Directors' Liability

Thematic Summary of the Consultations

Standard of care

The vast majority of participants at the ten consultations favoured the adoption of the framework proposal that specifies that every director or officer of a corporation would owe a duty of care to the corporation. This objective test would create a uniform standard of care for directors and officers, and is clearly understood by Canadian courts.

It was noted that there could be ambiguity in the notion of "acting in best interest." As many organizations registered as not-for-profit corporations address a public good, one participant wondered about a potential conflict of interest when a director acts in the best interest of the entity as opposed to the community it was designed to serve.

Participants emphasized the need for consistency with other statutes such as the Canadian Human Rights Act, the Employment Standards Act, and the Income Tax Act, commenting that little can be changed in one without amendments to the others.

Due Diligence Defence

There was unanimous approval of the framework proposal that would include a due diligence defence for directors and officers of not-for-profit corporations. Participants saw this as a codification of common law and "the right thing to do."

Indemnification and Insurance

A majority of participants favoured adoption of the framework proposal that would broaden the scope of situations under which would: allow organizations to indemnify directors and officers; provide mandatory indemnification of directors and officers in specific circumstances; and allow corporations to purchase insurance. Many participants were concerned about insurance issues, and many supported advancement of defence costs.

Many participants across the country were very concerned that the cost of insurance would be prohibitive for small organizations or impossible to obtain.

Limiting Liabilities of Directors and Officers

A majority of participants agreed with the framework proposal that places no statutory limit on liabilities for directors and officers, and encourages proper care and diligence in the management of organizations.

Participants who supported the framework proposal liked the idea of clarifying but not limiting liability.