Expertises connexes

The position of director is certainly coveted and prestigious, but it can also come with liability depending on the actions of the company.

Directors’ liability may be incurred for various reasons, depending on the legal form of the company. The incorporation of a company creates a separate legal entity, distinct from its directors’ legal personality. The directors are protected from certain proceedings which could have been brought directly against them. Thus, it is usually the company that is responsible for the actions of its directors, at least for their minor errors or omissions.

For serious misconduct, non-contractual liability (1457 C.C.Q.) can be incurred, especially when the director should have known he was acting illegally. In these situations, his non-contractual liability can be retained because he is deemed to have committed a fault distinct from the company. Among these serious errors, the most common are:

  • errors (voluntary or not) in the production of tax returns;
  • failure (voluntary or not) to charge sales tax and remit to the government;
  • failure to pay employees;
  • unfair dismissal or in bad faith of an employee or director;
  • fraud;
  • non-compliance with the law;
  • failure to comply with the by-laws of the company;
  • act on behalf of the company without first obtaining the authorization of the board of directors.

It is also important to note that the lifting of the corporate veil and director’s liability are two distinct concepts. The lifting of the corporate veil, within the meaning of Section 317 of the Civil Code of Québec, is used to hold the shareholders who use the company to conceal fraud, abuse of law or a breach of public order liable when the situation requires.

When the same person cumulates the status of shareholder and director, it will be necessary to analyse the issue from two different angles (its responsibility as a director and the lifting of the corporate veil for shareholder liability).