Construction Trust Claims in Ontario: When You Can Go After the Directors

Money for this job belongs to this job’s trades

Section 8 of Ontario’s Construction Act is short and blunt. Every amount a contractor or subcontractor receives — or is owed — on account of its contract price is held in trust for its subcontractors and suppliers on that job, until they’re paid. It doesn’t matter whether the money is due yet. The owner holds a similar trust for the contractor.

That one rule answers two excuses I hear all the time. “You’ll get paid on the next job” — no, money for this job belongs to this job’s trades. And the deposit the GC collected on a purchase order that never reached you? Same answer.

What counts as a breach — and what doesn’t

Spending trust money on anything else before the trades are paid: another project’s bills, office overhead, paying down the bank, or paying the owners. What’s allowed is paying the people who supplied the job, and paying itself back for amounts it already paid those people out of its own pocket.

The trustee also has to keep the money in a bank account in its own name and keep written records of what came in and what went out. It can run several trusts through one account, as long as the records are kept separately for each.

When the directors are personally liable

Section 13 is the part that gets attention. If a company breaches the trust, every director and officer — and anyone who effectively controls the company — can be personally liable, if they assented to or acquiesced in conduct they knew, or reasonably ought to have known, was a breach.

• A 2025 Ontario decision (Re Fakoori) confirmed that “ought to have known” is enough, that a director is presumed to know the trust exists, and that being a straw director who didn’t get involved is no defence.
• Another 2025 decision (Morin Bros.) held the directors jointly and severally liable, and included the contract interest rate in the trust claim.
• Where more than one person is liable, each can be on the hook for the full amount.

When the contractor goes under

Construction had 742 insolvencies in Canada in 2025 — more than any other industry. When your customer is one of them, here’s how it usually plays out:

The GC went bankrupt. What now?

As an ordinary unsecured creditor you’d line up behind the bank and usually recover little. So look first at your lien rights against the owner’s land and holdback, any payment bond, and trust claims against the directors. File your own proof of claim with the trustee — the trustee won’t chase your trust claim for you.

Does bankruptcy wipe out the trust?

Not if the money can be traced. Ontario’s Court of Appeal held in 2019 that the construction trust survives the contractor’s bankruptcy — trust money isn’t part of what the bankrupt company owns. Once the money has been spent and can’t be traced, though, there’s nothing left to recover from the company.

Can I still sue a bankrupt company?

Not without the court’s permission — bankruptcy puts an automatic stay on lawsuits against the company. Claims against the directors personally are a separate matter.

What happens to my lien if the GC goes bankrupt?

Your lien is against the owner’s interest in the land and the holdback, so it generally carries on — but its deadlines keep running. Don’t let the bankruptcy distract you from them.

Can I take my materials back?

Only goods delivered in the 30 days before the bankruptcy that are still identifiable and in the same state, and only with a written demand within 15 days. Materials already built into the job almost never qualify.

What’s a “phoenix” company?

A business that closes owing money and reopens under a new name with the same people, phone number and trucks. Courts can reach the people behind it through trust claims and the oppression remedy. And a director who goes personally bankrupt doesn’t automatically escape: a proven breach of trust is the kind of debt that generally survives a personal bankruptcy.

Don’t sit on it

A trust claim runs on the ordinary limitation clock, not the lien’s 60 days. One Ontario court started that clock when the trade learned the payer had received the money, which can be later than the invoice date. That isn’t settled law, so don’t treat it as extra time. Since January 2026, a trust claim and a lien claim can be brought together in one action. Trust claims usually need a lawyer — this is one place where a lawyer referral earns its keep.

Questions trades ask

Not legal advice. This is general information from an Ontario builder, current to October 2026. Your dates and rights depend on your contract and your facts — confirm them with an Ontario construction lawyer before you rely on them. Read the Construction Act on ontario.ca.

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