Court Confirms Jurisdiction to Grant Liability Shields for Court Officers for Distributions

In One Bloor West Toronto Group (The One) Inc. (Re), 2026 ONSC 1854 (“One Bloor West”) the Ontario Superior Court of Justice helpfully confirmed the jurisdictional basis for, and appropriateness of, relief shielding court officers from liability for making distributions to stakeholders, which had been called into question in another recent decision. The decision serves as an interesting discussion of the rationale behind liability shields for court officers, especially in the context of distributions, and the Court’s jurisdiction to grant them.^[1]

Background

• The companies developing an 85-story condominium, hotel and retail tower in Toronto known as “One Bloor West” (previously just “The One”) were placed into receivership in October 2023, which was subsequently converted to a Companies’ Creditors Arrangement Act (“CCAA”) proceeding.
• SKYGRiD acted as the interim construction manager of the project for a period of just over a year while a sale process was conducted. After the conclusion of that sale process, SKYGRiD was replaced.
• Approximately $1.4 million was held back by the companies pursuant to provincial construction lien legislation in relation to SKYGRiD’s own work (and not work performed by any subcontractors or suppliers).
• The company sought approval to release the holdback to SKYGRiD as more than eight months had passed since its work had ended, no subcontractors or suppliers could reasonably claim against the holdback (since it related to SKYGRiD’s own work), it had performed an important role by allowing the project to progress during the sale process, and without court approval the holdback could not be released until the end of the project which was not expected to occur for several years.
• The relief was not opposed.

Standard Specific Monitor Shield Language for Distributions

The Order authorizing the distribution of the holdback to SKYGRiD included the following provision protecting the Monitor and Chief Restructuring Officer (CRO) from liability under certain taxing statutes:

8. THIS COURT ORDERS AND DECLARES that the payment of the SKYGRiD Holdback Amount contemplated herein shall not constitute a “distribution” by the Monitor or the CRO, and neither the Monitor nor the CRO shall constitute a “legal representative”, “representative” or a “responsible representative” of any of the Companies or “other person” for the purposes of Section 159 of the Income Tax Act (Canada), section 117 of the Taxation Act, 2007 (Ontario), Section 270 of the Excise Tax Act (Canada), Sections 46 and 86 of the Employment Insurance Act (Canada), Section 22 of the Retail Sales Tax Act (Ontario), Section 107 of the Corporations Tax Act (Ontario), or any other similar federal, provincial or territorial tax legislation (collectively, the “Statutes”), and the Monitor and the CRO, in facilitating the payment of the SKYGRiD Holdback Amount by the Companies in accordance with this Order, are not “distributing”, nor shall they be considered to have “distributed”, such funds for the purposes of the Statutes, and the Monitor and the CRO shall not incur any liability under the Statutes for facilitating the payment of the SKYGRiD Holdback Amount in accordance with this Order, and the Monitor and the CRO shall not have any liability for any of the Companies’ tax liabilities regardless of how or when such liabilities may have arisen, and are hereby forever released, remised and discharged from any claims against the Monitor and/or the CRO under or pursuant to the Statutes or otherwise at law arising as a result of the payment of the SKYGRiD Holdback Amount contemplated in this Order, and any claims of such nature are hereby forever barred.

This specific liability shield provision is routinely included in distribution approval orders and CCAA plan sanction orders. The relief deals with various taxation and employee wage withholding statutes which require a “legal representative”, “representative” or “responsible representative” (depending on the statute) to obtain a certificate from the relevant taxing authority confirming that all taxes or wage withholdings have been paid prior to making any “distribution”, otherwise they can be held personally liable for the unpaid amounts. The definitions of “legal representative”, “representative” or “responsible representative” differ by statute but generally encompass persons that are administering or dealing with the property of another. Importantly, each of these definitions includes an exception for a “trustee in bankruptcy”.

If the debtor has unpaid tax amounts (as many debtors do), a certificate cannot be obtained so a distribution could not be made without the person – in this case, the court-appointed monitor – risking personal liability, even if the recipient of the distribution – such as a secured creditor –  has priority over the taxing authority. This issue of potential personal liability for court officers has been “drifting in and out of focus at least since the 1980’s”.^[2]

Jurisdiction to Grant Liability Shield Questioned

Despite the ubiquity of these liability shield provisions, there had not been much prior case law addressing the jurisdictional basis for this relief. In 9210-6905 Québec inc. (Proposition de), 2015 QCCS 6559 (“9210 Quebec”), an interim receiver sought directions on whether they were required to obtain a certificate from the taxing authority prior to making a distribution to creditors. Justice Turcotte of the Superior Court of Québec held that since section 159 of the Income Tax Act (Canada) included an exception for trustees in bankruptcy, and since only a licensed insolvency trustee can be appointed as an interim receiver, the interim receiver came within the exception and did not have to obtain the certificate.

More recently, in Re: 1000156489 Ontario Inc., 2026 ONSC 610 (“1000156489 Ontario”), Justice Myers of the Ontario Superior Court of Justice declined to grant a similar liability shield provision on the basis that he did not have sufficient evidence or law before him to do so.

Regional Senior Justice Morawetz (as he then was) of the Ontario Superior Court of Justice previously raised similar questions about the jurisdictional basis for this relief in Comerica Bank v. Dragonwave Inc., 2017 ONSC 6104.

Court Confirms Jurisdiction to Grant Specific Liability Shield Language

In light of the decision in 1000156489 Ontario, Justice Kimmel addressed the jurisdictional basis for these orders at length in One Bloor West. Justice Kimmel held that the Court had jurisdiction under section 11 of the CCAA to grant relief shielding court officers from liability and it was “consistent with the generally accepted principle that insolvency professionals who take a step that is specifically authorized by this court should not be held personally liable for taking that step unless they commit gross negligence or wilful misconduct.” The Court noted that it “demands a lot of these insolvency professionals and they are entitled to expect and demand protection from personal liability, or even the prospect of a future claim for such, when they are acting in good faith in performing their duties under a court order.”

There was no suggestion that there would be any tax liability associated with the payment of the holdback to SKYGRiD and the taxing authorities had been served with the motion and did not oppose the relief sought. Accordingly, the specific liability shield related to personal liability under these tax statutes was appropriate.

The Court requested that the various declaratory relief, underlined above, be removed as it was  “not necessary to achieve the desired objective” in the circumstances of the case.

The Court confirming the jurisdictional basis for, and appropriateness of, this relief is certainly welcome news for court officers following the questions raised in 1000156489 Ontario.

^[1] In addition to the liability shield language discussed in this article, the Court also confirmed the jurisdictional basis for, and appropriateness of, releasing the holdback to SKYGRiD prior to the completion of the Project.

^[2] Jean-Daniel Breton, “Distribution Certificates – Have We Found the Holy Grail?”, 2016 ANNREVINSOLV 21.