Liabilities of Directors and Officers of Insolvent Corporations

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

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Liabilities of Directors and Officers of Insolvent Corporations

  1. 1. 1 Liabilities of Directors and Officers of  Insolvent Corporations November 14, 2012 Presented by:  Ross Walker and Kate Stigler
  2. 2. 2 Introduction
  3. 3. 3 Statutory Duties of Directors • CBCA‐ s. 122 • OBCA ‐ s. 134
  4. 4. 4 Fiduciary Duties of Directors •To corporation •Not to creditors – Peoples Department Stores  Inc. decision •But duty to consider all stakeholders
  5. 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. 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. 7 Statutory Defences to Statutory Liability 1. Due diligence defences 2. Resignation
  8. 8. 8 Oppression Remedies Available to  Creditors and Others • CBCA  ‐ s. 241  • OBCA  ‐ s. 248
  9. 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. 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. 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. 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. 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. 14. Questions? Thank you. Ross Walker ross.walker@fmc‐law.com ‐ 416 863 4742 Kate Stigler kate.stigler@fmc‐law.com ‐ 416 862 3482

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