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Appellate Litigation

When you commit to becoming a Director of a company in Ontario, you should know the ways in which various statutes can create personal liability for you following certain omissions or breaches of the company’s obligations. These statutes include the Canada Business Corporations Act (CBCA) and the Business Corporations Act in Ontario. 

The federal Income Tax Act (ITA) also contains a provision at section 227.1(1) which causes the Directors of delinquent companies much grief. When companies pay their employees, they are required to make certain deductions at the source from those amounts and remit the monies to the Treasury on behalf of those employees.

Failure to do so is not usually in the taking of the deductions, but rather with respect to non-payment to the federal government. The section of the ITA referenced above provides a mechanism to hold not only the company but the Director(s) liable for failing to uphold their obligation. Specifically, where a corporation fails to deduct, withhold, remit or pay source deductions in respect of salaries, wages, or other remuneration, the directors of the corporation at the time are jointly and severally, or solidarily, liable, together with the corporation, to pay that amount and any interest or penalties relating to it.

Must There Be Consent?

In order to hold a Director liable, the assumption would be that the person had consented to being named a Director in the first place. This assumption was confirmed by an important decision of the Superior Court of Ontario called Bunton v. FTA Logistics Inc. and Ikenouye.

FTA Logistics Inc. (FTA), an Ontario corporation, asked Ms. Bunton to become a Director of the company. She declined. Her name was added as one anyway, without her consent. The company later defaulted on remitting its source deductions and the Canada Revenue Agency (CRA) demanded the monies from the company and its Directors, including Ms. Bunton. 

Ms. Bunton’s response was to sue FTA and its principal in the Ontario Superior Court of Justice (ONSC) for a declaration that she was not, and had never been, a Director of FTA. The main thrust of her position was her lack of written consent to becoming a Director as is required by section 119(9) of the OBCA. Without an individual’s express consent to be named Director, the section specifies that an appointment is ineffective.

She was successful. The Court declared her appointment ineffective and found she had never been a Director of FTA. There was no evidence to the contrary led by FTA. The decision made it clear that there must be something more than someone’s name appearing on a list. There must be evidence of an election and the subsequent written consent.

Consent Not Required in All Cases

The need for a director to consent in writing makes perfect sense, given the many personal liabilities that may result from a broad range of legislation. Certainly, in this fact situation, there could be little doubt as to the outcome. It is important to keep in mind however that this was the approach taken by the civil courts. The Tax Court of Canada (TCC) may see it differently. In that forum, there have been several situations where liability has been imposed without election or consent. These situations have included elections without consent where the person acted in the role thereafter or continued to act in the role after their term expired. In each case, the person became a Director in the eyes of the TCC by virtue of the “De Facto director doctrine”. The approach is to be more cautious, however, when the finding results in liability. 

At Milosevic & Associates, our Toronto professional liability lawyers are intimately familiar with discipline across a number of professions and have successfully represented many professionals, including other lawyers, investment advisors, as well as directors and officers in such circumstances. Call us at 416-916-1387 or contact us online to learn more about how we can help.