I have added this note to many of you as you are my friends and business clients. Another part of Estate planning is the consideration of your role in the many corporations you have involvement with. We currently have some clients that have run into the issue below and we thought we might bring this to your attention. Read on…
UPDATED WARNINGS TO DIRECTORS OF CORPORATIONS, PAST AND PRESENT
Two recent cases in the Federal Court of Canada highlight the perils for Directors of Corporations, even as a Past Director.
As you may know, under the Income Tax Act (Canada), Directors have personal liability for unremitted withholdings from employees’ salaries (the portion of salaries deducted from paycheques for employee taxes, UIC and CPP). In addition, under the Excise Tax Act (HST), Directors are personally liable for unpaid Corporate collected HST.
For both Tax Acts, the limitation on that liability usually has been for the term the Director was a Director. But evidence of when a Director is no longer a Director has historically been determined by (or relied upon by CRA) to be what is filed with the Government of Ontario under the Corporations Information Act (Ontario) at the Central Registry, sometimes referred to as a “Form 1” filing (required to be filed annually by every Corporation to reflect current Officers and Directors)
The 2 new cases turn that on its head, relying, in both cases on the provisions of the Business Corporations Act (Ontario), particularly S. 121:
121 (2) A resignation of a director becomes effective at the time a written resignation is received by the corporation or at the time specified in the resignation, whichever is later.
The Court determined that only a letter of resignation, signed, even whether or not recorded in the Corporation’s Minute Book, is the only determining factor as to a Director’s liability.
So, the WARNING IS CLEAR:
If you wish to avoid personal liability, you must actually have signed a resignation….and keep it for future use.
While this may sound unduly strict, it’s the law. And in the case of many of our readers, there are those who have passed their Businesses on to others, sold their Company or simply resigned from a Board of Directors to retire. Check your exposure now.
Note that in many cases, a Director might resign, even by a letter, but the Recipient of that letter (the President of the Company or a “titular” Secretary) may not have entered that all-important letter of resignation into the Company records or junked it as an unnecessary piece of paper or redundant because “everyone knows Charles resigned/retired”. Not good
(Canada v. Chriss, 2016 FCA 236,403 D.L.R. (4th) 569; and Cliff v. Her Majesty The Queen, FCA Docket A-266-19)
Why would you have more than one will? Read more here
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By telephone 416-526-3121
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.