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Directors are the stewards or caretakers of a corporation.  As stewards, they must carry out their duties with honesty, good faith, care, diligence and skill.  Directors who fail to do so, can be held personally liable – whether it be for the debts and financial losses of the corporation, or for illegal acts carried out in the name of the corporation.

Below are some of the provincial and federal statutes under which directors can be held personally liable.  There are many more.

  • The Income Tax Act
  • Canada’s Anti-Spam Law (CASL)
  • The Canadian Environmental Protection Act
  • The Canada Pension Plan Act
  • The Criminal Code
  • The Canada Business Corporations Act
  • The Ontario Employment Standards Act, 2000
  • The Ontario Occupational Health and Safety Act
  • The Ontario Securities Act
  • The Ontario Business Corporations Act

Even if there is no statutory obligation to do or not do something, directors who have not acted prudently or in the best interests of the corporation can be held personally liable, at common law.

Avoiding liability and minimizing risk

Know the relevant law. Ensure that employees and officers of the corporation are complying with that law. Though errors and omissions insurance and indemnity agreements are tools that can be used to minimize risk, they may be of little or no help if a director did not act reasonably in the circumstances.  And what is reasonable in the circumstances, depends on various factors including but not limited to the skill of the director and the process used to arrive at a particular decision. If a director relied on advisers,  a court will look at whether or not it was reasonable in the circumstances, to do so.

The take away here?  If someone asks you to be a director, think twice and call a lawyer.

 

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