Federal Director's and Officers' Liabilities

The following sets out the general personal liability of a Corporate director or officer, but is only intended as a general guide and as such, if you have any questions concerning the information herewith, do not hesitate to contact your private legal counsel.

Because of the scope of authority that is given to directors and officers of a Corporation, the law imposes a wide range of duties and personal liabilities on the managers of a Corporation. These duties, in general, reflect the responsibility and position of trust that management holds in relation to the Corporation and its owners, the shareholders.

Among the most important of the duties that have been set out is the duty of care. Directors are required to act honestly, in good faith and with the best interests of the Corporation in mind. It is expected that they act with the same amount of care and diligence that any reasonable person would use in a comparable situation or circumstance. It is very clear that a director or officer must put the interests of the Corporation before their own personal interests.

A director or officer cannot avoid personal liability because they did not know what the Corporation was doing. There is an obligation on each director and officer to be informed of what is going on within the scope of their authority, and to ensure that what is being done is legal and in the best interests of the Corporation. They may rely on financial statements or legal opinions, in certain circumstances to help them with their duties. If they have exercised prudence and skill that any reasonable person would have in the same circumstance, they should not be held personally liable. As well, if it has been at least two years since they were a director of the corporation they may not be held liable, provided that they have followed all the required procedures and that it is substantiated in official documents.

Directors and officers are required to disclose in writing any personal interest they may have in a contract with the corporation. Failure to do so is grounds to terminate the contract upon application to the shareholders.

Specific personal liabilities are also imposed on directors and officers, for instance:

• directors are personally liable for up to six months' worth of unpaid wages to employees of the company for any unpaid source deductions,
• for for failure to deduct, withold or collect under a tax law,
• for deducting, witholding or collecting under the tax laws, but failing to remit to the government.

You may be held personally liable in cases where the government is unable to recover the amounts from the corporation or if the corporation has gone bankrupt. Before sending you a notice of assessment for amounts not paid the Minister must first ensure that:

• the corporation is indeed bankrupt, and
• obtain a judgement against the corporation that remains unpaid because seizure of the corporation's property does not allow the Minister to recover the full amount owing.

The amounts that may be recovered from a director are limited to the amounts not paid by the corporation.

Because of the extent of personal liability imposed on directors and officers, they may wish to consider some means of protection from this liability. The company may also compensate for loss or promise to pay any costs incurred by a person in certain circumstances, unless the director has not acted honestly or in the Corporation's best interests.