Directors' Liability

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



DirectorsLiability

Robert L. Armstrong*

A. INTRODUCTION

Thecorrespondingdoctrinesofseparatelegalpersonalityandlimited

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

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

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

furtheringtheinterestsofthecorporationareprotectedfrompersonal

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

vourswithoutfearofpersonalnancialrepercussions

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

verseincentivesfordirectorsInterestsofcorporateprotabilityaswell

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

erscreditorstheenvironmentaswellasemployeesForexampledi-

rectorsmaysacriceensuringasafeworkplacepayingemployeesand

fulllingothergovernmentmandatesinordertomaximize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ArmstrongisaSeniorPartnerintheLitigationGroupoftheTorontooce

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

McLeanandMichaelKotrlyfortheiroutstandingassistanceinthepreparation

ofthispaperMLynneOBrienisanassociatewiththeTorontooceofOgilvy

RenaultslitigationgroupSarahMcLeanisanassociatewiththelitigationgroupof

OgilvyRenaultsTorontooceMichaelKotrlyisaarticlingstudent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directorsandimpos-

ingpenaltieswherethosedutiesarenotfullled

Thecourts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structural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thispaperThereforethispaperwillfocusonthe

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

willdiscussdirectorliability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SectionCwillexaminetheresponsibilityofdirectorstoprovide

asafeworkingenvironmentfortheir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viatheirstatutorydutiesofloyaltyandcareThis

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

rightsorpensionsasthoseareas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disabilities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failureofthe

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

itorswhenacorporationbecomesbankruptForthesereasonsvarious

statutoryregimesassignliabilitytodirectorspersonallywhereacorpo-

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

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

Hansell

 PaulHalpernMichaelTrebilcockStuartTurnbullAnEconomicAnalysisof

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

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

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