Unremitted Pension Contributions Could Attract Personal Liability
A recent court case in British Columbia (Trustees of the IWA v Wade, 2019 BCSC 1085), found that an owner and director of a company was personally liable for failing to remit contributions to a pension plan.
Mr. Wade was the sole director, officer and shareholder of R W Log Transport (the “Company”). He was also the sole signing officer for the Company’s bank accounts during the period when the Company experienced financial difficulties starting in 2013 and went bankrupt in 2014.
The Company was a participating employer in the IWA – Forestry Industry Pension Plan (the “Plan”). The Plan is a multi-employer pension plan which is funded through employer and employee contributions set by collective agreements and is governed by a board of trustees (the “Trustees”).
The applicable collective agreement required the Company to withhold and remit pension contributions from the employees’ pay, as well as make additional employer contributions to the Trustees of the Plan.
It is broadly understood that companies have a responsibility to promptly remit employer and employee contributions to pension funds. In fact, most pension laws in Canada consider the temporarily unremitted contributions to be subject to a “deemed trust” and must be kept separate from the company’s assets. Effectively, the company is holding those funds in trust from the time when they are withheld to when they are actually contributed to the pension plan. If the company were to go bankrupt, in theory these unremitted contributions would be first in line ahead of the company’s creditors – I say ‘in theory’ because bankruptcy laws and creditor priorities can get complicated fast, just ask any pension lawyer.
Breach of Trust
In this particular case, the Trustees claimed a breach of trust by the Company for not keeping the unremitted contributions separate from the Company’s assets and not contributing the funds promptly to the Trustees of the Plan. The Company was effectively using those funds for its own purposes during the period of financial difficulty, which unfortunately ended in bankruptcy. The Company clearly did not fulfil its duty as a trustee of the deemed trust and was found by the court to have breached the trust for a “dishonest and fraudulent” purpose.
This is often where it ends and the Company would be liable for the unremitted contributions; however, the court went further and found that during the period of financial difficulty, Mr. Wade “knowingly and directly assisted in the breach of trust and that he knew that this breach of trust was fraudulent and dishonest.” Because of this, Mr. Wade was found to be personally liable and must fully compensate the Trustees for the unremitted contributions, plus interest and legal costs.
Obviously, the first lesson is for employers to remit employee and employer contributions promptly to the pension plan. This should not be a surprise to anyone involved with the management and operation of any pension plan – defined benefit, defined contribution, multi-employer, etc. It is clearly wrong for an employer to operate a quasi Ponzi scheme for its own purposes!
The big new lesson is that if a senior employee, with knowledge of the financial activities of the employer and an awareness of the obligation to promptly remit pension contributions, helps their employer to act fraudulently and dishonestly then they may be personally liable for the unremitted contributions. The onus is on the employee to do the right thing when responsible for someone else’s money!