Managing Pension Risks In Corporate Transactions - Part 2.

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Managing Pension Risks In Corporate Transactions - Part 2.

Article by Mitch Frazer, Torys LLP, and Jana Steele, Goodmans LLP

3. Evaluating Options and Obligations in Complex Corporate Transactions or Restructurings When determining what type of transaction to enter into, a buyer and seller must evaluate the potential pension issues that may arise under each structure and their corresponding options and obligations. This section outlines the issues that a buyer and seller can expect to encounter when entering into each type of transaction.

Pension Issues Specific to Share-Purchase Transactions In a share-purchase transaction, the buyer essentially "steps into the shoes" of the seller. The corporation continues as the same legal entity but under the control of the new shareholder(s). Unless stipulated otherwise, all pension plan assets and liabilities remain with the corporation following its sale.

From the plan members' perspective, a share-purchase transaction is beneficial because the employer-employee relationship continues unaltered amid the corporate change. The obligation of the purchased company to continue to provide pension and benefit plans will not be affected by the change of ownership.

From the perspective of a buyer or seller, a share-purchase transaction is advantageous from a pensions/benefits point of view because it is much less complex and does not require regulatory approval. However, because all assets and liabilities relating to the pension and benefit plans remain owned by the corporation, they directly affect the value of the shares. Therefore, it is crucial that both parties complete the meticulous due diligence p...

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