DIRECTORS' LIABILITY UNDER SELECTED FEDERAL AND PROVINCIAL STATUTES
INTRODUCTION
Over the past two decades there has been a trend of imposing statutory personal liability upon directors for liabilities which would usually fall upon the corporation. Directors now face potential liability for environmental offences, wages of corporate employees, source deductions from payrolls, GST remittances and retail sales tax, among other things. These liabilities have been imposed under federal and provincial statutes.
These notes will provide a brief overview of the directors' liability provisions of a number of federal and provincial statutes.
FEDERAL STATUTES
Among the federal statutes that impose personal liability on directors are the Atomic Energy Control Act (AECA)(<1>) Canadian Environmental Protection Act (CEPA),(<2>) Fisheries Act (FA),(<3>) Canada Business Corporations Act (CBCA),(<4>) Bankruptcy and Insolvency Act (BIA),(<5>) Excise Tax Act, (ETA)(<6>) Canada Labour Code, (CLC)(<7>) Competition Act, (CA)(<8>) Canada Pension Plan, (CPP)(<9>) Unemployment Insurance Act , (UI Act),(<10>) the Income Tax Act (ITA), (<11>) Hazardous Products Act (HPA), (<12>) Hazardous Materials Information Review Act (HMIRA)(<13>) and Transportation of Dangerous Goods Act, 1992 (TDGA).(<14>)
A. Atomic Energy Control Act
Subsection 20(2) of the AECA imposes liability for an offence committed by a corporation on corporate officers and directors in situations where the officers or directors directed, authorized, assented to, acquiesced in or participated in the commission of the offence.
Penalties under the Act include fines of up to $5,000 and/or imprisonment for a maximum of two years for a summary conviction offence and fines of up to $10,000 and/or imprisonment for a maximum term of five years in proceedings by way of indictment.
B. Canadian Environmental Protection Act
Section 122 of CEPA imposes liability on corporate directors. It provides:
Where a corporation commits an offence under this Act, any officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence, and is liable to the punishment provided for the offence, whether or not the corporation has been prosecuted or convicted.
CEPA provides for a wide range of offences including:
failing to give inspectors assistance or information, making false or misleading statements or hindering an inspector (s.111);
- failing to provide samples or information or to conduct tests as required under certain sections of the Act (s.112); and
- contravening regulations made under the Act and manufacturing or importing substances in contravention of a condition or a prohibition issued under the Act (s. 113);
Penalties for these offences include fines and/or imprisonment. Offences under sections 111 and 112 are subject to a fine of up to $200,000 and/or imprisonment for up to six months. Offences under section 113 are subject to a maximum fine of $300,000 and/or imprisonment for a term of up to six months in summary conviction proceedings; proceedings by way of indictment carry a fine of up to $1,000,000 and/or imprisonment for a term of up to three years.
Fraudulent activities under CEPA such as providing false or misleading information, results or samples in connection with certain sections of the Act are subject to a fine of up to $300,000 and/or imprisonment for up to six months for a summary conviction offence or a fine of up to $1,000,000 and/or imprisonment for up to five years if found guilty of an indictable offence (s.114).
CEPA also makes it an offence, in contravention of the Act, to: (i) intentionally or recklessly cause a disaster that results in loss of the use of the environment; or (ii) show wanton or reckless disregard for the lives and safety of others thereby causing a risk of death or harm to others. These offences are subject to a fine without limitation and/or to imprisonment for up to five years (s.115).
CEPA provides for a "due diligence" defence in connection with most offences under the Act. A person will not be found guilty if it can be established that the person exercised "all due diligence" to prevent the commission of an offence (s. 125).
C. Fisheries Act
Under section 35 of the Fisheries Act it is an offence for any person to "carry on any work or undertaking that results in the harmful alteration, disruption or destruction of fish habitat." The Act also prohibits persons from depositing, or permitting the deposit, of deleterious substances into waters frequented by fish unless the deposits are authorized by regulation (s. 36(3)).
In the early 1990s, the FA was amended to increase the penalties for offences under the Act. First offenders are punishable on summary conviction by fines of up to $100,000. Subsequent offences are subject to fines of up to $100,000 and/or up to six months imprisonment. The maximum penalties for proceeding by way of indictment are fines of up to $500,000 for first offences, and $500,000 and/or up to two years' imprisonment for subsequent offences (s. 78).
Like CEPA, the FA imposes liability on corporate directors in connection with offences under the Act. Section 78.2 provides:
Where a corporation commits an offence under this Act, any officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence, whether of not the corporation has been prosecuted.
The FA provides for a due diligence defence in connection with offences under the Act. A conviction will not occur if the person charged with an offence establishes that he or she exercised "all due diligence" to prevent the commission of the offence, or reasonably and honestly believed in the existence of facts that, if true, would render the person's conduct innocent (s. 78.6).
D. Canada Business Corporations Act
Under the Canada Business Corporation Act directors can be liable:
for authorizing the issue of shares for a consideration other than money and the consideration received is less than the fair equivalent of the money the corporation should have received (s. 118(1));
for certain amounts paid by a corporation, for example, financial assistance, share redemptions, dividends, or commissions when the corporation is not solvent (s. 118(2));
for unpaid debts owed to employees such as accrued wages and vacation pay (s. 119);
for improper insider trading (<15>) (s. 131); and
under the oppression remedy (<16>) (s. 241).
In addition to these statutory liabilities, directors can be liable to the corporation for the breach of their fiduciary and care duties. The main fiduciary duty of directors is to disclose and/or avoid conflict of interest situations. Section 122 of the CBCA defines these fiduciary and care duties in the following manner:
Every director and officer of a corporation in exercising his powers and discharging his duties shall
(a) act honestly and in good faith with a view to the best interests of the corporation; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Some of the directors' liabilities referred to above, such as the first two, relate only to the corporation and the corporation must take legal proceedings against the directors. However, the CBCA provides a statutory derivative action which allows shareholders and others to sue directors on behalf of the corporation for liabilities that directors may owe to the corporation (ss. 239-240). (<17>)
In other situations, directors may be liable to persons other than the corporation: liability for wages is to the employees; insider trading liability is to persons who suffer a direct loss and to the corporation for any benefit received by the director from insider trading; the liability the directors face under the oppression remedy is not strictly defined but could include liability to shareholders, other directors, officers, creditors and others. (<18>)
Some of the directors' liability provisions are subject to conditions and limitations. Under section 119 of the CBCA, directors are jointly and severally liable to corporate employees for all debts not exceeding six months' wages for services performed by employees for the corporation. A director, however, will not be liable for wages unless:
the corporation has been sued for the debt within six months after it became due and the debt remains unsatisfied;
the corporation has commenced liquidation and dissolution proceedings or has been dissolved and a claim for the debt has been proved within six months after the proceedings were commenced; or
the corporation has instituted bankruptcy proceedings and the claim for wages has been proved within six months after the proceedings began.
In addition, liability for wages will only ensue if the director is sued while he or she holds office or within two years after ceasing to be a director.
Under section 123(4) of the CBCA, a director is not liable for improper share issuances or payments (s. 118), unpaid wages (s.119) or breach of fiduciary duty and the duty of care (s. 122) if he or she relies in good faith upon:
(i) financial statements represented to him or her by an officer or the auditor to reflect fairly the financial condition of the corporation; or
(ii) a report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by him or her.
E. Bankruptcy And Insolvency Act
The primary directors' liability provision of the Bankruptcy and Insolvency Act is section 204 which provides as follows:
Where a corporation commits an offence under this Act, any officer, director or agent of the corporation, or any person who has or has had, directly or indirectly, control in fact of the corporation, who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to and guilty of the offence and is liable on conviction to the punishment provided for the offence, whether or not the corporation has been prosecuted or convicted.
Among the offences set out in the BIA are:
making a fraudulent disposition of property;
after or within twelve months before a bankruptcy, obtaining credit or property by false representations; and
fraudulently concealing or removing property after or within twelve months before a bankruptcy (s. 198).
These offences are subject to a fine not exceeding $5,000 and/or imprisonment for a term of up to one year for a summary conviction offence; proceedings by way of indictment carry a maximum fine of $10,000 and/or imprisonment for a term not exceeding three years.
In addition, the BIA imposes strict liability on directors for the payment of dividends or the redemption of shares by an insolvent corporate debtor within one year before the corporation's bankruptcy. Where a dividend is paid or a share redemption takes place within twelve months before a bankruptcy, the onus is on the directors to show that the company was solvent when the transaction took place (s. 101).
Amendments to the Bankruptcy and Insolvency Act (Bill C-5) (<19>) tabled in the House of Commons in March 1996 would afford directors some protection from personal liability imposed by statute for corporate obligations. The bill would allow a reorganization proposal made pursuant to the Act to include provisions for compromising claims that arose by law against corporate directors. Claims against directors that related to contractual rights of creditors (such as personal guarantees) or that were based on allegations of misrepresentations made by directors to creditors or on wrongful or oppressive conduct by directors would not be included in a proposal.
Moreover, the bill would give directors a defence where they were liable for amounts paid out as dividends or for the redemption of shares by an insolvent corporation pursuant to section 101 of the BIA. Directors would be able to assert that they had reasonable grounds to believe that the corporation was not insolvent. To assist them in this regard, directors would be able to rely in good faith on reports or statements by auditors and officers of the corporation concerning the corporation's financial position, as well as information provided by professional advisors.
F. Excise Tax Act (Goods And Services Tax)
Under section 323 of the Excise Tax Act, directors of a corporation which is required to remit the Goods and Services Tax (GST) to the federal government are jointly and severally liable, together with the corporation, to pay the tax as well as any interest and penalties relating to the tax. A director will not be liable, however, unless:
a certificate for the amount of the liability of the corporation has been registered in the Federal Court and the execution for that amount has been returned unsatisfied in whole or in part;
the corporation has been or is in the process of being liquidated or dissolved and the amount owing has been proved within the time limitations set out in the Act; or
an assignment or receiving order has been made against the corporation under the Bankruptcy and Insolvency Act.
In addition, a director will not be liable where he or she exercised a degree of care, diligence and skill to prevent the failure to remit the tax that a reasonably prudent person would have exercised in comparable circumstances.
A director liable under section 323 cannot be assessed more than two years after he or she last ceased to be a director of the corporation.
G. Canada Labour Code
Under section 251.18 of the Canada Labour Code directors of a corporation are jointly and severally liable for up to six months' wages in respect of corporate employees where the wage entitlement arose when the directors in question held office and recovery from the corporation is impossible or unlikely.
Part II of the Canada Labour Code governs health and safety standards with respect to workers subject to federal jurisdiction. A violation of the health and safety provisions is a summary conviction offence subject to a fine of $15,000. Other offences, however, carry penalties specific to the offence.
Under Part II, a director, officer or agent of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of an offence by a corporation is liable to the punishment provided for the offence (s. 149(2)).
H. Competition Act
Under section 65 of the Competition Act, it is an offence not to permit a person executing a warrant to search the premises referred to in the warrant and to examine, copy or seize records. It is also an offence to fail to supply information and to alter or destroy records. Corporate directors can be liable in situations where they directed, authorized, assented to acquiesced in or participated in the commission of these offences (s. 65(4)).
I. Canada Pension Plan
The Canada Pension Plan requires employers to deduct CPP contributions from employees' salaries and to remit these contributions to the Receiver General. Where a corporate employer fails to deduct or to remit CPP contributions, persons who were directors of the corporation at the time when the failure occurred are jointly and severally liable to pay the contributions as well as any interest or penalties associated with the failure to remit (s. 21.1).
J. Unemployment Insurance Act
Like the Canada Pension Plan, the Unemployment Insurance Act contains directors' liability provisions. These relate to the failure of an employer to deduct or remit unemployment insurance premiums from the salaries of corporate employees. Section 54(1) of the UI Act provides:
Where an employer who fails to deduct or remit an amount as and when required under subsection 53(1) is a corporation, the persons who were the directors of the corporation at the time when the failure occurred are jointly and severally liable, together with the corporation, to pay to Her Majesty that amount and any interest or penalties relating thereto.
K. Income Tax Act
The Income Tax Act imposes liability on directors of corporations under sections 159(3), 227.1 (1) and 242. The first two of these provisions impose civil liabilities while the last imposes criminal liability.
Section 159(3) provides as follows:
Where a responsible representative distributes to one or more persons property over which the responsible representative has control in that capacity without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection, the responsible representative is personally liable for the payment of those amounts to the extent of the value of the property distributed and the Minister may assess the responsible representative therefor in the same manner and with the same effect an as assessment made under section 152.
Personal liability for directors could arise under section 159(3) where the director acted as an assignee, liquidator, receiver, receiver-manager, administrator or other such person administering, winding up, controlling or otherwise dealing with the property, business or estate of another person.
Under section 227.1(1), directors are liable for the failure of the corporation to deduct, withhold or remit taxes under the Act. Where section 227.1(1) applies, a director is liable to pay the amount owing as well as any interest and penalties pertaining to those amounts. However, a director will not be liable under this section unless:
a certificate for the amount of the corporation's liability referred to in section 227.1(1) has been registered in the Federal Court of Canada and execution for that amount has not been completely satisfied;
the corporation has commenced liquidation or dissolution proceedings or has been dissolved and a claim for the amount of the corporation's liability has been proved within six months after the earlier of the date of the commencement of proceedings or the dissolution; or
bankruptcy proceedings have been commenced against the corporation and a claim for the corporation's liability under section 227.1(1) has been proved within six months after the date of commencement of proceedings (s. 227.1(2).
No action or proceeding can be taken under this section of the ITA for the recovery of any amount payable by a director more than two years after the person ceased being a director of the corporation (s. 227.1(4)).
Section 227.1 contains a due diligence defence. A director will not be liable under section s. 227.1(1) where he or she "exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances (s. 227.1(3))." (<20>)
Section 242 of the ITA imposes criminal liability on corporate directors. The section provides that an officer, director or agent of a corporation may be punished for being a party to an offence under the Act where he or she directed, authorized, assented to, acquiesced or participated in the commission of the offence.
L. Hazardous Products Act
The Hazardous Products Act deals with the selling. importing and advertising of prohibited, restricted and controlled products. The Act prohibits the sale and importation of certain products and restricts the sale of other types of products in accordance with regulations made pursuant to the Act. Controlled products destined for use in the workplace in Canada must meet the Act's information and labelling requirements.
It is an offence to contravene or fail to comply with the HPA or its regulations. Proceedings may be taken by way of summary conviction or indictment. Summary conviction offences are punishable by a fine of up to $100,000 and/or imprisonment for up to six months; indictable offences carry a maximum fine of $1,000,000 and/or imprisonment for up to two years. Directors or officers who directed, authorized, assented to, acquiesced or participated in the commission of an offence are considered parties to the offence and are liable to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted (s. 28).
M. Hazardous Materials Information Review Act
Under the Hazardous Materials Information Review Act it is an offence to fail to provide the proper information when requesting an exemption. It is also an offence to fail to provide information when requested by a screening officer. Proceedings may be taken by way of summary conviction or indictment. Summary conviction offences are punishable by a maximum fine of $100,000 and/or imprisonment for up to six months; indictable offences carry a maximum fine of $1,000,000 and/or imprisonment for up to two years. Directors or officers who directed, authorized, assented to, acquiesced or participated in the commission of an offence are considered parties to the offence and are liable to the punishment provided for the offence whether or not the corporation has been prosecuted or convicted (s. 49).
N. Transportation of Dangerous Goods Act, 1992
Under the Transportation of Dangerous Goods Act, 1992, it is an offence to transport, handle or offer for transport any dangerous goods without following proper packaging or safety requirements as set out in the Act and the regulations.
Depending on the offence, a director or officer can be subject to a fine or imprisonment whether or not the corporation has been prosecuted for the offence (s. 39). Liability will not ensue, however, where it is established that the person took all reasonable measures to comply with the Act and to prevent the commission of the offence (s. 40).
PROVINCIAL STATUTES
Numerous provincial statutes impose liability on directors. Examples of some of these within the following categories are set out below:
environmental laws;
taxation statutes;
occupational health and safety legislation;
statutes imposing liability for wages; and
corporate laws
A. Environmental Laws
Next to liability for wages and taxes, liability for environmental offences is one of the greatest concerns for corporate directors. There are a number of statutes at the federal and provincial level pertaining to the environment and many of these impose liability on directors in connection with actions taken by corporations.
1. Ontario
Under the Environmental Protection Act(<21>) of Ontario, directors and officers of a corporation may be held personally liable for corporate acts that produce environmental damage. Section 194 of the Act provides the following:
(1) Every director or officer of a corporation that engages in an activity that may result in the discharge of a contaminant into the natural environment contrary to this Act or the regulations has a duty to take all reasonable care to prevent the corporation from causing or permitting such unlawful discharge.
(2) Every person who has a duty under subsection (1) and who fails to carry out that duty is guilty of an offence.
(3) A director or officer of a corporation is liable to conviction under this section whether or not the corporation has been prosecuted or convicted.
Penalties include fines, imprisonment and restoration orders.
The Ontario Water Resources Act(<22>) contains a provision similar to section 194 of the Environmental Protection Act.
2. Alberta
In Alberta, the Environmental Protection and Enhancement Act(<23>) provides that any officer, director or agent of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of an offence under the Act is guilty of an offence and liable to the punishment provided for the offence.
Penalties under the Act include fines of up to $100,000, and/or imprisonment for up to two years. Corporations are subject to fines of up to $1,000,000.
The Act goes on to provide that no one will be guilty of an offence if the person establishes on a balance of probabilities that he or she took all reasonable steps to prevent its commission (s. 215).
3. Quebec
Quebec's Environment Quality Act(<24>) provides that every director or officer of a corporation who by order, authorization or advice or encouragement leads the corporation to refuse or neglect to comply with an order to emit, deposit, release or discharge a contaminant into the environment in contravention of the Act or the regulations is guilty of an offence. The penalty for a first offence is a fine of between $2,000 and $20,000 and/or imprisonment for up to one year; for a subsequent offence the fine ranges from $4,000 to $40,000 and can be accompanied by imprisonment for up to one year (s. 106.1(a)).
4. Nova Scotia
The Nova Scotia Environment Act(<25>) imposes liability on corporate directors who direct, authorize, assent to, acquiesce or participate in a violation of the Act by a corporation. The Act also contains a due diligence defence (s. 160).
Penalties under the Act are quite severe. Depending upon the type of offence, fines to a maximum of $500,000 or $1,000,000 can be imposed.
B. Taxation Statutes
For the most part, provincial taxation statutes contain penalties and fines that mirror those found in federal taxation laws.
1. Ontario
Under the Income Tax Act(<26>) (Ontario), directors are liable for taxes that corporations are required to deduct and remit from salaries and wages. Directors will not be liable, however, where they exercise the degree of care, diligence and skill to prevent the failure to comply that a reasonably prudent person would have exercised under comparable circumstances (s. 38(3)).
2. Quebec
Quebec legislation pertaining to the Ministère du Revenue(<27>) provides that where a corporation fails to remit, deduct, withhold or collect amounts required under the Act, directors are jointly and severally liable for the amounts in question plus interest and penalties. Directors will not be liable, however, where they act with reasonable care, dispatch and skill under the circumstances (s. 24.0.2).
C. Occupational Health and Safety Legislation
The purpose of occupational health and safety legislation is to ensure that the work environment for employees is safe and hazard-free.
1. Ontario
In Ontario, the Occupational Health and Safety Act(<28>) provides that directors and officers of a corporation are to take "all reasonable care" to ensure that the corporation complies with the Act and the regulations as well as any orders made pursuant to the Act.
Every person who contravenes or fails to comply with the Act, the regulations or an order is guilty of an offence and upon conviction liable to pay a fine of not more than $25,000 or to imprisonment for a term of not more than 12 months or to both (s. 66(1)). If a corporation is convicted of an offence, the maximum fine that may be imposed upon the corporation is $500,000 (s. 66(2)).
2. Quebec
Under Quebec's occupational health and safety legislation, corporate directors who prescribe or authorize an action or omission that constitutes an offence by a corporation or who consent to the offence are deemed to have participated in the offence. (<29>)
3. New Brunswick
The Occupational Health and Safety Act(<30>) of New Brunswick imposes liability on directors who knowingly direct, authorize, assent to, acquiesce or participate in the commission of an offence by a corporation. Penalties for violations of the Act include fines as well as imprisonment.
4. Manitoba
Manitoba's Workplace Safety and Health Act,(<31>) provides that where a corporation commits an offence under the Act, any officer or director who directed, authorized, assented to, acquiesced in or participated in the commission of an offence is also guilty of the offence. Penalties for offences include fines as well as imprisonment. For first offences, fines cannot exceed $15,000, while subsequent offences carry a maximum fine of $30,000 (s. 55).
D. Statutes Imposing Liability For Wages
Directors may be liable for employee wages and vacation pay pursuant to corporate laws or employment standards legislation. Depending upon the type of business, these liabilities can be significant.
1. Ontario
The Ontario Business Corporations Act provides as follows:
The directors of a corporation are jointly and severally liable to the employees of the corporation for all debts not exceeding six months' wages that become payable while they are directors for services performed for the corporation and for the vacation pay accrued while they are directors for not more than twelve months under the Employment Standards Act, and the regulations thereunder, or under any collective agreement made by the corporation.(<32>)
If a director is to be held liable for wages, the following conditions must be met:
the director must be sued while he or she holds the position as a director or within six months of ceasing to be a director; and
the action against the director must be commenced within six months after the debt became payable; and
(i) the corporation is sued in the action against the director and execution against the corporation is returned unsatisfied in whole or in part; or
(ii) before or after the action is commenced, the corporation goes into liquidation, is ordered to be wound up, or commences bankruptcy proceedings and the claim for the debt is proven. (<33>)
2. Alberta
The Business Corporations Act of Alberta provides that directors are jointly and severally liable to employees of the corporation for all debts not exceeding six months' wages payable to each employee for services performed for the corporation while they were directors.(<34>) A director will not be liable for wages if he or she believes on reasonable grounds that the corporation can pay the debts as they become due; or if the debts are wages payable for services performed while the corporation is under the control of a receiver or a liquidator.(<35>)
Moreover, a director will not be liable for wages unless:
the corporation has been sued for the debt within six months after it became due and execution has been returned unsatisfied in whole or in part;
the corporation has commenced liquidation and dissolution proceedings or has been dissolved and a claim for the debt has been proved within six months after the proceedings have begun; or
proceedings relating to the corporation have been commenced under the Bankruptcy and Insolvency Act and a claim for the debt has been proved within six months after the proceedings began. (<36>)
3. Manitoba
The Corporations Act of Manitoba provides that corporate directors are jointly and severally liable to employees for up to six months wages for services performed for the corporation while they are directors.(<37>) The conditions applicable to a director's liability for wages in Manitoba are virtually identical to those set out in the Canada Business Corporations Act .
4. Quebec
The Companies Act of Quebec makes directors jointly and severally liable for debts owing by a corporation to its employees to a maximum of six months' wages for services rendered to the corporation while they were directors. Directors will not be liable for unpaid wages, however, unless the company is sued within one year after the debt becomes due and the debt remains unpaid or the company is wound-up or becomes bankrupt and the claim for the debt remains unsatisfied.(<38>)
5. British Columbia
In British Columbia directors liability for unpaid wages is found in the province's employment standards legislation rather than in its corporations law.
The Employment Standards Act provides the following:
19. (1) A person who was a director or officer of a corporation at the time wages of an employee of the corporation should have been paid is personally liable for the unpaid wages in an amount not exceeding 2 months' wages for each employee affected, and this Act applies to the recovery of the unpaid wages from that person.
Liability will not extend to severance pay in cases where the corporation is in receivership or bankruptcy. (<39>)
The Act also provides that directors and officers of a corporation who direct, authorize, assent to, acquiesce in, or participate in the commission of an offence are liable for the offence.(<40>)
E. Corporate laws
1. Ontario
Under the Business Corporations Act directors can be liable, among other things, for:
authorizing the issue of shares for a consideration other than money and the consideration received is less than the fair equivalent of the money the corporation should have received (s. 130(1));
certain amounts paid by a corporation, for example, financial assistance, share redemptions, dividends, or commissions when the corporation is not solvent (s. 130(2)); and
an indemnity paid contrary to the Act (s. 130(2)).
The Act provides that directors are jointly and severally liable to restore to the corporation the amounts paid and the value of the property distributed.
2. Alberta
The Business Corporations Act of Alberta provides that directors of a corporation who vote for or consent to a resolution authorizing the issue of shares for a consideration other than money are jointly and severally liable to the corporation to make good any amount by which the consideration received is less than the fair equivalent of the money that the corporation would have received if the shares had been issued for money on the date of the resolution. Directors can also be liable for a purchase, redemption or acquisition of shares contrary to the Act, a commission on the sale of shares not provided for in the Act, payment to a shareholder and financial assistance contrary to the Act, and the payment of a dividend contrary to the Act (s. 113).
The Act provides that directors are jointly and severally liable to restore to the corporation the amounts paid and the value of the property distributed (s. 113).
3. New Brunswick
The Business Corporations Act of New Brunswick contains directors' liability provisions that are virtually identical to those of the Ontario Business Corporations Act. Under the New Brunswick act, directors of a corporation who authorize the issue of shares for consideration other than money are jointly and severally liable to make good to the corporation an amount by which the consideration received is less than the fair equivalent of the money that the corporation would have received if the shares had been issued for the money on the date of the resolution. Moreover, directors will be liable if they authorize the purchase, redemption, or other acquisition of shares contrary to the Act, a commission or a dividend contrary to the Act, financial assistance contrary to the Act, payment of an indemnity contrary to the Act, or a payment to a shareholder contrary to the Act.(<41>)
The Act provides that directors are jointly and severally liable to restore to the corporation the amounts paid and the value of the property distributed.
4. British Columbia
The Company Act of British Columbia provides that directors who vote for, or consent to a resolution authorizing the purchase, redemption or acquisition of shares contrary to the Act, a commission or discount contrary to the Act, the payment of a dividend if the company is insolvent or would become insolvent, a loan, guarantee or financial assistance contrary to the Act, the payment of an indemnity to a director or former director without the approval of the court, or an act in respect of carrying on a business which the company is restricted from exercising and the company has paid compensation to any person in connection with the act, are jointly and severally liable to make good the loss suffered by the company as a result. (<42>)
APPENDIX 5
WITNESSES
ISSUE DATE AND WITNESSES
NO. LOCATION
_________________________________________________________________________________
1 Calgary, From the Department of Industry:
February 13, 1996 David Tobin, Director General, Corporate
Governance Branch;
Mary Walsh, CBCA Director and Director General,
Corporations Directorate; and
Brian Dillon, A/Senior Project Leader, (CBCA
Reform) Corporate Law Policy Directorate.
From the Canadian Institute of Chartered
Accountants :
Michael H. Rayner, President;
William Broadhurst, Chair, CICA Legal Liability
Task Force; and
The Honourable Willard Z. Estey, C.C., Q.C.,
Counsel.
J.P. Bryan, President and Chief Executive Officer,
Gulf Canada Resources Ltd.
William L. Hess, Chairman, Alberta Securities
Commission.
Calgary, From the Coalition for CBCA Reform:
February 14, 1996 John L. Howard, Senior Vice-President, Law and
Corporate Affairs, MacMillan Bloedel Ltd;
Dan Pekarsky, President, Corporate Advisory
Group; and
Rhondda Grant, Corporate Secretary and Associate
General Counsel - Corporate, NOVA Corporation.
George Watson, President and Chief Executive
Officer, TransCanada PipeLines Ltd.
Tom E. Kierans, President and CEO of C.D. Howe
Institute and Director of several companies.
Bob Blair, Director of several companies.
Gordon Cummings, Chief Executive Officer, Alberta
Wheat Pool.
2 Winnipeg, Lawrence O. Pollard, President and Chief
February 15, 1996 Executive Officer, Pollard Banknote.
The Honourable Doug Everett, Director of several
companies.
William Mackness, Corporate director and
consultant.
W.H. Loewen, President, CTI Comtel Inc.
Bob Kozminski, Owner and President, Keystone
Ford.
3 Halifax, J. William E. Mingo Q.C., Director of several
February 19, 1996 companies.
David J. Hennigar, Chairman, Annapolis Basin Pulp
& Paper Co. Ltd.
Louis R. Comeau, President and Chief Executive
Officer, Nova Scotia Power Corporation.
4 Montreal, Jean-Claude Delorme, Advisor to the Chairman of
February 20, 1996 the Board, Caisse de Depôt et de Placement du
Québec.
Jan Peeters, President, Fonorola inc.
Tullio Cedraschi, President and Chief Executive
Officer, CN Investments.
From BCE Inc.:
L.R. Wilson, Chairman, President and Chief
Executive Officer;
Josef J. Fridman, Senior Vice-President, Law and
Corporate Secretary; and
Monique Mercier, Assistant General Counsel - Corporate.
From Power Corporation of Canada:
Jim Burns, Deputy Chairman; and
Edward Johnson, Vice-President, General Counsel
and Secretary.
David M. Culver, Chairman, CAI Capital Corp.
From the Montreal Exchange:
Gérald Lacoste, President and Chief Executive
Officer; and
Louis-François Hogue, Director, Corporate Services
Equity.
5 Toronto, From Ontario Municipal Employees Retirement
February 21, 1996 Board:
Dale Richmond, President and Chief Executive
Officer; and
Robert L. Sillcox, Senior Vice-President of
Investments.
The Honourable Willard Z. Estey C.C., Q.C., Director of several companies.
William Dimma, Director of several companies.
Peter Widdrington, Chairman, Laidlaw Inc.
From the Toronto Stock Exchange:
Rowland Fleming, President and Chief Executive
Officer, Toronto Stock Exchange;
Tom Allen, Director of several companies; and
Peter Dey, President and Managing Director,
Morgan Stanley Canada Limited.
Adam H. Zimmerman, Director of several
companies.
George J. Kosich, President and Chief Executive
Officer, Hudson's Bay Co.
F.B. Ladly, Deputy Chairman and Chief Executive
Officer, Extendicare Inc.
John F. Fraser, Director of several companies.
John D. McNeil, Chairman and Chief Executive
Officer, Sun Life Assurance Company of Canada.
6 Toronto, The Honourable Donald S. Macdonald, Director
February 22, 1996 of several companies.
Claude Lamoureux, President and Chief Executive
Officer, Ontario Teachers' Pension Plan Board.
John T. Bart, President, Canadian Shareowners
Association.
Edward Waitzer, Chairman, Ontario Securities
Commission
Sir Graham R. Day, Director of several companies.
The Honourable Peter Lougheed, Director of several
companies.
Maureen Kempston Darkes, President and General
Manager, General Motors of Canada Ltd.
From the Coalition for CBCA Reform:
Purdy Crawford, Chairman, Imasco Ltd.; and
P.K. Pal, Vice-President, Chief Legal Officer and
Secretary, Alcan Aluminium Ltd.
From the Canadian Institute of Chartered
Accountants:
Michael H. Rayner, President;
Guylaine Saucier, Former Chair, Directors Advisory
Group; and
William H. Broadhurst, Chair, CICA Legal Liability
Task Force.
2 Ottawa, Bruce A. Malcolm, Director, Reed Stenhouse
(Second Session) April 30, 1996 Ltd.
<1>() R.S.C. 1985, Chap. A-16, as amended.
<2>() R.S.C. 1985, Chap. 16 (4th Supp.), as amended.
<3>() R.S.C. 1985, Chap. F-14, as amended.
<4>() R.S.C. 1985, Chap. C-44, as amended.
<5>() R.S.C. 1985, Chap. B-3, as amended.
<6>() R.S.C. 1985, Chap. E-15, as amended.
<7>() R.S.C. 1985, Chap. L-2, as amended.
<8>() R.S.C. 1985, Chap. C-34, as amended.
<9>() R.S.C. 1985, Chap. C-8 , as amended.
<10>() R.S.C. 1985, Chap, U-1, as amended.
<11>() R.S.C. 1985 (5th Supp.) C.1, as amended.
<12>() R.S.C. 1985, Chap. H-3, as amended.
<13>() R.S.C. 1985, c. 24, (3rd Supp.), as amended.
<14>() S.C. 1992, C. 34, as amended.
<15>() Improper insider trading involves corporate insiders such as directors who, in connection with transactions involving securities of the corporation, make use of confidential information for their own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of the securities.
<16>() The oppression remedy allows a complainant to apply to the court for an order in respect of acts or omissions of a corporation or powers of corporate directors that are exercised in a manner that are oppressive or unfairly prejudicial to or that unfairly disregard the interests of any security holder, creditor, director or officer.
<17>() Industry Canada, Canada Business Corporations Act, Discussion Paper, Directors' Liability, November 1995, p. 5.
<18>() Ibid., p. 5.
<19>() Bill C-109, the predecessor to Bill C-5, was tabled in the House of Commons in November 1995. It died on the Order Paper with the prorogation of Parliament. Bill C-5 is virtually identical to Bill C-109.
<20>() Provisions of section 227.1 with respect to due diligence and when a director is liable also apply to the directors' liability provisions of the Canada Pension Plan and the Unemployment Insurance Act.
<21>() R.S.O. 1990, c. E.19.
<22>() R.S.O. 1990, c. O.40, s. 116.
<23>() Statutes of Alberta 1992, c. E-13.3, s. 218.
<24>() R.S.Q. 1977, c. Q-2.
<25>() Statutes of Nova Scotia, 1994-95, Chap.1, s. 164.
<26>() R.S.O. 1990, c. I.2.
<27>() An Act respecting the Ministère du Revenue, R.S.Q. 1977, c. M-31, s. 24.0.1.
<28>() R.S.O 1990, c. O.1, s. 32.
<29>() An Act Respecting Occupational Health and Safety, R.S.Q. 1977, c. S-2.1, s. 241.
<30>() S.N.B. 1983, C. O-0.2, s. 49, as amended.
<31>() R.S.M. 1987, c. W210, s. 56.
<32>() R.S.O. 1990, C. B.16, s. 131(1).
<33>() Ibid., s. 131(2)
<34>() Statutes of Alberta 1981,c. B-15, s. 114(1).
<35>() Ibid., s. 114(2).
<36>() Ibid., s.114(3).
<37>() R.S.M. 1987, c. C255, s. 114(1).
<38>() R.S.Q. 1977, c-38, s. 96.
<39>() S.B.C. 1980, c.10, s. 19, as amended.
<40>() Ibid., s. 103(6).
<41>() S.N.B. 1981, c. B-9.1, s. 76, as amended.
<42>() R.S.B.C. 1979, Chap. 59, s. 151.