Other Sources of Liabilities for Directors
In a recent blog, I presented the duty of care and the fiduciary duty of directors as a potential source of liabilities for them. This blog will cover other sources of liabilities for directors.
Directors of a corporation are jointly and severally liable with the corporation for certain tax arrears of a corporation, a corporation’s failure to withhold or remit certain amounts on account of employee tax/pensions/benefits, failure to withhold or remit certain amounts on account of HST or Excise Tax the corporation’s penalties for failing to file annual returns with the Provincial or federal authority responsible to receive such declaration, up to six (6) months of unpaid wages owed to employees of the corporation, the costs associated with some environmental offences committed by the corporation, and any payments made to shareholders when the corporation is nearing insolvency. Moreover, directors may attract personal liability for tortious conduct of the corporation: “Where those actions are themselves tortious or exhibit a separate identity or interest from that of the corporation so as to make the act or conduct complained of their own, they may well attract personal liability” (see Blacklaws v. Morrow, 2000 ABCA 175 at para. 41).
Directors may also be liable when they take on a direct supervisory role. As an example, in Nielsen Estate v Epton (Nielsen Estate v. Upton, 2006 ABCA 382, affirming 2006 ABQB 21), the plaintiff was crushed in the course of lifting a heavy industrial load with a crane. The director, Epton, had supervised the fabrication, transportation and installation of the structures from a work-site office. The employer’s other director and shareholder was responsible for office management and sales. The director’s failure to attend to the duties that were assigned to him attracted personal liability.
As a final note, please be advised that directors are also personally liable for any debts of the corporation that they personally guarantee. We therefore advise an abundance of caution before you decide to personally guarantee any corporate debt.
Directors may consider reducing this potential liability by having the corporation purchase directors’ errors and omissions insurance on their behalf. This insurance may be difficult and costly to maintain. It is recommended that the directors take care to ensure that all of the corporation’s payments are made on time, separate funds are created to hold any remittances or employee pensions/benefits, the corporation complies with all environmental laws and regulations, and the corporation is in good financial standing prior to declaring any dividends or approving any share redemptions/repurchases.
Should you have any further questions about director liability, I would be glad to provide you with further information.