Directors' Liability

• Author: Robert L. Armstrong
• Pages: 349-368



DirectorsLiability

Robert L. Armstrong*

A. INTRODUCTION

Thecor responding doctrines of separatelegal personal itya ndli mited

liabilityremainfundamentalprinciplesofcorporatelawThenotionthat

acorporation remains a distinct legal personfrom itsd irectorso-

cersandshareholdershasbeenacrucialinstrumenttoensurethatthose

furtheri ngthe interests ofthe corporationare protected frompersona l

liabilityThishasalloweddirectorsandocerstoengageinriskyendea-

vourswithoutfearofpersonalnancialrep ercussions

Howevertheprospectoflimitedliabilitycanpotentiallyleadtoper-

verseincentivesfordirec torsInterestsofcorporateprotabilit yaswell

asthepersonalbenetofdirectorsmaytrumptheinterestsofsharehold-

erscr editorsthe environ menta swell as employees Forexample di-

rectorsmaysacriceen suringasa feworkplacepayingemployeesand

fullli ngother government mandates in orderto maximi zeprots in

goodtimesortoappeasecreditorsinbadtimesThecommonlawhas

recognizedthisconcernandhasoccasionallyliedthecorporateveilfor

 RobertArmstr ongisaSeniorPart nerintheLitigatio nGroupoftheTorontooce

ofOgilvyRenaultLLPSincereappreciatio nisextendedtoMLynneOBrien Sarah

McLeanandMichaelKot rlyfortheiroutstand ingassistanc einthepreparatio n

ofthispaperMLynneOBrieni sanassociatew iththeTorontooceofOgilvy

RenaultslitigationgroupSarahMcLea nisanassoc iatewiththelit igationgroupof

OgilvyRenault sTorontooceMichaelKotrlyisaarticlingst udentwith

OgilvyRenault sTorontooce

RLA

certain exceptions mostlyrelating to abuse ofthe corporate structure

Increasinglylegislationisseingoutthedutiesofdi rectorsandimpos-

ingpenaltieswherethosedutiesarenotfu llled

Thecour tshave been reluctantto li the corporateveil toprovide

remedies foremployees in times of such corporate abuse As a result

boththefederalandprovinciallegislatureshaveenactedlawstoensure

thatthestructu ralbenetsofthecorporationdonotallowemployeesto

bedeniedcertainentitlementssuchasasafeworkingenvironmentand

paymentofwages

Themanyareasinwhichdirectorsfaceliabilitycannotbeaddressed

within the scope ofth ispaper Thereforet his paperwil lfoc uson the

exposureof directorstoemployeeclaims infour main areasSec tionB

willd iscuss directorl iabilityfor outstanding wagesand otherbenets

pursuant to the Canada Business Corporations Act the Ontario Business

Corporations Act the Employment StandardsAct and the Canada Labour

CodeSect ionC will examinethe responsibil ityof directors to provide

asafeworking environmentfort heiremployeesSection Dwill survey

various statutory obligations directors have towards the government

Section E will exa mine the prospects for direc torsto face obligations

inemployment lawv iathei rstat utoryduties of loyaltya ndcare Thi s

reviewisnotexhaustiveanddoesnottouchonclaimsrelatingtohuman

rightsorpensionsasthosearea sarecoveredelsewhereinthisseries

B. WAGES AND BENEFITS

 

Employeesarethemostvulnerableofacorporationscreditorstheyface

thegreatestinformationaldisabil itiesinthatonlythedirectorshavethe

most accurate information regarding a companys nancial situation

Employeesalsohavelilecapacityto diversifythe riskoffai lureofthe

businessInadditionemployeeshavelimitedrightsvis-a-visothercred-

itorswhenacorporationbecomesba nkruptForthesereasonsvar ious

statutoryregimesassignliabi litytodirectorspersonal lywhereacorpo-

 FeevTurnerQueKBatCarolHansellDirectorsandOc ers

in Canada: Law and Practicevolloos eleafTorontoCarswellat

Han sell

 PaulHalpernMichae lTrebilcockStuartTurnbu llAnEconomicAnalysisof

LimitedLiabilit yinCorporationLawUTLJat

 BankruptcyandInsolvencyAc tRSCcBsdemployeeslimitedto

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