Pensioners lose in court,

Reverses lower-court that put retirees ahead of financiers when companies go bankrupt

The Supreme Court of Canada on Friday struck a blow to workers and retirees who want pension plans to rank first in line for payouts to creditors in a corporate bankruptcy or restructuring.

Pensioners may not be happy with it, but the ruling removes a threat to the traditional rules that insolvent or distressed Canadian companies rely on to save themselves from instant financial oblivion.

The long-awaited decision, Sun Indalex Finance LLC vs. United Steelworkers et al., reverses a controversial lower-court ruling from Ontario that had ranked pension plans ahead of interim lenders during a supervised sale of the company under a federal law called the Companies’ Creditors Arrangement Act or CCAA.

Simply put, it clarifies the law in a way that is welcome news for a lot of lenders and lawyers working in Toronto’s high-end restructuring business. It’s tougher news for pensioners who feel they’re not getting a fair shake in corporate workouts.

“Bay Street will be happy. Main Street may not be,” said Domenico Magisano, a partner in the Toronto office of Lerners LLP.

“While there’s short-term pain for these pensioners, the ability to restructure companies will continue as it was before.”

The case centres on a unique feature of the restructuring business called debtor-in-possession or DIP financing.

This is basically the financial lifeline provided to a distressed company so it can continue operations after it enters creditor protection.

Because of the risk involved, a DIP lender traditionally goes to the head of the line when it comes to repayment — even if that means pushing aside pensioners.