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On a motion to approve a distribution order in Re: 1000156489 Ontario Inc. ("100 Ontario Inc."), the Ontario Superior Court of Justice (the "Court") declined to exempt the Monitor from the provisions of certain tax legislation regarding the tax and withholding obligations of taxpayers' representatives on distributions.1
Background Facts
1000156489 Ontario Inc. (formerly known as DCL Corporation, the "Debtor") was part of a group of companies operating as a global manufacturer and reseller of color pigments and dispersions. The Debtor obtained protection under the Companies' Creditors Arrangement Act (Canada) (the "CCAA") on December 20, 2022, in conjunction with its U.S. affiliates' voluntary petition for relief under Chapter 11 of the Bankruptcy Code (U.S.). The Court eventually granted the Monitor with enhanced powers to complete the winding down of the Debtor.
Following approval of a settlement agreement regarding entitlement to surplus amounts in the Debtor's registered pension plan, the Monitor sought, among other relief, a distribution order authorizing the distribution of the surplus amounts to the Debtor's unsecured creditors with proven claims. The proposed distribution order contained the following paragraph stating that the distributions pursuant to that order were not a "distribution" within the meaning of the tax legislation listed therein, and exempting the Monitor from certain distribution requirements under that legislation (the "Distribution Exemption"):
15. THIS COURT ORDERS that any distribution of funds or payments made in accordance with this Order shall not constitute a "distribution" and the Monitor shall not constitute a "legal representative" or "representative" or similar person in respect of the Company for the purposes ofSection 159of theIncome Tax Act (Canada),Section 270of theExcise Tax Act (Canada),Section 86of theEmployment Insurance Act (Canada), Section 23 of the Canada Pension Plan,Section 22of theRetail Sales Tax Act (Ontario),Section 107of theCorporations Tax Act (Ontario), or any other similar federal, provincial or territorial tax legislation in Canada that the Company conducted business in (collectively, the "Statutes"), and the Monitor in making any such payment or deliveries of funds in accordance with this Order is not "distributing", nor shall it be considered to have "distributed", such funds or assets for the purposes of the Statutes, and the Monitor shall not incur any liability under the Statutes for making any payments or deliveries in accordance with this Order or failing to withhold amounts, ordered or permitted hereunder, and the Monitor shall not have any liability for any of the Company's tax liabilities regardless of how or when such liabilities may have arisen, and is hereby forever released, remised and discharged from any claims against either the Monitor under or pursuant to the Statutes or otherwise at law, arising as a result of the distributions and deliveries in accordance with this Order, and any claims of such nature are hereby forever barred.
As the Court recognized, the various federal and provincial statutes listed in the Distribution Exemption are intended to ensure that tax is paid or withheld where a representative acts for a taxpayer, including in a receivership proceeding.
The Endorsement
The Court approved the proposed distributions, but declined to grant the Distribution Exemption sought by the Monitor. In particular, the Court held that there was no basis in evidence or law to make the findings of fact and mixed fact and law required by the Distribution Exemption, namely that, in making the distributions, the Monitor is not a "representative" of the Debtor and is not "distributing" under the relevant tax statutes, and that the Monitor shall have no liability under those statutes and is granted a full and final release in respect of any liability that might otherwise be incurred under those statutes. The Court also held that there is no basis to find that paramountcy invalidates the provincial tax laws listed in the Distribution Exemption or that the CCAA renders the federal tax laws of general application inapplicable to distributions made by the Monitor.
The Court also considered the role of the Monitor in making distributions in a liquidating CCAA proceeding. In this particular case, the Monitor's powers were increased so that it could manage the Debtor's remaining pre-filing assets and liabilities following a sale of the debtor's business, where there was no functioning debtor left. In such a situation, the Monitor may be fulfilling a role typical of a receiver or trustee in bankruptcy, albeit there was no bankruptcy or receivership proceeding in this case.
The Court held that it would be prepared to revisit the Distribution Exemption on specific notice to the tax authorities that the Court is being asked to make the requested exemptions. According to the Court, it would be "weighty" if the Monitor could obtain the consents of the tax authorities responsible for overseeing the relevant legislation. Alternatively, the Monitor might consider using the sought-after exemption as a basis to convert the CCAA proceedings into formal bankruptcy proceedings.
Finally, the Court noted that declining to grant the Distribution Exemption did not impact or prejudice any of the various protections that the Monitor already enjoyed and continues to enjoy under the CCAA and its appointment orders.
Implications and Key Takeaways
Distribution Exemptions have been a frequent feature of recent distribution orders granted in CCAA proceedings in Ontario, albeit with little judicial treatment.2 The conditions under which the Court is prepared to revisit the Distribution Exemption in 100 Ontario Inc. are similar to judicial treatment of these exemptions in other provinces. Courts in British Columbia and Alberta have generally granted distribution orders containing similar exemptions from withholding obligations on satisfaction that the relevant tax authorities were properly served with notice of the applicationfor such orders.3 In Quebec, distribution orders often include provisions similar to the Distribution Exemption, although typically with the consent of the tax authorities.4
The Court's Endorsement in 100 Ontario Inc. will likely result in increased judicial scrutiny of requests for Distribution Exemptions – and the legal and evidentiary basis in support of such exemptions – before Ontario courts. Court officers seeking the protections afforded by the Distribution Exemption should engage with the relevant tax authorities on this specific issue and should consider seeking and obtaining their consent to the requested exemptions in advance of any distribution motion.
Footnotes
1 Re: 1000156489 Ontario Inc., 2026 ONSC 610.
2 See for example: In the Matter of a Plan of Compromise or Arrangement of BZAM Ltd. et al (15 October 2024), Toronto CV-24-00715773-00CL (Ancillary Order) at para 9; In the Matter of a Plan of Compromise or Arrangement of Old MM GP Inc. (22 August 2024), Toronto CV-23-00710259-00CL (CCAA Distribution and Termination Order) at para 18; In the Matter of a Plan of Compromise or Arrangement of Contract Pharmaceuticals Limited et al (17 April 2024), Toronto CV-23-711401- 00CL (Terminated Employee Fund Order) at para 20; In the Matter of a Proposed Plan of Compromise or Arrangement With Respect to Growthworks Canadian Fund Ltd. (18 December 2024), Toronto CV-13-10279-00CL (Amending Distribution, Termination and Discharge Order dated January 19, 2023) at para 19; In the Matter of a Plan of Compromise or Arrangement of Original Traders Energy Ltd. and 2496750 Ontario Inc. (30 January 2025), Toronto, CV-23-00693758-00CL (Distribution & Claims Transition Order) at para 9.
3 See for example: In the Matter of Nexii Building Solutions Inc et al, Supreme Court of British Columbia (27 August 2024), Vancouver Registry, No. S240195 (Distribution, Stay Extension and Fee Approval Order) at para 7; In the Matter of San Industries Ltd et al, Supreme Court of British Columbia (29 October 2025), Vancouver Registry, No. S-248267 (Order Made After Application (Interim Distribution Order)) at para 8; In the Matter of Oak and Fort Corp. et al, Supreme Court of British Columbia (8 January 2026), Vancouver Registry No. S-254287 (Order Made After Application (Plan Sanction Order)) at para 15; In the Matter of the Plan of Compromise of Arrangement of Collision Kings Group Inc et al, Court of King's Bench of Alberta (25 September 2025), File No. 2401-01778 (Order – Termination of CCAA, Discharge of Monitor, Final Distribution and Other Relief) at para 11; In the Matter of the Joseph Richard Hospitality Group Ltd. and Those Parties Listed on Schedule "A"(31 March 2025), Vancouver, S-235026 (Distribution and Discharge Order) at para 6.
4 See for example: In the Matter of the Compromise or Arrangement of 9541-1906 Qu�bec Inc. (Former Pelican International Inc.) et al (11 August 2025), Superior Court of Quebec, Np. 500-11-065405-256 (Distribution Order) at para 20; Dans l'affaire de la loi sur les arrangements avec les cr�anciers des compagnies de Qu�bec Parmentier Inc. et al (13 December 2024), Superior Court of Quebec, No. 200-11-028827-239 (Ordonnance autorisant une quatri�me distribution int�rimaire et prorogeant la p�riode de suspension) at para 19; In the Matter of the Compromise or Arrangement of Former Gestion Inc. et al (17 June 2024), Superior Court of Quebec, No. 500-11-063779-249 (Interim Distribution Order) at para 21
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
