Directors’ Duties in Canada

>> Liabilities and Penalties in Canada

You must exercise your powers as a director carefully and diligently as the penalties for failure to do so can be severe. Under corporate law, personal liability can arise in a number of situations, including:

  • a breach of your primary duties as a director (fiduciary duty or duty of care); and
  • exercising your powers in a manner that is oppressive or unfairly prejudicial, or unfairly disregards the interests of shareholders or creditors.

Since your primary duties are owed to the company and not to individual shareholders or third parties, this limits the ability of shareholders or third parties to bring civil actions against directors personally. However, in limited circumstances, a shareholder may be able to commence a derivative action on behalf of a corporation for a breach of a director’s primary duties or any other obligation owed to the corporation. More commonly, however, civil actions commenced by shareholders and other stakeholders are brought pursuant to the oppression remedy to seek damages from the directors for treating an individual or group of directors, officers, security holders or creditors in an oppressive or unfair manner. You may also face personal liability under various statutes (discussed in greater detail below), including criminal liability under the Criminal Code for fraud and/or theft and other criminal acts committed by or through a corporation. The liability of directors can be limited to the extent that their powers are restricted by a unanimous shareholder agreement. Directors will generally not be held liable for damages resulting from the exercise of power they do not possess. A director’s scope and extent of liability can also be limited through the use of indemnifications and insurance (discussed below). Directors are typically jointly and severally liable for breaches of their duties since their powers are exercised collectively.

The CBCA also provides for a limited defences of “reasonable diligence” and “good faith” to alleged breaches of a director’s primary duties. This includes good faith reliance on financial statements or reports from persons whose profession lends credibility to a statement made by that professional person (such as accountants, lawyers, engineers, etc.).

Delegation of Authorities

Subject to the Articles, by-laws or any unanimous shareholder agreement, directors are empowered to designate the officers of the Corporation and to delegate their powers to manage the business and affairs of the Corporation to those officers. However, certain powers cannot be delegated, including the power to:

  • submit a question or matter to the shareholders that requires the approval of the shareholders
  • appoint a director or auditor where there is a vacancy
  • issue securities or pay a commission (except as authorised by the board)
  • purchase or redeem shares issued by the

Corporation

  • declare a dividend
  • approve annual financial statements
  • approve certain disclosure documents
  • adopt, amend or repeal by-laws

Directors typically delegate specific tasks related to the day-to-day management of the corporation to officers and/or employees while still retaining a supervisory role over such personnel.

Directors and Officers Insurance

The CBCA permits a corporation to purchase and maintain director and officer insurance to cover any liability incurred by such an individual in their capacity as a director or officer of the corporation.


Latest version updated 22nd March 2018

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