Monsignor Peter Smith, currently a Vatican attache at the United Nations in New York, is being held personally responsible for the gaping hole left in the pension pot caused by the closure of Springboig St John's School in Glasgow almost four years ago.
He is being pursued for the shortfall by Glasgow City Council at the Court of Session in an action that it is said could have major ramifications on third-sector organisations.
Staff at the school had been members of the Strathclyde Pension Fund, administered by the city council, for more than 45 years until it shut in 2010.
No determination has been made regarding the proceeds of the sale of the school.
It has been on the open market since late last year.
Church sources have told The Herald that even if the council is successful in its action it is unlikely to secure any cash as Monsignor Smith has no assets.
The school was run by an independent board of managers between 1962 and 2010, when it closed. Monsignor Smith joined the board as a manager in July, 2011.
However, despite no allegations of financial misconduct, the legal action may thwart the career prospects of the churchman, who is often tipped to return to Scotland as a bishop.
Originally run by the De La Salle Brothers, Springboig St John's was taken over by the archdiocese in the early-1960s, when the school's board of managers was admitted to the then Corporation of Glasgow pension scheme.
In keeping with national policy at the time, the school expanded around 2004, but a reduction in the reliance on secure units by the Scottish Government and local authorities, and some wider controversies around residential care, had a major impact on Springboig St John's.
In 2010, it made all its remaining 100 employees who were scheme members redundant, terminating its agreement with the pension fund.
The council said in such circumstances actuaries are required to assess any debts due, including liabilities that would otherwise have been met over time through the employer's contributions. The cessation debt has been calculated at £4.728m.
Monsignor Smith has been unable to comment due to the legal proceedings but recently said he was being held liable "in spite of the fact that pension-fund managers are the ones who told us years ago that we had too much money and should not pay anything in for a while".
He said these were "the same fund managers who were caught up in all the hype of the boom and the investments in the banks and who then found, when everything went bust, that they hadn't planned properly".
One church source said: "Peter Smith clearly doesn't have assets to meet this debt."
The source said the case could also have major ramifications on third-sector organisations, adding there was an "inherent inequity in a situation where a charitable trustee, having given his or her time, energy and expertise to support a charitable organisation for the most vulnerable young people in our community, finds him or herself defending expensive litigation".
A council source also said the chances of securing anything beyond the property in the event of a legal victory were "around nil" but questioned Monsignor Smith's grasp of how the pension fund worked.
A spokesman for the fund said it has a "clear obligation to try to recover the debt in order to ensure that its other members are not disadvantaged by having to absorb the school's liabilities".