Directors And Officers Liability

Where the directors and officers of a corporation are selected to run a corporation on behalf of the shareholders, they carry a fiduciary duty to act in the best interest of the organization. Failing to do so, may result in the director’s or officer’s liability.

Both the Ontario Business Corporations Act and the Canadian Business Corporations Act both outline the same kind of liability for directors and officers – the applicable statute is determined by the jurisdiction in which the corporation was incorporated.

Having a fiduciary duty, directors are jointly and severally liable to restore to the corporation any amounts it distributed or paid and not otherwise recovered by the corporation.

Additional director liability exists where the directors vote for or consent to any of the following:

  • A purchase, redemption or other acquisition of shares contrary to the applicable statute;
  • A commission contrary to the applicable statute;
  • A payment of a dividend contrary to the applicable statute;
  • A payment of an indemnity contrary to the applicable statute; and
  • A payment to a shareholder contrary to the applicable statute.

Directors who consent to a resolution which authorizes the issue of a share for consideration other than money results in the directors being 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 share had been issues for money on the date of the resolution.

Due to the nature of the fiduciary duties of directors and officers, the associated risks of breaching these duties can lead to consequences that can be detrimental to the viability of the organization.

With directors and officers being jointly and severally liable for the actions of the other fiduciary employees, businesses should ensure that any agreements made, policies, and procedures, are implemented in a manner that reduces the likelihood of corporate wrongdoing and as such, reduces risk.

Contact Us for Help

If you are director or officer of an organization and require representation, or seeking to clarify your rights, our team of commercial litigation lawyers would be happy to help you navigate your matter. Contact us at 1-800-771-7882, or email [email protected] and we would be happy to assist.