former employees and confirmed the judgment rendered by the Ontario Court of Appeal.

Last August 3, the Superior Court of Québec dismissed the motion for authorization to institute a class action filed by Mr. Michel Dell’Aniello against Vivendi Canada Inc. This decision deals with two subjects of interest, namely, unilateral changes made by an employer to the group insurance program offered to the retirees of a business, and class actions that are national in scope.

On July 28, 2010, the Tribunal administratif du Québec confirmed a decision of the Régie des rentes du Québec which had refused to register adverse amendments made to a pension plan despite the consent given to the amendments by the sole member of the plan.

The decision of an employer to offer a pension plan to its employees is an important one. Various types of pension plans may be offered, and the financial risk of the employer depends on the type of plan chosen.While union and employees generally prefer defined benefit pension plans, employers are now very reluctant to implement such plans because of the financial liability they entail.A new type of plan exists since 2007, called the “Member-Funded Pension Plan” and is mainly intended for unionized workers.By adding a new type of defined benefit pension plan in which the employer assumes a limited risk, the Québec Government is offering a new option which may be interesting to some employers.