J. 2003 SKQB 93 No. 8751 IN THE QUEEN’S BENCH PROVINCE OF SASKATCHEWAN IN BANKRUPTCY AND INSOLVENCY IN THE MATTER OF THE PROPOSAL OF W.R.T. EQUIPMENT LTD., AN INSOLVENT PERSON AND IN THE MATTER OF AN APPLICATION BY THE TRUSTEE OF THE PROPOSAL OF W.R.T. EQUIPMENT LTD. FOR COURT APPROVAL PURSUANT TO SECTION 58 OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3. Jeffrey M. Lee for W.R.T. Equipment Ltd., an insolvent person M. Kim Anderson for Precismeca Ltd., an unsecured creditor Eldon Tilk representing himself, an unsecured creditor Jeffrey W. Pinder Trustee for the Proposal of W.R.T. Equipment Ltd. JUDGMENT ZARZECZNY J. February 27, 2003 [1] W.R.T. Equipment Ltd. (“W.R.T.” or the “Company”) applies for an order granting court approval of a proposal made by it to its creditor (the “W.R.T. Proposal” or “Proposal”) pursuant to Part III of Division I of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). [2] Section 59 of the BIA governs applications for approval of an insolvent person’s Proposal under the BIA and it provides as follows: (1) The court shall, before approving the proposal, hear report of the trustee in the prescribed form respecting the terms thereof and the conduct of the debtor, and, in addition, shall hear the trustee, the debtor, the person making the proposal, any opposing, objecting or dissenting creditor and such further evidence as the court may require. (2) Where the court is of the opinion that the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors, the court shall refuse to approve the proposal, and the court may refuse to approve the proposal whenever it is established that the debtor has committed any one of the offences mentioned in sections 198 to 200. [3] Mr. Jeffrey Pinder, chartered insolvency and restructuring practitioner and principal of the firm, Jeffrey Pinder Associates Inc., trustee licensed in bankruptcy pursuant to the BIA has been appointed by the Company to act as trustee of its Proposal (the “Trustee”). Since filing the Proposal with the Official Receiver for the Saskatoon Bankruptcy District on November 12, 2002, two meetings of the creditors were held on December 3, 2002 and December 17, 2002. At the December meeting approximately 93 percent of W.R.T.’s creditors who had proven claims voted in favour of accepting the Proposal. The meeting of creditors was adjourned to December 17 to allow certain questions raised by the creditors at the December meeting to be further investigated and to permit examination of the director of the Company. At the reconvened December 17, 2002 meeting approximately 89 percent of the creditors voted in favour of acceptance of the Proposal. [4] On January 13, 2003 the Trustee made an application to the Registrar in Bankruptcy for court approval of the Proposal. Notice of Objection to this application was filed on behalf of an unsecured creditor, Mr. Eldon Tilk, which necessitated the Proposal being referred to judge of this Court in Bankruptcy Insolvency for court approval. [5] Mr. Tilk is a former 28-year employee of the Company. The Company was bound by the terms of collective bargaining agreement applicable to certain of its production employees including Mr. Tilk. Under the agreement the Company and employees agreed to fund pension plan. Because of the Company’s financial difficulties (ultimately leading to these proceedings under the BIA) steps were taken by the Superintendent of Pensions for Saskatchewan to transfer the pension plan out of the Company’s hands which has now been done. new plan administrator has been appointed. [6] It is common ground that although the Company made all of its regular required contributions to this pension plan as of the date of its transfer significant unfunded liability existed determined to be $156,249.00. Under the terms of the collective agreement any such deficiency was the responsibility of the Company. Insofar as its impact upon Mr. Tilk is concerned it left deficiency in his pension plan of $18,834.00. [7] Mr. Tilk objects to the requested court approval of the Proposal on the following grounds:(1) that the pension plan members should be treated as a different class of creditor than the unsecured creditor classification ascribed to them by the Proposal;(2) that the indemnification of past directors etc. proposed by the terms of the Proposal is inappropriately wide. [8] The applicant Company and the Trustee accept that the terms of the indemnity set out in the Proposal with respect to present and past officers and directors etc. is too widely cast and inappropriate. In other words the proponents are in agreement with the second ground of Mr. Tilk’s objection and they accede to an amendment of the Proposal on this basis as clerical amendment. Apparently this clause may well have been somewhat of “boiler plate” not appropriately inserted into the terms of this Proposal. [9] Since there will be no prejudice to the creditors in accepting and treating it as such the Court authorizes the amendment of the Proposal as set out in the revised para. of the draft order filed upon this application pursuant to Rule 92 of the BIA Rules (see Re Cosmic Adventures Halifax Inc. (1999), 1999 CanLII 1844 (NS SC), 13 C.B.R. (4th) 22 (N.S.S.C.)). In the result the proposed amended para. 9.1 of the W.R.T. Proposal is now consistent with the provisions of ss. 50(13) of the BIA and it is ordered accordingly. [10] The Court now turns its attention to the more substantive basis upon which Mr. Tilk opposes court approval of the applicant’s Proposal namely; that members of the employee pension plan who have been classified unsecured creditors (by virtue of the Company’s indebtedness for the unfunded portion of their pension plans) should be reclassified in some other category of creditor. Mr. Tilk proposes separate class with an enhanced recovery over and above the approximately 0.275 cents on the dollar which unsecured creditors whose claims exceed $1,500.00 are expected to receive under the Proposal. It should be noted at this point that there are 15 employees in the same position as Mr. Tilk; 12 voted in favour of the Proposal, 2 failed to file proofs of their claims and 1, Mr. Tilk, opposes. [11] Mr. Tilk submits that the unfunded pension liabilities constitute trust funds pursuant to provincial pensions legislation (s. 43(3) of The Pension Benefits Act, 1992, S.S. 1992, c. P-6.001). As such the pension fund claimants are entitled to preferred or secured creditor status and this should be recognized in the Proposal. [12] The Court is much in sympathy with the concerns which Mr. Tilk has raised by his objection and the submissions made on his behalf at the hearing of this application. Absent the application of the provisions of the BIA to an employer it is clear that an employer’s indebtedness to an employee pension plan does give the pensioners preferred creditor status by virtue of s. 43(3) of The Pension Benefits Act, 1992. With the intervention of the BIA, and proceedings under that Act, including the presentation of Proposal, combination of s. 66(1) and s. 67(2) of the Act as judicially interpreted results in another conclusion (see Continental Casualty Co. et al. v. Macleod-Stedman Inc. (1996), 1996 CanLII 12432 (MB CA), 141 D.L.R. (4th) 36 (Man. C.A.); Husky Oil Operations Ltd. v. M.N.R. (1995), 1995 CanLII 69 (SCC), 128 D.L.R. (4th) (S.C.C.)). Provincially created statutory trusts, such as the one created by The Pension Benefits Act, 1992 are not recognized in bankruptcy, including Proposals submitted under the BIA. [13] That is the legal position in which Mr. Tilk and his fellow pensioners find themselves in the face of this Proposal and the provisions of the BIA. The Trustee and the Company acted appropriately in identifying the nature and status of the pensioners’ claims. The specific objection raised by Mr. Tilk, although it might have reflected the status of his claim against the employer outside of the BIA, does not constitute a valid ground of legal objection to the Proposal made pursuant to the BIA. [14] The Court is satisfied that the evidence presented overwhelmingly supports the conclusion that the unsecured creditors will do better under the applicant’s Proposal than they stand to do if the Proposal is rejected by this Court. If rejected the applicant is placed into bankruptcy by virtue of the BIA. It is noteworthy that at present 89 percent of all creditors have reached the same apparent conclusion in voting in favour of acceptance of the Proposal. [15] This Court’s obligation under s. 59(2) of the BIA is to consider whether the Proposal is reasonable and calculated to benefit the general body of creditors. Decisions interpreting this provision have established the proposition that determining whether or not proposal is reasonable means that proposal must have reasonable possibility of being successfully completed in accordance with its terms (see Re McNamara and McNamara (1984), 53 C.B.R. (N.S.) 240 (Ont. S.C.)). [16] The function of the Court when called upon to approve proposal is to take into account several interests including; (a) that of the debtor (to give him an opportunity to meet with his creditors and to find way of producing assets or revenue which will provide them with dividend outside of bankruptcy), (b) the general body of creditors (to protect creditors generally by insuring that what is put up by way of proposal is reasonable one), and (c) the public-at-large in maintaining the integrity of bankruptcy legislation (including considering whether or not the proposal complies with standards of commercial morality). (See Re Stone (1976), 22 C.B.R. (N.S.) 152 (Ont. S.C.); Re Sumner Co. (1984) Ltd. (1987), 64 C.B.R. (N.S.) 218 (N.B.Q.B.); Irving Oil Ltd. v. Noseworthy et al. (1982), 42 C.B.R. (N.S.) 302 (Nfld S.C.)). [17] Taking into account all of these interests the Court has concluded, in the circumstances reviewed and for the reasons outlined in this judgment, that the Proposal presented by W.R.T. does meet the statutory and judicial criteria for acceptance by this Court. Accordingly the Proposal is accepted and the draft order filed may issue including the amendment to para. 9.1 of the Proposal. [18] No costs are awarded for or against any of the parties each of whom shall assume their own costs of representation at the hearing.
The company applied for an order granting court approval of a proposal made by its creditor pursuant to Part III of the Bankruptcy and Insolvency Act. A former 28-year employee objected on the grounds pension plan members should be treated as a different class of creditor rather than under the unsecured creditor classification ascribed to them by the proposal; the indemnification of past directors under the terms of the proposal was inappropriately wide. He submitted the unfunded pension liabilities constitute trust funds pursuant to provincial pension legislation (the Pension Benefits Act s.43(3)) and as such the pension fund claimants are entitled to preferred or secured creditor status. HELD: The Proposal was accepted.  1)Provincially created statutory trusts such as the one created by the Pensions Benefits Act are not recognized in bankruptcy including Proposals submitted under the BIA. The Trustee and the company acted appropriately in identifying the nature and status of the pensioners' claims. Although it might have reflected the status of his claim against the employer outside the BIA, the specific objection did not constitute a valid ground of legal objection to the Proposal. 2)The Proposal met the statutory and judicial criteria for acceptance by the Court. The Court takes into account the interests of the debtor, general body of creditors and the public at large in maintaining the integrity of the bankruptcy legislation. Of the 15 employees in the same position, 12 voted in favour of the proposal, 2 failed to file proofs of their claims; 89 percent of all creditors voted in favour of acceptance.  3)Each party was to assume their own costs of the hearing.