What are standard conditions that a Purchaser of residential real estate may want in a contract for the purchase of a home?

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Purchasing a home in British Columbia is an exciting and significant milestone. However, the process can be intricate, and it is crucial for Purchasers to include specific standard conditions in their purchase contracts to protect their interests and ensure a smooth transaction. The following are examples of conditions:

  1. Buyer Financing: Including a financing clause in the contract allows the Purchaser to withdraw if they are unable to obtain satisfactory mortgage financing within a specified timeframe. This condition is essential as it ensures that the Purchaser is not obligated to proceed with the purchase of the home if their financing falls through.
  2. Property Inspection: Conducting a thorough inspection of the property is crucial to identify any potential issues or defects. It may be desirable to include a broad inspection clause, which allows for inspections at the Purchaser’s discretion. This will allow for a home inspection and can include a subsurface oil tank inspection if necessary.
  3. Insurance: Including an insurance clause is essential to protecting the Purchaser’s interests. This clause allows the Purchaser to exit the contract if they are unable to obtain satisfactory property, fire, and liability insurance.
  4. Review of Title: This condition allows the Purchaser to perform a review of land title to address the potential encumbrances on the land. These could include covenants, liens, easements, and statutory building schemes. A thorough review of the title is essential to ensure that the property meets the Purchaser’s needs.
  5. Strata Documents: In the case that the property being purchased is part of a strata, the Purchaser can include a clause requesting to see the strata bylaws and rules, as well as the minutes from prior annual general meetings and a depreciation report.
  6. Property Disclosure Statement: A property disclosure statement can provide the Purchaser with valuable insight into the property. The statement may disclose defects such as insect infestation, asbestos insulation or moisture problems. It is often desirable for the Purchaser to request a copy of a property disclosure statement.
  7. Clarifying Fixtures vs. Chattels: The law surrounding what constitutes a fixture and what constitutes a chattel is complex. It is prudent for the Purchaser to specify what is included in the offer price in the purchase contract. This may be a hot tub or a large mirror fixed to the wall.
  8. Lawyer’s Approval: Where a Purchaser has reservations about the form of the contract, the Purchaser could insist on a condition that the contract be subject to their lawyer’s approval within a specific period of time.

 Remember however that the above list is just a few examples of standard conditions often included in a real estate contract. These are not guaranteed to be present, nor are they the only clauses that may be desirable for your specific home purchase. To make sure you’re not missing out on—or trapped by—a clause that could cost you thousands, contact Heath Law and speak to an experienced real estate lawyer today!

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Why should I meet with a lawyer before signing a residential real estate contract?

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Signing a residential real estate contract is a significant part of buying or selling a property, as it governs the legal obligations of the Buyer and Seller. Consulting a lawyer before signing a real estate contract is recommended for the following reasons:

  1. Legally Binding Document: A lawyer will review the contract with you to ensure that you understand that you are entering into a legally binding financial obligation.
  2. Understanding Complex Terminology: A lawyer can simplify complex legal jargon, ensuring you fully comprehend the contract’s terms and the implications they have for you.
  3. Inserting Conditions: If you are a Purchaser, a lawyer can assist you in determining what conditions or “subject to” provisions need to be inserted. Example conditions include financing, inspection, or the sale of your own home.
  4. Understanding your Risks: If you are a Seller, the lawyer can explain under what circumstances a Buyer can terminate their obligations under the contract.
  5. Reviewing Title and Identifying Problems: If you are a Buyer, the lawyer can assist you with understanding what encumbrances or charges will remain on the title after your purchase and whether these affect the marketability of the property.
  6. Understanding the Location: Many Buyers may be new to the area and a lawyer could advise on the neighbourhood and what future development may take place in adjoining properties.
  7. Peace of Mind: Finally, our lawyers provide peace of mind by protecting your interests and ensuring the contract is fair and enforceable.

All too often, people underestimate the complexity of real estate contracts and leave themselves at risk. Heath Law has experienced lawyers that can help you avoid the pitfalls of a shady real estate deal or incorrectly filed documentation. Contact us today for any real estate purchases you’re considering.

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What are standard conditions that a Purchaser of residential real estate may want in a contract for the purchase of a home?

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Major Changes to Employer Obligations Under the Workers Compensation Act – Effective November. 24, 2022

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Our Corporate and Commercial clients should take notice that Bill 41 – 2022: Workers Compensation Amendment Act (No. 2), 2022, received Royal Assent on November 24, 2022 (the “Amendments”).

These Amendments introduce important changes to BC’s Workers Compensation Act (the “WCA”). This has many implications for how employers are expected to deal with injured workers. Employers should be up to date on these changes since they have a significant effect on administrative decisions, cost calculations, and employee relations policies.

First, employees who have been employed for 12 continuous months before their injury and who were injured at work are entitled to reinstatement in a suitable role. This applies to employees who sustained their injuries within two years of the amendments coming into force. Employers now have an obligation to accommodate such injured employees to the point of undue hardship. This standard is measured by the specific circumstances of the case but financial detriment and workplace disruption can be taken into account. An employer who terminates an injured employee within 6 months of returning to work can be deemed in breach of the new obligations unless the employer can show that the termination is for other legitimate reasons. Businesses who employ fewer than 20 employees are exempt. Additionally, if an employee has not returned to work two years after being injured, the employer is then released from their obligation to maintain employment.

WorkSafeBC is in charge of resolving disputes between employers and employees and each is entitled to make complaints about the other. As such, both employers and employees have a duty to cooperate in order to find suitable work for an injured employee.

Under the Amendments, employers face additional penalties if they attempt to prevent employees from reporting injuries or claim compensation. WorkSafeBC will investigate and impose fines if an employer is in breach of the obligations. To facilitate these investigations the Amendments also established a Fair Practices Commissioner who reports to WorkSafeBC, makes recommendations, and creates an annual report.

Since many of these amendments result in increased administrative costs, employers would be prudent to update their workplace injury policies in response to these changes. Proactivity will also reduce the likelihood of being found in breach of the new obligations.

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Update and reminder! URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

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URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

We write to advise that effective November 30, 2021, the B.C. Government requires that
any Corporation, Trust or Partnership that owns an interest in real estate must file a
Land Owner Transparency Report with the Land Owner Transparency Registry.
Failure to file may result in government-imposed penalties.

What is the Land Owner Transparency Registry?

The Land Owner Transparency Registry is a publicly searchable registry of information about
beneficial ownership of land in British Columbia. Beneficial land owners are people who own or
control land indirectly, such as through a corporation, partnership, or trust.

The Registry is intended to end hidden ownership of land and combat money laundering in B.C.
The B.C. provincial government created the LOTR to identify the individuals that actually own
real estate in the province.

Does the Land Owner Transparency Registry apply to you?

With few exceptions, all corporations, partnerships, and trusts that own real estate in British
Columbia must register. Trusts include formal trusts, bare trusts, and prescribed trusts.

What do you need to do?

If you own an interest in land in a corporation, partnership, or trust, you must prepare and
register a Transparency Report with the LOTR by November 30, 2022. An interest in land
includes a fee simple interest, life estate, or long-term lease.

Only a Legal Professional can register the Report.

The Transparency Report contains information about:

1. The corporation, partnership, or trust that owns real estate (“Reporting Bodies”);
and,

2. The individuals who are beneficial owners of the corporation, partnership, or
trust, as well as settlors of trusts (“Interest Holders”).

The Transparency Report discloses information about Interest Holders, including:

1. Name
2. Citizenship
3. Social Insurance Number (or Individual Tax Number)
4. Date of Birth,
5. Residency for Tax Purposes, and
6. Address

Only some of this information will be publicly searchable, and certain Interest Holders are
eligible to restrict what is available to the public. Government agencies will have access to all
information. All Interest Holders must be advised that their personal information was included
in a Transparency Report and a special letter giving notice under the legislation must be
provided to the Interest Holder.

The Transparency Report must be uploaded to the LOTR Registry online.

The report must also be updated when the information concerning the Interest Holder changes, for
example, a change in residential address, name, or ceasing to be an interest holder.
Specific reporting requirements apply for each type of corporation, partnership, trust, and
Interest Holder.
A failure to prepare and upload a Transparency Report may result in the government pursuing
administrative penalties of up to $50,000 or 5% of the assessed value of the real estate.

What can Heath Law LLP do to help?

We have a team of lawyers and staff well versed in preparing Transparency Reports and
compliance under this new LOTR legislation.

Please advise our office by November 1, 2022, if you own real estate in a corporation, trust or
partnership, and if you would like our assistance in preparing and filing a Land Owner
Transparency Report.

Yours truly,
HEATH LAW LLP

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Limitation of Liability Clauses in Contracts

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6362222 Canada Inc. v. Prelco Inc., 2021 SCC 39: A Victory for Limited Liability Clauses

In general, limitation of liability clauses are valid in both Quebec’s Civil system and in the Common Law provinces. However, in Quebec limitation of liability clauses are tempered by articles in the Civil Code of Quebec prohibiting the exclusion of liability for intentional fault, bodily injury, and other public order issues. A recent Supreme Court of Canada case has strengthened the power of limited liability clauses and narrowed the applicability of the Breach of Fundamental Obligation Doctrine.

The case centered on a contractual dispute between 6362222 Canada Inc. (“Createch”), and their client, Prelco Inc. Createch is a consulting firm offering integrated management systems and performance improvement solutions. The parties entered into a contract which included a limited liability clause, stipulating that Createch’s liability to Prelco for damages for any cause whatsoever would be limited to amounts paid to Createch under the contract. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue, from the use of products, for any other special, consequential, or indirect damages relating to services and/or material provided pursuant to the contract.

Two years into the contract, Prelco opted to terminate the relationship due to numerous problems with the system and Createch’s implementation. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. The Superior Court found the limited liability clause to be unenforceable as it went to the essence of a fundamental obligation, and as such ordered a substantial judgment against Createch. The Court of Appeal dismissed the appeal.

The Supreme Court allowed the appeal, stating that the test for unenforceability due to the Doctrine of Breach of a Fundamental Obligation had not been satisfied. In order to find a clause inoperable on this basis, the validity of the clause has to either (a) be contrary to a public order limitation or (b) deprive a contractual obligation of its purpose. The SCC found that the clause did not run contrary to a public order limitation and that since Createch still owed significant obligations to Prelco the validity of the clause would not deprive the contract of its purpose to the extent required by the Doctrine. As such, the principle of freedom of contract supported the enforceability of the limited liability clause.

Takeaway: if you are contracting with a party that is insisting that there be clauses within the contract whereby they are excused from any liability, even for their own negligence, be aware that a Court will probably uphold the limitation of liability clause in the contract. In such a situation, you should consider the extent to which you can insure over the risks that flow from the contracting party’s negligence.

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Relief from Forfeiture under a Commercial Lease

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Relief from forfeiture is an extraordinary equitable remedy that the courts can apply at their discretion, which allows them to forgive imperfect compliance with a contractual or statutory requirement. In choosing to apply relief from forfeiture, the court is deciding to protect a party against a loss that would otherwise occur from that party’s breach on the basis that not to do so would be unequitable.

In a recent case, Airside Event Spaces Inc. v Langley, 2021 BCCA 306, the courts have reiterated that an applicant must act in good faith in order for relief from forfeiture to be appropriate, regardless of the disproportionality between the loss suffered on forfeiture and the loss suffered by the other party due to the breach of contract.

In this case, the company was leasing a hangar at the Langley Regional Airport from the city of Langley, which the city had terminated because the company breached the lease contract. The company admitted that it had breached the lease in numerous ways, and to having failed to remedy the breaches when Langley gave it the chance. Still, the company claimed that the loss that they would suffer compared to the loss that Langley had suffered through their breaches was so disproportionate that the court should use their power to apply relief from forfeiture. The company had paid $440,000 for the premises in 2013, and claimed to have invested in excess of $1.5 million in improvements over the years that it had leased the space. The B.C Supreme Court Judge found that since the company had misled Langley, attempted to conceal breaches of the lease, altered the premises contrary to the lease and without the lessor’s consent, and performed all manner of other misconduct that the company had not remotely acted in good faith. As such, the Judge dismissed the application and refused to apply relief from forfeiture.

On appeal, the Court confirmed that Judge had correctly considered the evidence in this case, and did not commit an error by finding that the consequences of the forfeiture, although significant, did not justify relief from forfeiture due to the company’s clear bad faith.

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B.C Land Owner Transparency Register

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URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

We write to advise that effective November 30, 2021, the B.C. Government requires that
any Corporation, Trust or Partnership that owns an interest in real estate must file a
Land Owner Transparency Report with the Land Owner Transparency Registry.
Failure to file may result in government-imposed penalties.

What is the Land Owner Transparency Registry?

The Land Owner Transparency Registry is a publicly searchable registry of information about
beneficial ownership of land in British Columbia. Beneficial land owners are people who own or
control land indirectly, such as through a corporation, partnership or trust.

The Registry is intended to end hidden ownership of land and combat money laundering in B.C.
The B.C. provincial government created the LOTR to identify the individuals that actually own
real estate in the province.

Does the Land Owner Transparency Registry apply to you?

With few exceptions, all corporations, partnerships and trusts that own real estate in British
Columbia must register. Trusts include formal trusts, bare trusts, and prescribed trusts.

What do you need to do?

If you own an interest in land in a corporation, partnership or trust, you must prepare and
register a Transparency Report with the LOTR by November 30, 2021. An interest in land
includes a fee simple interest, life estate, or long-term lease.

The Transparency Report contains information about:

1. The corporation, partnership or trust that owns real estate (“Reporting Bodies”);
and,

2. The individuals who are beneficial owners of the corporation, partnership or
trust, as well as settlors of trusts (“Interest Holders”).

HEATH LAW LLP

The Transparency Report discloses information about Interest Holders, including:

1. Name
2. Citizenship
3. Social Insurance Number (or Individual Tax Number)
4. Date of Birth,
5. Residency for Tax Purposes, and
6. Address

Only some of this information will be publicly searchable, and certain Interest Holders are
eligible to restrict what is available to the public. Government agencies will have access to all
information. All Interest Holders must be advised that their personal information was included
in a Transparency Report and a special letter giving notice under the legislation must be
provided to the Interest Holder.

The Transparency Report must be uploaded to the LOTR Registry online.
The report must also be updated when the information concerning the Interest Holder changes, for
example, a change in residential address, name, or ceasing to be an interest holder.
Specific reporting requirements apply for each type of corporation, partnership, trust, and
Interest Holder.

A failure to prepare and upload a Transparency Report may result in the government pursuing
administrative penalties of up to $50,000 or 5% of the assessed value of the real estate.

What Heath Law LLP can do to help?

We have a team of lawyers and staff well versed in preparing Transparency Reports and
compliance under this new LOTR legislation.

Please advise our office by November 1, 2021, if you own real estate in a corporation, trust or
partnership, and if you would like our assistance in preparing and filing a Land Owner
Transparency Report.

Yours truly,
HEATH LAW LLP

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Could a Director of a Company be held Personally Liable for a Company’s Income Tax?

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Short Answer:

Generally, a director will not be held liable for corporate income tax absent misconduct. However, s.160 of the Income Tax Act introduces liability in certain circumstances where assets have been transferred by a taxpayer who owes a tax debt. The purpose behind this provision is to ensure that the CRA is able to collect tax debts where assets have been divested for less than market value.

Discussion:

Unlike s. 227.1 of the Income Tax Act, where a director’s liability is limited to tax withholdings and the like, s.160 creates liability for the recipient in a non-arm’s length transfer if the transferor has any kind of tax debt.

S. 160 applies to a person who has received a non-arm’s length transfer of property when the transferor owed a tax debt at the time the transfer occurred, and the transferee did not pay the market value for the property. Per s. 160(1), the transferee may be held jointly and severally liable for the tax debt, including interest, to the lessor of:

a) The value of the property transformed minus consideration given for it by the transferee; or
b) The total tax and interest that the transferor was liable to pay in or in respect of the year of the transfer and any preceding years.

In Borealis Geopower Inc. v the Queen, 2018 TCC 189 the Court applied s. 160 to corporate income tax. S.160, therefore, creates a situation where a director could incur personal liability for all or a portion of the income tax debt of the corporation if they were the transferee as described above.

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Family Law: Form 8 Financial Statement: Purpose and Use

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Providing financial disclosure in the course of a Family Law dispute can be overwhelming. This post is meant to be a brief guide on how and why you should complete the Form F8 Financial Statement (“F8”), and to address some common questions.

What is the F8?

The F8 requires you to be open and honest about your finances so that each party in a family law dispute, your lawyers, and the Court may know the starting point for negotiations and orders.

The F8 is a sworn document, meaning that being dishonest in completing it has the same consequences as lying under oath. Carelessness and inaccuracies in the F8 will reflect poorly on your credibility and may result in unfavorable treatment by the Courts. Many of the main issues in a family law dispute revolve around financial support and division of property, so a complete and accurate F8 is integral to resolving your dispute in an efficient, fair, and cost-effective manner.

Timelines:

The Supreme Court Family Rules require each party to exchange an F8 and supporting financial documents within 30 days of either commencing a Family Law action (for the Claimant) or from being served with a Notice of Family Claim (for the Respondent).

Structure:

The F8 is divided into six parts:

1) Part 1: Income
2) Part 2: Expenses
3) Part 3: Property
4) Part 4: Special or Extraordinary Expenses
5) Part 5: Undue Hardship
6) Part 6: Income of Other Persons in Household

Page 2 of the F8 indicates which parts to complete based upon the claims that are being made. It is important to refer to your financial documents while completing the F8. Categories like expenses and income may be difficult to ascertain, but it is important that you do not guess based on what you think your finances might be.

General Tips for Completing the F8:

Income for Those who are Self-Employed:

Arriving at your net income amount may be difficult. Some expenses, such as gas, cell phone, meals with clients, and a portion of your utilities or mortgage may be expenses that should be deducted from your gross income but not listed in Part 2 of the F8. You may wish to consult with your lawyer and accountant in completing this section.

Expenses:

Record what you actually spend. The relevant information is not what you would like to spend, or how much you used to spend before the separation. Put in your current expenses without embellishing.

If you share household expenses with another person, for instance, if you have remarried, are living with a new partner, or have a roommate, do not list the total combined amount; only record your share of the household expenses that you actually pay.

Periodic expenses should be divided to arrive at your monthly amount. If you pay some expenses annually or biannually, such as car insurance or property taxes, divide the total by 12 or 6 to come to the monthly amount.

Record expenses incurred or reasonably anticipated for the year. Some expenses, such as re-roofing or tree trimming, happen less often than once a year. If the expense arose this year, include it in the F8. If you re-roofed your home last year, then do not use that expense as an estimate of this year’s house maintenance costs, because it will not be repeated this year.

Property:

List all of the assets that you own, either solely or jointly with someone else (identify the co-owner of the property and the extent of their interest). Include assets that your spouse will not make a claim against, those that are located outside of Canada, those that you have acquired since the date of separation and those that your spouse does not know about.

You must list all of the assets that you have disposed of, including by sale or by gift, in the 2 years preceding the application. This includes assets that you owned independently of your spouse, dispositions that your spouse consented to, and assets that your spouse did not know about.

Debts should be listed in this section. A mortgage is considered a debt, and loans from friends or family should be included as well.

Changes in Circumstances:

The F8 is mostly based on information and documents from the recent past. The F8, therefore, provides a snapshot of a particular time in your financial life. If you anticipate any changes in circumstances in the near future, such as a promotion, your children moving out of your home, a change in pension income, etc., this should be listed on page 3 of the F8.

Parts 5 and 6: Undue hardship and Income of Other Persons in the Household

These sections are relevant in very particular circumstances. If you are unsure of how to complete these sections and how they apply to your situation, you may wish to consult a lawyer.

Consequences of Insufficient, Dishonest, or Lack of Disclosure:

A Court has the discretion to set a party’s income for the purposes of calculating child and spousal support if they feel that insufficient disclosure has been made. If a Court imputes a party’s income in this manner, the result could be an order for a higher amount of support than what would have been made if the party had disclosed their income.

Lack of financial disclosure at the time of the creation of a separation, co-habitation, or marriage agreement is grounds to set these agreements aside. If your agreement regarding how to divide assets is set aside, the Court has the discretion to divide the family property between the parties according to the property and support regimes in the Divorce Act (Canada) and the Family Law Act. Full and honest disclosure is, therefore, key to creating an enforceable agreement.

Finally, inaccurate disclosure can increase your legal costs by dragging out negotiations and by requiring your lawyer to continuously clarify and revise your documents.

 

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The Personal Liabilities of a Director of a Corporation

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BRIEF ANSWER

In the absence of fraudulent or illegal conduct or conduct that is beyond the scope of the director’s authority, a director will not generally face personal liability. However, a director may be held personally liable if they fail to indicate that they are acting in their capacity as a director, breach their fiduciary duties, or fail to act in an objectively reasonable manner. A director may also face personal liability for any amounts owing to the government that the company has failed to pay for income tax, GST, Employment Insurance or the Canada Pension Plan. A director may protect against personal liability by prudently fulfilling their obligations as a director and by ensuring that there are proper protections in place to minimize the risk of personal liability.

DISCUSSION

In general, a company will shield a director from personal liability while they are acting as a director, provided that they are not acting fraudulently or illegally. However, there are certain circumstances in which a director will face personal liability.

A director owes a duty of care to the company by virtue of their position. The applicable standard of care is set out in the Business Corporations Act to be that of a reasonably prudent individual in comparable circumstances. Directors with special expertise or knowledge (such as a lawyer, accountant, etc.) will be held to a higher standard of care. A director may delegate responsibilities to others, such as an officer or an expert; however, the director remains responsible to ensure that the individual is competent and that they adequately perform their duties. A director who breaches their duty of care to the company may face personal liability for any loss that the company suffers as a result.

A director has a fiduciary duty to act honestly and in good faith, with a view to the best interests of the company. This requires the director to avoid the pursuit of personal gain where it is inconsistent with the best interests of the company, act selflessly and loyally as a director of the company, maintain the confidentiality of information acquired by virtue of their position, and avoid conflicts of interest or disclose conflicts in a timely manner. A conflict of interest may arise where a director has a material interest in a contract, decision, or transaction contemplated by the company, when a director enters into a contract that competes with the company, or when the director takes an opportunity that rightfully belongs to the company. A director who breaches their fiduciary duty to the company may face personal liability for any loss that the company suffers as a result of the breach.

A director may face personal liability if it is not clear to other parties that he or she is acting in their capacity as a director of the company. If third parties believe they are dealing with an individual and not a company, the director may face liability for any obligations or losses resulting from the transaction. A director will also be personally liable for their tortious conduct to third parties if the director is not acting within the scope of their authority or on behalf of the company. A director must act in accordance with the applicable statutes, regulations, memorandum and articles of the company. If they fail to do so and behave improperly, they may be held personally liable.

Although directors generally only owe a duty to the company, in certain cases courts have held directors personally liable for breaching a duty to creditors. For example, failing to act reasonably by preferring one creditor over another when the company was insolvent, or engaging in other conduct prohibited by the Bankruptcy and Insolvency Act may give rise to personal liability. A director may also be personally liable for oppression or unfairly prejudicial conduct towards certain stakeholders, such as shareholders. These parties have reasonable expectations that directors will fulfill their duties to the company fairly. Consequently, in certain circumstances, a director may be personally liable if, for example, they gained a personal benefit or increased their control of the company as a result of the oppressive or unfairly prejudicial conduct.

Statutory provisions may also impose personal liability on a director. For example, a director will face personal liability if they pay a dividend, purchases, or redeems shares in the company where the company is insolvent or the action would render it insolvent. Indemnifying another director or officer where indemnity is not permitted by the company’s articles, its memorandum, or by statute may also result in personal liability. Authorizing the making of a false or misleading statement can give rise to personal liability. Significantly, while a director is generally not liable for the misdeeds of other directors if a resolution that authorizes illegal or improper conduct is passed while the director is absent, that director must dissent in writing within seven days of learning of the prohibited act or they will face personal liability. If there is a causal connection between a director’s inaction and a loss suffered by the company, then the director may be held liable for the loss.

Where the director failed to exercise due diligence, depending on the nature of the business a number of other statutes may also impose liability. A director may face personal liability if a company fails to pay the Canada Revenue Agency for any amounts owing, including interest and penalties, GST remittances, failure to withhold and remit income tax, or failure to deduct and remit for employment insurance or the Canada Pension Plan. Liability for these amounts only attaches to a director who was acting as a director when these amounts became due and has acted as a director within the last two years. A director should also be aware of a company’s need to withhold income tax for employees claiming tax exemptions under the Indian Act for Indian property that is not actually situated on a reserve. A director may face personal liability for any amounts that the company failed to withhold and that the CRA has been unable to recover from the company. A director may be excused from personal liability if they can demonstrate that they acted reasonably and diligently in the circumstances by trying to resolve any of the business’ financial difficulties to assist with payment and by ultimately ensuring that the company pays any amounts owing.

Under the Employment Standards Act, each director of a company may be liable for up to two months of unpaid wages for each employee. However, a director will not be personally liable for termination pay, vacation pay that becomes due after the director has ceased to hold office, or for money that remains in an employee’s time bank after the director has ceased to hold office if the company is in receivership or pursuing bankruptcy proceedings. Directors may also be liable for injuries related to unsafe working conditions.

A director may face personal liability for failure to comply with environmental laws where they did not exercise due diligence to prevent this failure. In certain cases, where a company’s actions have resulted in contamination, directors have been found personally liable despite not being a director at the time the company caused the contamination.

A director may reduce the risk of personal liability by properly fulfilling his or her duties as director, by being familiar and ensuring compliance with the applicable statutes and the company’s articles and other governing documents, by carefully appointing and maintaining proper supervision over officers and experts, and by maintaining appropriate governance policies. A director may also reduce his or her personal liability risk by ensuring that there is adequate liability insurance in place for directors and that there is an indemnity agreement from the company to provide indemnity for personal liability, when appropriate, that occurs while performing directors’ duties.

SUMMARY

The company will generally protect a director from personal liability; however, there are certain circumstances in which a director will experience personal liability. In addition to personal liability for fraudulent or illegal conduct, a director may also face liability for failing to represent oneself as a director of the company or failing to act within the scope of their authority as director. A director must also ensure that he or she is familiar with any laws under the statutes that apply to the company, and that any obligations arising from income tax, GST, Employment Insurance, or the Canada Pension Plan are withheld and remitted. In order to avoid personal liability, a director must fulfill their obligations to the company by acting in the best interests of the company, by exercising reasonable care, diligence and skill, and by acting in accordance with the applicable statutes, regulations, and the memorandum and articles of the company.

 

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