In this presentation, Ross Walker and Kate Stigler outline the liabilities that face directors and officers of insolvent corporations.

1. 1
Liabilities of Directors and Officers of
Insolvent Corporations
November 14, 2012
Presented by: Ross Walker and Kate Stigler

2. 2
Introduction

3. 3
Statutory Duties of Directors
• CBCA‐ s. 122
• OBCA ‐ s. 134

4. 4
Fiduciary Duties of Directors
•To corporation
•Not to creditors – Peoples Department Stores
Inc. decision
•But duty to consider all stakeholders

5. 5
Statutory Liabilities
1. Withholding for income tax, CPP and EI
2. Non‐resident withholding tax
3. Wages
4. Vacation pay
5. Registered pension plan payments (and perhaps
defined benefit plan deficits)

6. 6
Statutory Liabilities (cont’d)
6. HST
7. Employer health tax
8. Environmental remediation costs
9. Payment of dividends or redemption of shares
10. Construction Lien Act – breach of trust
11. Failure to satisfy disclosure obligations of a
public company under securities laws

7. 7
Statutory Defences to Statutory Liability
1. Due diligence defences
2. Resignation

8. 8
Oppression Remedies Available to
Creditors and Others
• CBCA ‐ s. 241
• OBCA ‐ s. 248

9. 9
What to do Prior to Insolvency Concerns
1. check procedures established for monitoring timely payment
of obligations
2. regularly verify payment of amounts for which directors and
officers are liable
3. check extent and details of D&O insurance
4. check the terms of, or consider obtaining an indemnity from
the corporation (although value questionable on insolvency)
5. consider obtaining an indemnity from creditworthy
shareholders
6. unanimous shareholders’ agreement

10. 10
What to do When Insolvency Imminent
1. review each item in G
2. retain independent counsel to act for the directors
3. prepayment of certain amounts (e.g. vacation pay)
4. consider trust fund accounts (e.g. vacation pay) but problems:
• creditors’ security
• fraudulent preferences
5. resignations …but
6. consider filing under CCAA or filing a proposal under the BIA
• appointment of CRO?

11. 11
Effect on Directors of CCAA or BIA
Proposal
1. CCAA
a) stay of actions against directors
b) D & O court‐ordered indemnity and charge in respect of liability arising
post‐filing
c) limited release of directors on sanctioning of a plan (s. 5.1)
d) placeholder claim by directors for pre‐filing amounts in claims process
2. also under BIA proposals – complementary provisions

12. 12
Effect of Bankruptcy of Debtor on its
Directors
• bankruptcy offences
– s. 198 of BIA
• offences
– s. 204 of BIA
• directors’ liability if directed, authorized, assented to, acquiesced in or
participated in commission of offence.

13. The preceding presentation contains examples of the
kinds of issues companies dealing with Insolvency
could face. If you are faced with one of these issues,
please retain professional assistance as each situation
is unique.

14. Questions?
Thank you.
Ross Walker
ross.walker@fmc‐law.com ‐ 416 863 4742
Kate Stigler
kate.stigler@fmc‐law.com ‐ 416 862 3482