PENSIONERS HAVE RIGHT TO VOTE ON FINAL CCAA PLAN
Unfortunately, debtors, CCAA court appointed legal counsel for pensioners, court appointed pensioners’ representatives, court monitors and judges have not exerted the legal right of individual pensioners to vote on the CCAA Final Plan. The Nortel CCAA proceeding is a case in point. The power of the individual pensioners’ vote was squandered by the pensioners’ representatives on the advice of Koskie Minsky from the beginning of the Nortel CCAA process.
S. 6(1) of the Companies Creditors Arrangement (CCAA) requires that creditors vote on the CCAA Final Plan of Compromise. The court may sanction the CCAA Final Plan after 50.1% of the creditors by head count and 66-2/3% of the value of the creditors vote yes to the CCAA Final Plan. Typically all unsecured creditors vote in one broad class. The Federal Government legislators included the 50.1% headcount vote majority requirement in order to balance the power in negotiations between the large creditors, like bond owners and suppliers, and small creditors, like individual Canadians.
The CCAA defines the words claim, securities creditor and unsecured creditor. A claim is any indebtedness, liability or obligation of any kind. A creditor would then be an entity that has a claim. The CCAA distinguishes between a secured creditor and an unsecured creditor, the latter being any creditor that is not a secured creditor.
Pensioners are beneficiaries of registered defined benefit pension plans, where assets are held in trust to fund their promised pension income. The question is: Is the registered defined benefit pension plan the creditor or are the thousands of pensioner beneficiaries of this plan the creditors for the purpose of voting at the creditors’ meeting? Our answer to this question is that the pensioner beneficiaries should be the creditors for the purpose of voting at the creditors’ meeting. Here’s why:
The CCAA’s 50.1% head count majority requirement was intended to give power to small creditors in negotiations of settlements, and pensioners as individual Canadians are small creditors. When both a corporation and a corporation sponsored defined benefit pension plan are being liquidated, the pensioner has a claim against the pension plan and also against the corporation for any deficit in the pension plan, with the latter being his share of an “indebtedness, liability or obligation of any kind” owed by the corporation to him or her specifically. The Ontario Pension Act goes so far as to call the deficit of a pension plan a deemed trust. Trusts are a conduit for beneficiaries, that have a legal relationship with the pensioners, but are not distinct legal entities. Therefore, the pension plan itself is not an unsecured creditor, only its pension beneficiaries should be considered unsecured creditors for the purposes of the vote.
Interestingly, the CCAA says “a trustee for the holders of any unsecured bonds issued under a trust deed or other instrument running in favour of the trustee shall be deemed to be an unsecured creditor for all purposes of this Act except for the purpose of voting at a creditors’ meeting in respect of any of those bonds.” If individual bond owners are unsecured creditors for voting purposes despite there being a trust deed and trustees, then individual pensioner beneficiaries would surely have been contemplated by the legislation drafters to be unsecured creditors for voting purposes also. Otherwise, these legislators would be putting pensioner beneficiaries at a severe disadvantage compared to individual bond owners, contrary to the very intention of having a 50.1% headcount vote majority.
The CCAA does not have rules of priority amongst creditors and its purpose is to provide court protection from creditors forcing liquidation under the Bankruptcy and Insolvency Act (BIA.) The SCC has decided that the purpose of the CCAA is to facilitate reorganization or restructuring of a corporation, in order to avoid liquidation and thereby save jobs, enable the survival of suppliers and mitigate damages to Canada’s economic growth. The CCAA is purposely a skeletal act that contemplates the possibility for negotiated settlements involving unequal treatment of unsecured creditors. The CCAA intended that creditor groups holding more than 50.1% of the headcount votes to have the power to negotiate better settlements than would occur upon liquidation under the BIA. The retail owners of Non Bank Asset Backed Commercial Paper were able to get negotiated full cash settlement within the Non Bank ABCP CCAA Final Plan because they had the power of the 50.1% head count majority.
Here is how pensioners lost their right to an individual vote on the Nortel CCAA Final Plan. This was a four step process agreed to by the debtor, Nortel; court appointed legal counsel for former employees including the pensioners, Koskie Minsky LLP; court appointed representatives of former employees, including pensioners, Don Sproule, David Archibald and Mike Campbell; the CCAA court monitor, Ernst & Young; and judges, J. Geoffrey Morawetz and J. Frank Newbold. At no time during the Nortel CCAA proceeding did any of these central players argue that the pensioners should have individual votes on the Nortel CCAA Final Plan according to S. 6(1) of the CCAA.
(1) The Representative Order, May 7, 2009:
The loss of individual pensioners’ votes is effectively agreed to near the beginning of the CCAA process when the Representative Order dated May 7, 2009 is agreed to by the representatives and representative legal counsel and then ordered by the court. In the Representation Order, Representatives are given the purpose of settling or compromising claims by the Former Employees, without any limitations on how they serve this purpose. Later the individual pensioners will learn that their individual votes will be sacrificed by the representatives under the advice of Koskie Minsky.
THIS COURT ORDERS that, …, Donald Sproule, David Archibald and Michael Campbell are hereby appointed as representatives of all Former Employees in the proceedings under the Companies' Creditors Arrangement Act … the Bankruptcy and Insolvency Act … or in any other proceeding which has been or may be brought before this Honourable Court …, including, without limitation, for the purpose of settling or compromising claims by the Former Employees in the Proceedings.
(2) The Interim Settlement, February 8, 2010:
The representatives on the advice of Koskie Minsky accepted the interim settlement at February 8, 2010 that paid pensioners just Cdn$9 million compensation in exchange for Cdn$1,889 million of pension plan deficits being treated equal to ordinary unsecured creditors. It was agreed that no individual pensioners or administrator of the pension plans could take any actions to get a settlement better than equal treatment with the unsecured creditor. This effectively forced individual pensioners to vote yes to the Nortel Final CCAA Plan that has equal payment of pensioner claims and unsecured creditor claims because the Representative Order has no limitation on the representatives’ purpose being settling or compromising claims. In the end the Nortel bond holders got paid 100 cents on the dollar of claim and the Canadian pensioners conceded Cdn$1,039 million or 55% of their pension claims (before taking into account the PBGF payment in the pension plans for Ontario pensioners that protects the first $1000 per month of Ontario pensions.)
I The Representatives agree on behalf of the members of the Pension Plans, their beneficiaries and surviving spouses, who are entitled to benefits from the Pension Plans … that in respect of any claim for payment of or damages related to any solvency or wind up deficiencies, unfunded liabilities, or unpaid or accrued contributions … (a) no Pension Claims shall enjoy any priority in any manner over the claims of ordinary unsecured creditors made against Nortel; …(c) the Pension Claimants shall not support, directly or indirectly, any application, claim or action by Nortel, in its capacity as administrator of the Pension Plans, the New Administrator, any successor administrator howsoever appointed, the Superintendent, as the administrator of and on behalf of the PBGF, or any other person or entity, to directly or indirectly assert, advance, re-assert or re-file any claims or initiate any legal proceedings or actions of any nature or kind in these proceedings … that the Pension Claims or any part thereof rank as a priority claim over the claims of ordinary unsecured creditors
The central players would defend their acceptance of the Nortel interim settlement agreement on the premise that bond holders could move to conduct a liquidation under the BIA, where pension deficits are treated equally with unsecured creditors and therefore the right to an individual pensioner vote to get a better than pari passu settlement is of no value.
But Koskie Minsky has now changed its position by threatening to take court action in the Sears CCAA proceeding in order to get the pensioners paid in full and in priority to the unsecured creditors. We presume Koskie Minsky LLP now uses the Indalex pension fund court decisions to argue that pension deficits are a deemed trust under the Ontario Pension Act and that the CCAA’s paramountcy over provincial pension acts should not apply since there is no purpose of the act being served. Sears has decided to liquidate and there will be no restructuring or reorganization that the CCAA is intended to facilitate to save jobs, suppliers and economic growth.
Indalex (Re) [2013] SCC 34308 Feb. 1, 2013
Indalex (Re), [2011] ONCA 265 April 7, 2011
Indalex (Re), [2010] ONSC 1114 Feb. 18, 2010
(3) The Compensation Claims Procedure Order, October 6, 2011:
The representatives under the advice of Koskie Minsky agreed to the Compensation Procedure Order approved by the court on October 6, 2011. This is the point at which the Canadian Pension Claims are separated from the Compensation Claims of the individual pensioners. The Canadian Pension Claims are the deficits of the two Registered Defined Benefit Pension Plans. Pensioners are told at this time that the FSCO appointed Administrator of these plans, Morneau Shepell, will file the claims of the pension plans on behalf of all plan members. No mention in the 2011 Compensation Claims Procedure Order that individual pension plan members will not be voting on the Final CCAA Plan in respect to their pro rata share of the pension plan deficits, just that Morneau Shepell will be filing the pension plan deficits on behalf of all plan members.
“on hearing the submissions of counsel for the Applicants, the Monitor, LTD Beneficiaries' Representative Counsel, Former Employees' Representative Counsel, CAW Counsel, the Continuing Employees' Representative Counsel, counsel for the U.S. Debtors, counsel for the Bondholder Group, the Committee and the Board of Directors of Nortel Networks Corporation and Nortel Networks Limited, and on the consent of the LTD Beneficiaries' Representative, LTD Beneficiaries' Representative Counsel, Former Employees' Representatives, Former Employees' Representative Counsel, Continuing Employees' Representatives, Continuing Employees' Representative Counsel, the CAW and CAW Counsel, no one appearing for the other parties served with the Applicants' Motion Record, although duly served as appears from the affidavits of service of Darlene Moffett and Caterina Costa sworn September 20, 2011 and September 21, 2011, respectively, filed.
ON BEING ADVISED that certain claims were each excluded from the operation of the
Claims Procedure Order, and that the Applicants now wish to establish a claims process with respect to such claims.”
Note: This Compensation Claims Process does not include claims for the funding deficits in the registered pension plans. Those claims have been made by the Administrator of the registered pension plan on behalf of all plan members. Any payments on those claims will be paid to the registered pension plans and will ultimately benefit the plan members. Any questions regarding your registered pension plans should be directed to Morneau Shepell Ltd. at: website: www.pensionwindups.morneausobeco.com, phone: Negotiated Plan: 1-877-392-2073, phone: Managerial Plan: 1-877-392-2074, email: nortelwindup@morneausobeco.com
(4) The Final Plan, November 30, 2016:
Pensioners learn what their representatives under the advice of Koskie Minsky agree to in the CCAA Final Plan dated November 30, 2016. At this late date, the pensioners learn there will be two affected unsecured claims for the pension plans against the Canada estate: Cdn$1,369 million for Managerial Plan and Cdn$521 million for the Negotiated Plan. This means two votes for the two claims in terms of the headcount vote and Cdn$1,889 million in terms of the value vote. This conceded the individual votes of 12,501 pensioners and 9, 218 deferred pensioners, which the representatives had the power to do as there were no limitations on their purpose of settling and compromising claims under the Representative Order of May 7, 2009. Also, these individual pensioner votes were forced to be yes in any case by the Interim Settlement Agreement. This Interim Settlement Agreement also forced the Administrator to vote their two votes yes also, because the representative agreed to equal treatment of the pension deficits with the unsecured creditors, despite the Indalex cases and Nortel being liquidated and not restructured or reorganized.
“Canadian Pension Claim” means any and all Claims arising from or related to deficits and alleged deficits in the Canadian Registered Pension Plans.
“Canadian Registered Pension Plans” means: (i) the Managerial Plan; and (ii) the Negotiated Plan.
“Compensation Creditors” means Creditors who are holders of Compensation Claims (as such term is defined in the Compensation Claims Procedure Order).
4.4 Canadian Pension Claims
The Canadian Pension Claims are Affected Unsecured Claims. The total Proven Affected Unsecured Claim under this Plan on account of the Managerial Plan shall be CA$1,368,644,000, and the total Proven Affected Unsecured Claim on account of the Negotiated Plan shall be CA$520,835,000. [SUM CA 1,889,479]
“Canadian Pension Claim” has the meaning set forth in Section 4(g)(i) hereof.
4(g) Resolution of Certain Claims – The Parties have agreed to the following treatment for the following claims:
- the Canadian registered pension plans deficit claims against each of the Canadian Debtors shall be allowed as unsecured Proven Claims against the Canadian Estate in the aggregate amount of CAD$1,889,479,000 (the “Canadian Pension Claim”);
Plan Filing and Meeting Order, Dec. 1, 2016
At December 2, 2016, pensioners learn that not only will they not have individual votes in respect to the Canadian Pension Claims, they will also not have individual votes on their Compensation Claims. They are told in the Plan Filing and Meeting Order dated December 1, 2016 that their representatives will be voting in favour of the plan and that they should not submit a separate proxy. The representatives had already effectively bound themselves and the Administrator of the pension plans to a yes vote within the Interim Settlement Agreement. The power of the individual pensioners’ vote had been squandered by the representatives on the advice of Koskie Minsky from the beginning of the Nortel CCAA process.
COMPLETION OF PROXIES
Any Affected Unsecured Creditor who is entitled to vote at the Meeting and that wishes to vote by proxy or in Person at the Meeting must complete, sign and return the applicable form of proxy included in its creditor package and deliver its proxy to the Monitor in accordance with applicable Instructions.
Compensation Creditors
IF YOU ARE A COMPENSATION CREDITOR COVERED BY THE REPRESENTATION ORDERS OR REPRESENTED BY UNIFOR, A REPRESENTATIVE OR UNIFOR WILL BE VOTING ON YOUR BEHALF AND WILL BE VOTING IN FAVOUR OF THE PLAN. YOU SHOULD NOT SUBMIT A SEPARATE PROXY.