Canada: Responsibilities And Liabilities Of Directors In Manitoba

What follows are highlights of the more important duties, responsibilities and liabilities imposed on directors of a privately-held, for profit corporation incorporated pursuant to The Corporations Act of Manitoba (the "MCA") under the provincial and federal laws applicable in Manitoba. This is not a comprehensive statement of the law applicable in Manitoba nor an exhaustive review of potential director liability and is current only to the date above.

GENERAL DUTIES AND LIABILITIES UNDER THE MCA

Section 97(1) of the MCA states that directors shall manage, or supervise the management of, the business and affairs of a corporation. The scope of a director's power is subject to any unanimous shareholder agreement, the MCA, its regulations, and the corporation's articles and by-laws. Directors may not delegate their duties, although they can create committees to report to them. A director's duties may be fettered by unanimous agreement of the shareholders of the corporation who then take on the liabilities associated with those duties. Although a director's capacity to act can be restricted by the constating documents of the corporation, or by the shareholders themselves, directors are not relieved from the duty to act in accordance with the MCA and regulations or relieved from liability.

Directors, in undertaking their duties, are subject to a certain standard of care, and owe a fiduciary duty to the corporation. The fiduciary duty and duty of care are typically seen to be owed to the corporation rather than the shareholders directly. Directors are under a general obligation to maximize the value of shareholder investment. Directors must consider the interests of the corporation's employees, customers, creditors, and other stakeholders, and not just the interests of the shareholders (Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII at para 42; cited with approval in Manitoba in Matic et al v Waldner et al, 2016 MBCA 60 (CanLII)). However, under certain circumstances, personal liability of directors can extend in favour of shareholders (or other stakeholders), where there has been a personal benefit (in the form of either an immediate financial advantage or increased control in the corporation), or where directors have breached a personal duty they owe as directors, or misused a corporate power. This liability may extend in situations where oppressive conduct against one or more shareholders (or other stakeholders) is found to exist, and where the facts would make a remedy against the corporation inequitable.

1) Fiduciary Duty

Directors are subject to a fiduciary duty enshrined in section 117(1) of the MCA:

A fiduciary relationship, broadly interpreted by the case law, is a relationship between parties where one party is considered to be in a special relation of trust, confidence, or responsibility to the other. Therefore, as a director, you have a duty to act in every circumstance in the way in which you honestly believe, in good faith, to be in the best interest of the corporation. In BCE Inc. v 1976 Debentureholders ("BCE"), 2008 SCC 69, the Supreme Court of Canada clarified that the "best interests of the corporation" does not mean the best interests of the corporation's shareholders. Rather the interests of other stakeholders may be relevant. Following the principles in BCE, Parliament amended the Canada Business Corporations Act to enumerate different stakeholder interests.

The role of the director is likened to that of a trustee so that, just as a trustee owes the fiduciary duties of loyalty and good faith to the beneficiaries of a trust, a director owes those duties to the corporation. The fiduciary duty has several features. First, corporate management must avoid conflicts of interest, except with the company's knowledge and consent. Second, directors and officers are prohibited from taking secret rewards or appropriating an opportunity that should have been available for the company (see CAS v O'Malley, [1974] SCR 592, 1973 CarswellOnt 236). Last, director and officers must protect the corporation's confidential information. In Matic et al v Waldner et al, 2016 MBCA 60 (CanLII), the Manitoba Court of Appeal considered the fiduciary duty imposed upon directors. In that case, the majority shareholders of Springhill argued that one of their directors had diverted a corporate opportunity for his personal benefit. The Court of Appeal found the director had breached his fiduciary duty by allowing another company that he owned to take on a construction project which Springhill could have performed. In reaching this conclusion, the Court of Appeal acknowledged that determining whether a director has breached his or her fiduciary duty under the corporate opportunity doctrine requires an extensive contextual analysis, considering:

Furthermore, directors must exercise their powers for a proper purpose. As long as a director's primary motive is the best interests of the company, his or her actions are not necessarily improper simply because the director also benefits from the matter. Directors who breach their fiduciary duty will be held strictly liable, even if there is no evidence of loss or damage to the corporation.

2) Duty to Act Honestly

The duty to act honestly as set out in section 117(1) of the MCA, prohibits directors from taking any fraudulent action or other action intended to deprive the corporation of some asset or benefit to which the corporation is entitled for the director's personal gain. Put another way, a director's personal interests or those of any other corporation in which the director is interested and a director's duty to the corporation should not be brought into conflict. As noted, directors must act in the best interests of the corporation. What is in the best interests of the corporation will depend on the relevant circumstances.

3) Duty of Care

The duty of care is outlined in section 117(1) of the MCA:

The duty of care owed by a director is dependent on the circumstances. However, directors must adhere to an objective minimum standard by practicing the "care, diligence, and skill of a reasonably prudent person."

The common law has established an objective test for the duty of care. The precise standard to be met will depend upon the personal knowledge, experience, and position of the director. A director with significant knowledge or experience may be held to a higher standard of care.

Directors must be reasonably diligent when managing the corporation. A director will have to keep himself or herself informed about the business and affairs of the corporation through a broad monitoring of the corporation's policies and affairs as well as attending board meetings regularly. Directors with less skill, knowledge or experience who seek expert and independent advice in order to discharge their duty to exercise care, diligence and skill will be looked upon favorably by the courts. However, directors cannot completely delegate their duties and responsibilities. Directors cannot blindly rely on the reports or opinions of experts without informing themselves of the material facts and the consequences of their actions. Directors should further consider the expert's qualifications and experience and should seek written advice to demonstrate their reliance on the expert.

The actions of directors will not be judged using hindsight but against the facts as they existed at the time the decision was made. Directors are required only to make a reasonable decision in the circumstances. It must be shown that they made reasonable efforts to ensure that they had the information and advice necessary to make the decision. If the decision results in a negative outcome for the corporation, the directors will not be held liable so long as they have exhibited the care, diligence and skill which could be reasonably expected in the circumstances, taking into account their skills, knowledge and expertise.

4) Defence of Due Diligence

Directors who carry out their responsibilities in a diligent manner are unlikely to incur personal liability. The director has to establish that he or she was diligent in making the decision that he or she made. To this end, there are a number of things a director could and should do:

1. Attend as many meetings of the board or any committees as possible.
2. Read the material sent to directors before a meeting.
3. Take accurate notes at board meetings and review minutes to ensure accuracy.
4. Make sure your concerns, if any, are set out in the minutes of the meeting.
5. Consult independent experts where necessary.
6. Be thoroughly familiar with the operations of the corporation.
7. Maintain familiarity with the financial status of the corporation.
8. Determine from management if there are systems in place to monitor financial variations that should be drawn to the attention of management and the board.

5) Conflict of Interest

Directors owe a duty to the corporation not to put themselves into a position of conflict with the corporation. Therefore, they are not entitled to take part in any contract or transaction where their personal interests or those of another corporation the director has an interest in conflict with those of the corporation. This includes, but is not limited to: transacting with the corporation in a personal capacity; taking corporate opportunities; or competing with the corporation. The courts will look at the circumstances to determine whether a business opportunity belonged to the corporation and what relationship the director had with the opportunity. Such circumstances include whether the corporation has done anything to develop the opportunity, whether the opportunity was in an area of the director's responsibility, and whether the director acquired knowledge of the opportunity through his or her position and used that position in the appropriation of the opportunity.

Directors are obligated to avoid both actual conflicts of interest and potential conflicts of interest. The fact that a conflict could have arisen, but did not, does not excuse the director. Courts have held that the potential for conflict itself violates the corporation's right to utmost loyalty and avoidance of conflict.

Directors must give sufficient disclosure of his or her interest in order to allow the shareholders and other directors to enter into a contract in which the director has an interest. A director cannot merely mention that he or she has an interest. Instead, it is necessary to state the interest and how far it goes.

The MCA contains specific provisions relating to situations where a director is required to disclose a conflict of interest with the corporation. A director of a corporation who is party to a material or a proposed material contract with the corporation, or has a material interest in any party to any such proposed contract with the corporation, must disclose, in writing, to the corporation the nature and extent of his or her interest. Adequate disclosure can also be achieved by making a request to have the nature and extent of his or her interest entered into the minutes of the meeting of directors.

"Material" is not defined in the Canada Business Corporations Act ("CBCA") or the MCA. In determining materiality, the courts have looked to whether the interest is such that there is any reasonable basis for a concern that it may affect the director's ability to perform his or her duties as director to the standards of care required by law. A material interest can also include the director having a personal relationship with a person who is a party to a material contract.

Subject to some exceptions, directors may not vote on any contract in which they have an interest. A breach of this duty may result in the contract being found to be voidable. That being said, the director can be present at the meeting of directors called to approve the contract and may be counted into the quorum. A director with a material interest may vote on a resolution to approve the contract where the contract is: an arrangement by way of security for money lent to or obligations undertaken by him or her for the benefit of the corporation or an affiliate; a contract relating primarily to his or her remuneration as a director; a contract for indemnity or insurance; a contract with an affiliate; or any contract other than one previously mentioned. However, if it is a contract other than one of the aforementioned agreements, the resolution will only be valid if it is approved by not less than 2/3 of the votes of all the shareholders of the corporation to whom disclosure has been given.

A contract in which a director has a material interest may still be enforceable if adequate disclosure is made, the contract is approved by the other directors or shareholders and it is found to have been reasonable and fair to the corporation at the time. Even if these conditions are not met, a director acting honestly and in good faith, is not accountable to the corporation or to its shareholders for any profit realized from a contract or transaction for which disclosure is required, and the contract or transaction is not invalid by reason only of the interest of the director in the contract or transaction if the contract or transaction is approved or confirmed by special resolution at a meeting of the shareholders, disclosure of the interest was made to the shareholders in a manner sufficient to indicate its nature before the contract or transaction was approved or confirmed, and the contract or transaction was reasonable and fair to the corporation when it was approved or confirmed (see section 120(7.1), CBCA).

6) Remedies

Failure by directors to satisfactorily discharge their fiduciary duty or duty of care may render them liable for any profit or gain realized by them or for any loss suffered by the corporation. In addition, failure to discharge their fiduciary duty and duty of care may result in the directors being unable to protect themselves from liability even though they relied in good faith on the financial statements of the corporation made by an officer, a written report of an auditor of the financial statements of the corporation, or upon a report from a person whose profession lends credibility to statements made in such report.

However, a director has complied with his or her fiduciary duty or duty of care if the director relied in good faith on financial statements of the corporation represented to the director by an officer of the corporation or in a written report of the auditor of the corporation fairly to reflect the financial condition of the corporation; or a report of a person whose profession lends credibility to a statement made by the professional person (section 123(5) CBCA; section 118(5) MCA).

SPECIFIC LIABILITIES

In addition to the general duties discussed above, the MCA and other legislation provide for various specific duties and liabilities. Some of these are set out below.

A. BUSINESS MANAGEMENT

Liability under the MCA

1) Insolvency

Directors are jointly and severally liable where they vote for or consent to a resolution authorizing a purchase, redemption or other acquisition of the corporation's own shares, payment of a commission, payment of a dividend, payment of an indemnity, payment to a shareholder, or any investment or financial assistance if the transaction results in the insolvency or capital impairment of the corporation. Directors are prohibited from authorizing such payments where there are reasonable grounds to believe that the following solvency or capital impairment tests would be breached:

1. where the corporation is unable to pay its liabilities as they become due; or
2. where the realizable value of the assets of the corporation are less than the aggregate of its liabilities and stated capital of all classes.

In each case, directors are jointly and severally liable and responsible to repay the corporation any amounts that were paid out. However, directors are entitled to contribution from other directors who voted for or consented to the unlawful act.

Proceedings against a director must be brought within two years from the date of the resolution authorizing the action complained of.

Directors will not be liable under the MCA for any unlawful acts of an insolvent corporation if they have complied with their fiduciary duty or duty of care and if the director relied in good faith on the financial statements or a report prepared by an officer, auditor or professional person.

If the corporation becomes bankrupt within 12 months of a dividend payment or share acquisition, directors may be liable under the Bankruptcy and Insolvency Act (Canada)("BIA") to restore those payments unless they can show that the corporation was solvent at the time and the transaction did not render the corporation insolvent. For example, in 684417 B.C. Ltd. (Trustee) v. Johnson, 2013 BCSC 1055, the trustee in bankruptcy of a corporation sought recovery from the director of the company for dividends paid out to the shareholders while the corporation was insolvent. The Court found that the corporation had characterized the payments as dividends and had paid such dividends out while the corporation was insolvent within the meaning of that term in the Business Corporations Act (British Columbia). Therefore, the sole director of the corporation was required to pay back the dividends to the trustee in bankruptcy. The BIA also provides for a due diligence or reliance defence to this liability. Furthermore, every director of the corporation who directed, authorized, assented to, acquiesced in or participated in the commission of the offence is a party to the offence and is liable for the penalty, whether or not the corporation has been prosecuted or convicted. Penalties under the BIA includes imprisonment for up to three years.

2) Issue of Shares

Subject to the constating documents and any unanimous shareholder agreement, directors have a broad discretion to issue shares. However, shares cannot be issued until the consideration for the share is fully paid in money, property, or past services that are not less in value than the fair equivalent of the money that the corporation would have received if the share had been issued for money. Directors of a corporation who vote for or consent to a resolution authorizing the issue of a share for a consideration other than money can be jointly and severally liable to the corporation to make good on any amount by which the consideration is less than the fair equivalent of the money the corporation could have received. The right to contribution, the limitation period on actions to enforce liability and the reasonable diligence defence apply to the director's liability relating to the issuance of shares.

Pursuant to the MCA, a director who is present at a meeting of directors or committee of directors is deemed to have consented to any resolution passed or action taken unless he or she requests that their dissent be entered into the minutes of the meeting, he or she sends a written dissent to the secretary of the meeting before the meeting is adjourned, or he or she sends their dissent by registered mail or delivers it to the registered office of the corporation immediately after the meeting is adjourned.

Directors are not absolved of liability if they are absent from a board meeting. In fact, directors who were not present at a meeting where a resolution was passed or an action was taken are deemed to have consented to it unless within seven days after they become aware of the resolution they cause their dissent to be placed with the minutes of the meeting or send their dissent by registered mail or deliver it to the registered office of the corporation.

Liability under other Provincial Statutes

1) The Consumer Protection Act (Manitoba)

The Consumer Protection Act ("CPA") provides protection in consumer related transactions only. The CPA imposes liability on the part of a seller to the buyer for all obligations and warranties applicable to a sale or hire purchase by the CPA or by contract. Directors or officers of a corporation who authorized, permitted or acquiesced in the commission of an offence under the CPA are also guilty of the offence.

A person who is found guilty of an offence is liable, on summary conviction, to a fine of not more than $300,000 or three times the amount obtained by the defendant as a result of the offence depending on whichever is greater, or imprisonment for not more than three years, or both. If a person is convicted of an offence they may be ordered to pay restitution to an affected person for loss of or damage to property suffered as a result of the commission of the offence or if the court considers it to be just in the circumstances, pay an amount as restitution if the amount is readily ascertainable.

2) The Business Practices Act (Manitoba)

The Business Practices Act ("BPA") regulates against unfair business practices occurring as a result of making false claims, deceiving or misleading a consumer or taking advantage of a consumer not able to protect his or her own interests. It provides a means by which the government can seek redress for victimized consumers and to investigate and prosecute offending businesses. Consumers may seek reparation under the BPA in the courts where they have been victimized by unfair business practices. Directors and officers of the corporation who authorized or permitted the offence are also guilty of the offence and liable to the penalties under the BPA.

Directors found guilty of an offence under the BPA may be subject to a fine of not more than $100,000 or imprisonment for a term of not more than 12 months, or both, in the case of a first offence. For a subsequent offence, the director may be subject to a fine of not more than $300,000 or imprisonment for a term of not more than 36 months, or both.

3) The Business Registration, Supervision and Ownership Transparent Act (Manitoba)

The Business Registration, Supervision and Ownership Transparency Act ("BRSOT") harmonizes The Corporations Act and The Cooperatives Act with recent changes to federal legislation respecting ownership transparency. Effective April 8, 2020, corporations must maintain a register of individuals who, separately or collectively, exert more than 25% of the shareholder voting rights. Reporting issuers, publicly traded corporations, licensed insurers and loan and trust corporations are exempt from this requirement.

An individual with significant control over a corporation includes an individual who has any of the following interests or rights, or any combination of them, in respect of a significant number of shares in the corporation:

1. the individual is the registered holder of them;
2. the individual is the beneficial owner of them, or
3. the individual has direct or indirect control or direction over them.

An individual with significant control also includes an individual who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation or an individual to whom prescribed circumstances apply. A significant number of shares means any number of shares that carry 25% or more of the voting rights attached to all of the corporation's outstanding voting shares or any number of shares that is equal to 25% or more of all the corporation's outstanding shares measured by fair market value.

A corporation must prepare and maintain, at its registered office or at any other place in Manitoba designated by the directors, a register of individuals with significant control over the corporation. The register must contain:

1. the name, date of birth and latest known address of each individual with significant control;
2. the jurisdiction of residence for income tax purposes of each individual with significant control;
3. the date on which each individual became or ceased to be an individual with significant control, as the case may be;
4. a description of how each individual is an individual with significant control over the corporation, including, as applicable, a description of their interests and rights in respect of shares of the corporation;
5. any other prescribed information; and
6. a description of each step taken to ensure that the corporation has identified all individuals with significant control over the corporation and that the information in the register is accurate, complete, and up-to-date.

Every director who knowingly provides or knowingly authorizes, permits or acquiesces in the recording of false or misleading information in the register of individuals with significant control over the corporation commits an offence and is liable on conviction to a fine not exceeding $200,000 or to imprisonment for a term not exceeding six months, or both.

Liability under the CBCA

1) An Act to implement certain provisions of the budget tabled in Parliament on March 19, 2019 and other measures

Private CBCA corporations are now required to maintain a register of individuals with significant control over the corporation. The ISC Register requirement was introduced in earlier amendments to the CBCA in December 2018, and is in effect as of June 13, 2019. The recent CBCA amendments require a corporation to provide investigative bodies with a copy of the ISC Register or specified information in the ISC Register, on request. Any police force, the Canada Revenue Agency or equivalent provincial agencies, or any prescribed body are considered investigative bodies entitled to access an ISC Register. Access is limited to circumstances where the agency has reasonable grounds to suspect that the information would be relevant to investigating an enumerated offence and that the corporation subject to the request committed the offence, facilitated the offence or protected a person who committed the offence.

Every director of a corporation who knowingly authorizes, permits or acquiesces in the failure to comply with the new requirements commits an offence, whether or not the corporation has been prosecuted or convicted. Directors may be liable to a fine up to $200,000 and/or up to six months of imprisonment.

The CBCA amendments will also impose additional disclosure obligations, but they are not yet in force. Under the CBCA currently, directors have the power to fix their own remuneration and that of officers and employees. The amendments will create a new obligation on companies to develop an approach to the remuneration of directors and senior management, which they must send to shareholders. The company must also hold a non-binding say-on-pay vote at every annual meeting.

Furthermore, CBCA companies must disclose information about claw backs of incentive benefits paid to members of senior management and information about the well-being of employees, retirees, and pensioners. The amendments will also require CBCA corporations to disclose prescribed information about diversity of directors and senior management. While the regulations have not yet been enacted, past draft CBCA diversity regulations suggest that disclosure will include the representation of women, Indigenous peoples, persons with disabilities, and members of visible minorities on the board and in management.

B. EMPLOYMENT

A number of statutes impose liability on the directors of corporations which fail to pay employee entitlements, such as wages, vacation pay or pension benefits and for the payment of statuary severance or termination pay.

Liability arises under the MCA and the Manitoba Employment Standards Code for unpaid wages.

1) MCA

Directors are jointly and severally liable to employees of the corporation for all debts not exceeding six months' wages payable to each employee for services performed while they were a director of the corporation. A director who has satisfied a claim is entitled to contribution from the other directors who were liable for the claim.

A director's liability for unpaid wages arises only after the employee has exhausted all remedies against the corporation. Therefore, the amount recoverable from a director is the amount remaining unsatisfied after execution. A director is not liable for unpaid wages unless:

1. the corporation has been sued for the debt within six months after it has become due and execution has been returned unsatisfied in whole or in part; or
2. the corporation has commenced liquidation and dissolution proceedings or has been dissolved and a claim for the debt has been proved within six months after the earlier of the date of commencement of the liquidation and dissolution proceedings and the date of dissolution; or
3. the corporation has made an assignment, or a receiving order has been made against it under the Bankruptcy and Insolvency Act (Canada), and a claim for the debt has been proved within six months after the date of the assignment or receiving order.

When the execution referred to in (a) has been issued, the amount recoverable from a director is the amount remaining unsatisfied after execution. The Ontario Court of Appeal case of Stoody v Kennedy, 2005 CarswellOnt 1034, [2005] OJ No 1049 (ONCA) confirms that these condition precedents under the MCA will be strictly construed and compliance is required (para 51).

An action must be commenced against the director during that person's term as a director or within two years after he or she ceased to be a director. Where a director pays a debt that is proved in liquidation and dissolution or bankruptcy proceedings, he or she is entitled to any preference that the employee would have been entitled to. Where a judgment has been obtained, a director is entitled to an assignment of the judgment.

While there is limited case law in Manitoba which considers this provision, of note is a recent Ontario Superior Court decision El Ashiri v Pembroke Residence Ltd., 2015 ONSC 1172, 2015 CarswellOnt 2424. In that case, two employees brought an action against their former corporate employer's sole director for unpaid wages, however, the director died before the matter could be resolved. The Court found it appropriate that the director's estate be held liable for the unpaid wages by ascribing personal liability to the deceased director.

Both the MCA and Ontario Business Corporations Act do not define wages. Generally, the term 'wages' includes salary or hourly rates for time worked, commissions earned, statutory termination pay, vacation pay, etc. Recently, in a different context, the Ontario Court of Appeal, in Bain v UBS, 2018 ONCA 190 (CanLII) even recognized a performance-based bonus to be caught by the definition of 'wages'. This is of particular relevance for Boards that are considering implementing stock incentive programs, including deferred share unit programs, as the granting of stock or phantom stock is compensation for services performed, which would likely be captured in a definition of 'wages'.

2) Employment Standards Code (Manitoba)

Directors will only be jointly and severally liable with the corporation to an employee or former employee of the corporation for wages that were earned or became due and payable within the last 6 months for which the person was a director, as well as vacation allowances that accrued or became due and payable within the last 22 months in which the person was a director. Liability will not extend to statutory wages in lieu of notice as required for individual terminations nor wages earned by an employee while the corporation's business is under the control of a receiver-manager.

If a corporation's directors have resigned or have been removed without replacement, someone who manages or supervises the management of a corporation's business is deemed to be a director of the corporation for the purposes of the Employment Standards Code ("ESC"). Therefore, they will be personally liable for unpaid wages as if the person actually were a director of the corporation.

An employment standards officer who investigates a complaint and determines that wages are due and payable to an employee may issue an order requiring the employer to pay the unpaid wages of the employee. While the statute provides that an officer may order a director or former director of the corporation to pay unpaid wages, whether or not the corporation is ordered to pay the wages, the Manitoba Queen's Bench in Winnipeg Motor Express Inc. et al., 2008 MBQB 297, held that "directors' liabilities under The Employment Standards Code only arise when the employer company is not able to pay". A director or former director of a corporation who pays wages under an order may, however, bring an action against the corporation for contribution or indemnification for the wages paid. A director that is required by an order to pay money must do so immediately or within such time as the order allows, whether or not the order is appealed. An application for leave to appeal must be made within thirty days after the day the order is made or within such further time as a judge may allow.

Directors are not expressly liable under the ESC for termination pay where the corporation fails to make such payments. However, this failure is an offence. Directors who directed, authorized, assented to, permitted, or participated or acquiesced in an offence under the ESC are also guilty of the offence, whether or not the corporation has been prosecuted or convicted. A director who is guilty of an offence under the ESC is liable on summary conviction to a fine of not more than $5,000. Prosecution for an offence under the ESC may be commenced within one year after the date the alleged offence occurs.

3) The Labour Relations Act (Manitoba)

The Labour Relations Act ("LRA") contains provisions prohibiting unfair labour practices. Individuals involved in any unfair practice are treated as agents of the corporation and labour boards will exercise their powers to issue orders against such individuals, especially those who are directors and officers of the corporation, under certain circumstances. The Manitoba Labour Board and other labour boards have relied on the wording of such provisions to extend liability beyond the employer to "persons acting on behalf of the employer." Therefore, directors cannot rely on the separate legal personality of the corporation to insulate them from liability for unfair labour practices.

Directors should be careful to avoid violating any labour relation obligation as it can lead to large cost orders. The Manitoba Labour Board has found that interest ought to be payable on the sums owed to unions for any violations of the LRA including union dues, dental plan contributions, and education or training plan trust fund contributions.

The Manitoba Labour Board explained the policy reasons behind assigning liability to directors in the labour relations context in a 2012 case (which has been followed subsequently):

In that case, the Board found the director of a corporate employer, as representative of the employer, to have committed unfair labour practices and ordered the director to personally pay $23,179.54 in unpaid union dues; $21,508.44 in dental plan contributions; and $3,000.00 in education and training plan trust fund contributions plus interest.

4) The Workplace Safety and Health Act (Manitoba)

The Workplace Safety and Health Act ("WSHA") protects workers, self-employed persons and others from risks to their safety in workplaces. It requires employers to do all that is reasonable and practicable to protect the safety, health and welfare of workers. Because employers have the greatest degree of control over the workplace, they also have the greatest degree of legal responsibility for safety and health in the workplace.

Directors who oversee the workplace safety and health of the workers employed by the corporation must take reasonable care to ensure that their corporation complies with the provisions of the WSHA.

Directors found guilty of a first offence under the WSHA are liable to a fine of not more than $250,000 and, in the case of a continuing offence, to a further fine not exceeding $25,000 for each day during which the offence continues. For a second or subsequent offence, they will be liable to a fine of not more than $500,000 and, in the case of a continuing offence, to a further fine not exceeding $50,000 for each day during which the offence continues. In addition to the aforementioned fines, directors convicted of an offence may be imprisoned for a term not exceeding six months. If a director is convicted of an offence where they were aware of or ought to have been aware of an unsafe working condition but still permitted employees to do that work before the condition was remedied, they will be prohibited from working in a supervisory capacity at any workplace for a six month period after the date of conviction. Directors convicted of an offence may be ordered by the court, depending on the nature of the circumstances surrounding the offence, to pay an amount for the purpose of educating the public on matters relating to workplace safety and health. This penalty may be required in addition to any other penalty imposed under the WSHA. However, the total penalty paid must not exceed the maximum penalty for which the offender could be liable as set out above.

Prosecutions under the WSHA must be commenced not later than two years after the day the alleged offence was committed.

5) Criminal Liability

The Canadian Criminal Code establishes rules for attributing criminal liability to organizations, including corporations, for their acts and their representations and also creates a legal duty for all persons directing work to take "reasonable steps" to ensure the safety of workers and the public.

A corporation can only be convicted of a crime if culpability for the misconduct of individuals is attributed to the corporation. Currently, Canadian courts assign criminal liability to a company when certain senior employees, namely the "directing minds" of the corporation, commit a crime. The case law has held that the only person who can become a directing mind of the corporation are those individuals who exercise decision-making authority in matters of corporate policy. Where the crime is one of criminal negligence (i.e. wanton or reckless disregard for the safety of others that results in bodily injury or death) the failure of managerial officers who reasonably ought to have known what was happening or who were not reasonably diligent in establishing and monitoring mechanisms for compliance with corporate policies may be found to be included under corporate criminal liability. The Criminal Code creates a legal duty for directors who direct others in their work to take reasonable steps to prevent bodily harm to that person, or any other person, arising from that work.

Two things must generally occur for a successful criminal prosecution for criminal negligence: there must be a failure to perform the duty to prevent bodily harm to a person; and it must be proved beyond a reasonable doubt that the individual or corporation was reckless as to the potential consequences of their safety-related conduct. Alternatively, if their failure to attend to safety matters was so gross that they ought to have known the consequences, or that they were willfully blind to the consequences, they may be liable for criminal negligence.

If one or more directors behave in a criminally negligent manner and they did not act, or insulated themselves from obtaining the knowledge to act to correct the situation, the corporation and directors will be subject to penalty.

The Ontario Superior Court in R. v. Khan, 2015 ONSC 7283 recently held that the concept of "directing mind" has been accepted and applied in other prosecutions brought under the Criminal Code including, for example, in tax fraud cases. The Court further indicated that in each case, the finding that someone is a "directing mind" of a corporation or business or activity is one of fact. In that case, Mr. Khan was found to be the directing mind of the company and was, accordingly, convicted of forgery and of tax fraud over $5,000.

The Criminal Code prohibits a person acting on behalf of an employer from taking disciplinary action against, demoting, terminating or otherwise adversely affecting the employment of an employee, or threatening to do so, with the intention to compel the employee to abstain from providing information to law enforcement respecting an offence the employer may have committed or with the intention to retaliate against an employee for providing such information to law enforcement.

The Criminal Code also provides that a corporate director is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years where he or the corporation is employed as a broker by any customer to buy and carry on margin any shares of an incorporated or unincorporated company or undertaking, whether in or out of Canada, and thereafter sells or causes to be sold shares of the company for any account in which he or his firm of the corporation or a director thereof, has a direct or indirect interest, if the effect of the sale is, otherwise than unintentionally, to reduce the amount of those shares in the hands of the broker or under his control in the ordinary course of business below the amount of those shares that the broker should be carrying for all customers.

Directors are subject to a range of Criminal Code sentencing options from absolute discharge to a maximum penalty of life in prison for criminal negligence causing death.

Directors also ought to be aware of the Court's ability to lift the corporate veil and impose liability on individuals, in addition to corporations, in circumstances where there is clear evidence of deceit attempted to circumvent enforcement of the law. For example, in R v 1137749 Ontario Ltd (operating as Pro-Teck Electric), 2018 ONCJ 502, the numbered company pleaded guilty to three charges of violating the Electricity Act, SO 1998, c 18. The charges related to safety violations, notably failing to obtain a permit for a home renovation which ultimately resulted in the death of an occupant of the house. The Electrical Safety Authority, which prosecuted the violations, learned that the sole shareholder, officer and director of the company, one Antonio Merante, had transferred the corporate assets to himself and to a newly created electrical contracting company right around the time the charges were laid. The prosecution requested that the sentencing court pierce the corporate veil and hold Merante personally liable for any fines imposed. The sentencing court decided it did not have jurisdiction to do so, but on appeal, O'Donnell J. found that the sentencing judge did have the jurisdiction to lift the corporate veil and impose responsibility directly on the shareholder/officer/director. Merante, according to the appellate judge, had by his conduct, merged his personal and corporate selves in such a way as to render them indistinguishable for the purposes of sentencing.

6) Employment Insurance Premiums

Directors may be personally liable for the failure of their corporation to deduct, withhold, remit, or pay employee and employer premiums under the federal Employment Insurance Act ("EIA"). Directors of a corporate employer at the time when the corporation fails to deduct or remit the employment premiums under the EIA are jointly and severally liable together with the corporation to pay the required premium amounts plus any interest and penalties. The provisions set forth in 227.1(2) to (7) of the Income Tax Act apply equally to the obligations of directors under the EIA.

Directors may assert a due diligence defence to personal liabilities under the EIA. In the recent decision Helgesen v. The Queen, 2016 TCC 114 (whose appeal has been dismissed in 2017), the Tax Court of Canada considered whether a director should be personally liable for a corporation's failure to remit insurance premiums of employees. The Court held that a corporate director's actions with respect to due diligence is assessed on an objective basis. Furthermore, the Court stated,

The Court found the director had not exercised due diligence because he never investigated whether remittance payments were being made to CRA despite CRA indicating they were owing and he relied on the Corporation's bookkeeper to ensure remittances were up to date, knowing that the corporation was performing poorly financially. Therefore, the director was ordered to pay $111,482.41 in outstanding remittances.

Conversely, in another decision of the Tax Court of Canada, Thistle v. The Queen, 2015 TCC 149, the Court found in favour of a director in that he exercised due diligence since the director was materially misled by an individual whom he trusted to run the business of the corporation. The Court found that

7) Workers' Compensation

Compensation under The Workers Compensation Act of Manitoba ("WCA") cannot be contracted out of. Employers must make returns and pay assessments to the Workers Compensation Board ("WCB"). An employer shall not directly or indirectly deduct wages to pay any part of any sum that the employer is or may become liable to pay into the accident fund or have their worker's contribute to indemnifying the employer against any liability. Every person that contravenes this rule commits an offence. They may be subject to an administrative penalty and may also be liable to repay to the worker any sum that has been deducted from the worker's wages or that the worker has been required or permitted to pay.

Where a corporation commits an offence under the WCA or the regulations, directors who authorized, permitted or acquiesced in the commission of the offence are also guilty of an offence and are liable, on summary conviction, to a penalty whether or not the corporation has been prosecuted or convicted. Where a corporation defaults in the payment of money to the WCB, directors of the corporation at the time the amount is due, are jointly and severally liable with the corporation to pay to the WCB any amount owing in excess of $1,000. A director who satisfies a claim is entitled to contribution from other directors liable for the claim.

Furthermore, where an offence continues for more than one day the director is guilty of a separate offence for each day the contravention continues. Prosecution for most offences under the WCA may not be commenced later than two years after the day the alleged offence was committed.

It is important to note that a director may be affirmed by the WCB as being entitled for him or herself and for his or her dependents to the same compensation as if the director were a worker. Whether or not the director is affirmed by the WCB affects the penalty the director may be liable for. If affirmed as a worker, a director who is convicted of an offence, except for those listed below, is liable, on summary conviction, to a fine of not more than $5,000; if they have not been affirmed, the director will be liable to a fine of not more than $50,000. If the offence is one of those listed below, the director is subject to the fines above or imprisonment for a term of not more than six months, or both. These offences are:

1. knowingly makes a false statement to the WCB affecting the person's entitlement to compensation;
2. deliberately fails to inform the board of a material change in circumstances affecting the person's entitlement to compensation, within 10 days of the commencement of the change;
3. knowingly makes a false statement to the WCB concerning an employer's report of payroll, or affecting the assessment of an employer;
4. knowingly makes a false statement to the WCB affecting a worker's entitlement to compensation; or
5. deliberately fails to inform the WCB about a matter affecting a worker's entitlement to compensation.

C. PENSIONS

Where corporations act as the plan administrators of their employees' pension plans, both federal and provincial pension legislation and common law create liability for the directors of such corporate employers. Fiduciary obligations are imposed on directors to not act in their own interests where those interests conflict with their fiduciary duty to the pension plan's members.

1) Canada Pension Plan

Directors may be personally liable for the failure of their corporation to deduct and remit employees' contributions, or to pay the employer's contributions. Directors that have authorized, assented to, acquiesced in or participated in the commission of the offence are a party to and guilty of the offence and liable to pay any amounts the corporation fails to deduct or remit, together with any applicable interest or penalty. Directors of the corporation at the time the failure occurred are jointly and severally liable together with corporation to pay that amount plus any interest and related penalties.

A director may assert a due diligence defence to personal liabilities under the Canada Pension Plan ("CPP"). Therefore, a director can successfully defend a claim for unpaid CPP contributions or remittances if that director exercises the degree of care, diligence and skill to prevent the failure to pay that a reasonably prudent person would have exercised in comparable circumstances.

The CPP incorporates, by reference, the enforcement provisions of the federal Income Tax Act under subsection 227.1(2) to (7) which establish the following procedural conditions precedent to a director's liability where a corporate employer has failed to deduct or remit any amounts required by the CPP:

1. the Crown must register a certificate in the Federal Court of Canada for the amount of the corporation's liability and obtain a return of execution unsatisfied in whole or in part;
2. where the corporation has commenced liquidation or dissolution proceedings or has dissolved, the Crown must prove its claim against the corporation within six months after the earlier of the date of commencement of the proceedings and the date of dissolution; or
3. where the corporation has become bankrupt, the Crown must prove its claim within six months of the date of bankruptcy.

The limitation period for commencing an action against a director is two years from the date the director ceased to be a director of a corporation. The liability owed is limited to the amount remaining unsatisfied after execution against the corporation. A director is entitled to contribution from the other directors who were liable.

2) Pension Benefits Standards Act

Every employer must ensure that all money in the pension fund is kept separate and apart from the employer's own funds and that the employer must remit to the pension plan all the amounts that it is required to pay to the fund; failure to do so is an offence under the Act. Directors who directed, authorized, assented to, acquiesced in, or participated in the offence are a party to it and guilty of the offence, whether or not the corporation has been prosecuted or convicted. A director is liable on summary conviction to a fine not exceeding $100,000 or 12 months' imprisonment, or both. Proceedings in respect of an offence may be commenced no later than two years after the day on which the subject-matter of the proceedings became known to the Superintendent of Financial Institutions.

3) The Pension Benefits Act (Manitoba)

Under The Pension Benefits Act ("PBA") directors who administer a pension plan are required to make contributions for the benefit of employees in Manitoba. Individuals who are directors of the corporation at the time of the failure to contribute will be liable for unpaid contributions.

Directors will not be liable for unpaid contributions if they have discharged their duty of care to prevent the corporation's failure to pay contributions. Therefore, he or she must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances to prevent the corporation's failure to pay contributions.

The amount recoverable from a director liable for unpaid contributions is the amount remaining unsatisfied after execution. A director or former director of a corporation who is liable under this section is entitled to recover any amounts paid from the corporation and is entitled to contribution in relation to that amount from other directors or former directors who are liable under this section.

Directors who directed, authorized, assented to, acquiesced in, or participated in, the committing of an offence are a party to and guilty of the offence under the PBA and are liable on conviction, whether or not the corporation has been prosecuted or convicted, to a fine of not less than $2,000 and not more than $100,000. Furthermore, where a director or former director of a corporation is liable, the government has a lien on all assets of the director or former director, to secure payment of all amounts payable.

Prosecution must be brought within six years of the date the commission becomes aware of the offence.

D. HEALTH

1) The Public Health Act (Manitoba)

Directors are under a duty to protect and promote the health and well-being of their employees and the people of Manitoba under The Public Health Act of Manitoba ("PHA"). If a corporation commits an offence under the PHA, directors who authorized, permitted or acquiesced in the commission of the offence are also guilty of the offence. When an offence continues for more than one day, the director is guilty of a separate offence for each day the offence continues.

A director who is guilty of an offence under the PHA is liable on summary conviction to a fine of not more than $50,000 or imprisonment for a term of not more than six months, or both. If the offence results from a failure to comply with an emergency health hazard order the individual is liable to a fine of not more than $100,000 or imprisonment for a term of not more than one year, or both. Prosecution for an offence under the PHA must be commenced within two years after the day the alleged offence was committed.

E. TAXATION LIABILITY

The federal Income Tax Act ("ITA"), The Income Tax Act of Manitoba ("MITA") and The Tax Administration and Miscellaneous Taxes Act of Manitoba ("TAMTA") impose liability on directors for amounts that the corporation has failed to deduct, withhold, remit or pay, including employees' income tax deductions and related remittances, and deductions from payments to non-residents.

These statutes grant to directors a "due diligence" defence.

1) MITA

Every corporation that maintains a permanent establishment in Manitoba at any time in a taxation year must pay tax under the MITA. If a corporation commits an offence under the MITA, directors who authorized, permitted or acquiesced in the commission of the offence are also guilty of an offence and are liable on summary conviction to penalties, whether or not the corporation has been prosecuted or convicted. A director is liable for an offence to a fine of not less than $1,000 and not more than $25,000; or to both the fine and imprisonment for a term not exceeding 12 months.

Section 227.1 of the ITA applies for the purposes of the MITA with respect to the liability of directors of a corporation. Liabilities under 227.1(1) are only applicable to persons who were directors at the time that the obligations to deduct, withhold, or remit are required to be made. Further, a director is not liable under 227.1(1) where the director exercised the degree of care, diligence and skill to prevent the failure that a reasonable prudent person would have exercised in comparable circumstances.

A determination as to when a person ceases to be a director is also important. When a taxing statute does not define "director", the courts will look to the incorporating legislation and to common law for guidance, as well as the surrounding circumstances. Even if the person lacks the qualifications to be a director (for example, the articles of the corporation require that all directors must hold shares in the company) the person cannot rely on that lack of qualification as a defence, on the principle that the person cannot take advantage of their own wrong. Further, even if there has been a resignation, the fact that the person continues to act as a director has the potential to negate the resignation, in the eyes of the Court.

Subsection 227.1(1) of the ITA also provides that directors are jointly and severally liable with the corporation for the amount of tax which the corporation was required to deduct, withhold, remit, or pay together with any related interest or penalties. Directors will be liable where the corporation fails to meet its tax obligations in the following circumstances:

1. the requirement to deduct or withhold from a payment of salary or wages, an amount determined in accordance with the regulations under ITA and the requirement to remit that amount within certain time limits prescribed by the regulations.
2. the 25 percent withholding tax on payments or credits such as dividends, interest, rents, royalties, management fees, pension benefits, retirement allowances, deferred profit-sharing plans, registered retirement savings plans, registered income funds, and registered home ownership savings plans to nonresidents.

A person who manages the business and affairs of the corporation is deemed to be a director of that corporation where all directors have resigned or been removed and no replacements appointed or elected. The courts have held that deemed directors are liable for non-payment of amounts owing under applicable tax legislation.

2) TAMTA

Directors are liable for the corporation's tax debt if the corporation fails to pay or remit when it is due any tax that it is required to collect and remit or any tax payable by it under The Retail Sales Tax Act. Individuals who are directors of the corporation at the time of the failure are liable to pay the corporation's tax debt in respect of that failure.

However, a director will not be liable if he or she exercised the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances to prevent the corporation's failure to pay or remit tax. A director would not be found liable unless an assessment is made against the person while he or she is still a director of the corporation or within two years after he or she ceased to be a director.

A payment by a director or former director of the corporation in respect of a tax debt of the corporation may be applied to that tax debt of the corporation or to any part of it. In that case, the director is entitled to contribution from other directors or former directors who are liable or would be liable or as a debt to a person owed by the corporation.

In Salisbury House of Canada Ltd. et al. v Manitoba (Deputy Minister of Finance), 2017 MBQB 151, the Directors were found personally liable for payment of the Tax pursuant to s. 43(1) of TAMTA when the Corporation filed a notice of intention to file a proposal under the Bankruptcy and Insolvency Act. When the Directors were elected, although they had not yet seen the financial records of the Corporation, they knew it was in financial difficulty. There was no evidence of what, if any, due diligence the Directors conducted either prior to or after their election. While the Directors stated that they had no access to information regarding the financial state of the Corporation and its tax remittance procedures prior to becoming directors, there was no evidence of whether they attempted to obtain or review that information (para 94). There was also no evidence that the Directors turned their minds to the Corporation's potential tax liability at any time.

3) GST

The Goods and Services Tax ("GST") is imposed under the federal Excise Tax Act ("ETA"). Directors of a corporation at the time the corporation is required to remit GST are jointly and severally, or solidarily, liable together with the corporation to pay that amount and any interest or related penalty. The amount recoverable from a director is the amount remaining unsatisfied after execution.

The ETA contains provisions substantially similar to the ITA provisions concerning the conditions precedent to directors' liability and the availability of a "due diligence" defence to directors. These provisions are also applicable in the context of directors' liability for unpaid GST.

The ETA provides for fines and/or imprisonment for various other statutory offences for which directors are liable, whether or not the corporation has been prosecuted or convicted, if they have directed, authorized, assented to, acquiesced in or participated in the commission of the offence. The offences include failing to file or make a return, making false or deceptive statements, evading tax by altering documents, and willful evasion or failure to pay, collect or remit the GST. Penalties for those found liable include fines of not less than 50% and not more than 200% of the GST sought to be evaded or not less than $1,000 and not more than more than $25,000, and/or imprisonment not exceeding five years.

Proceedings against a director may be commenced not more than two years after the person last ceased to be a director. The Tax Court of Canada in Marra v. R, 2016 TCC 24 (which was more recently relied on in Kasumu v Musah, 2018 ABQB 242 ("Kasumu"), concluded that a director's letter to the corporation's lawyer indicating she was withdrawing as director constituted her resignation as director. Thus, when she was assessed for failing to remit taxes of the corporation more than two years after her resignation letter was sent, the Court found she was not liable pursuant to the statutory bar. In Kasumu, the Court noted two principles: first, the resignation must be "meaningfully communicated" and second, the resignation must be "capable of objective verification".

F. ENVIRONMENTAL MATTERS

Directors may be personally liable for environmental harm caused by their corporation. Several environmental statutes are potential sources of personal liability for directors.

1) The Environment Act (Manitoba)

The Environment Act of Manitoba ("EA") outlines the environmental assessment and licensing process for developments that may have potential for significant environmental impacts and prohibits the release of unauthorized pollutants into the environment. Any director, officer or agent of the corporation who directed, authorized, assented to, acquiesced in, or participated in the commission of an offence is a party to and guilty of the offence and is liable on conviction to punishment. Directors may be liable for a first offence, to a fine of not more than $50,000 or to imprisonment for not more than six months, or both. For each subsequent offence, directors may be liable to a fine of not more than $100,000 or to imprisonment for not more than one year, or both.

Furthermore, where, in the opinion of a judge, the party is unwilling or unable to remedy the situation or condition that gave rise to the offence, the judge may suspend or revoke all or part of the environmental licences, or permits under which the individual operates, for such a time as the judge deems fit. In such case, the party will be unable to carry on its operation until the licence, approval or permit is restored by a judge or by the minister.

In addition to the aforementioned penalties, a judge may require the convicted person to take such action as may be necessary to refrain from committing any further offence or from causing further environmental damage, to clean or restore the environment from damage caused by the offence, pay such damages or make restitution to any person who suffered damages by the offence as the judge may deem appropriate, and pay such additional fine in an amount no greater than the monetary benefit acquired by or that accrued to the person as a result of the commission of the offence, notwithstanding any other maximum fine.

2) Canadian Environmental Protection Act

The federal Canadian Environmental Protection Act ("CEPA") contains rules regarding toxic and hazardous substances, ocean dumping, trans-border air emissions, and other environmental matters within the federal government's jurisdiction. Directors who directed, authorized, assented to, acquiesced in or participated in the commission of a statutory offence by the corporation are guilty of the offence whether or not the corporation is prosecuted for, or convicted of the offence. Directors are responsible for taking all reasonable care to ensure the corporation complies with CEPA, its regulations and orders issued under CEPA. The positive duty and liability for offences under CEPA effectively imposes on directors a duty to monitor the actions of their corporation.

Upon conviction, a director may be found liable to pay a fine of up to $1,000,000, or to serve a term of imprisonment not exceeding three years, or both for a first offence. For any subsequent offence, a director may be found liable to a fine of up to $2,000,000 and/or to a term of imprisonment for a term of not more than three years. For certain specified offences, other fines and penalties may be awarded. Directors found to have recklessly caused a disaster or put human life at risk may be liable for an unlimited fine or five years imprisonment, or both.

3) Fisheries Act

The federal Fisheries Act ("FA") regulates fish habitat protection and pollution prevention as applicable to internal waters, territorial sea and fishing zones of Canada. It is primarily concerned with the release of substances that harm fish or fish habitat. The FA prohibits works and undertakings that disrupt fish habitats or discharges substances that are harmful. Penalties for these offences range from maximum fines of $300,000 to $1,000,000 for a first offence and $600,000 to $2,000,000 and/or terms of imprisonment from six months to three years.

Pursuant to the FA, directors who directed, authorized, assented to, acquiesced or participated in the commission of an offence, will be guilty of the offence regardless of whether the corporation has been prosecuted or convicted of the offence. In addition, fishers may have civil causes of action against the directors of a corporation that discharged substances that harm fish populations.

Each director and officer must exercise due diligence to prevent harmful discharges and report them promptly if they occur. The FA offers directors the due diligence defence.

4) The Dangerous Goods Handling and Transportation Act (Manitoba)

The Dangerous Goods Handling and Transportation Act ("DGHTA") regulates the transporting or handling or offering for transport of any dangerous goods. Directors who directed, authorized, assented to, acquiesced in, or participated in the commission of the offence, are party to and guilty of the offence and are liable, on summary conviction to the penalties under the DGHTA. The offender is guilty of a separate offence for each day that the violation or failure continues.

Directors may be liable for a first offence, to a fine of not more than $50,000 or to imprisonment for not more than six months, or both. For each subsequent offence, directors may be liable to a fine of not more than $100,000 or to imprisonment for not more than one year, or both.

5) General Observations

Directors are entitled to protect themselves from conviction of environmental offences by showing that they were duly diligent or took all reasonable care to prevent the offence. As stated above, CEPA imposes a positive duty that effectively requires the directors to actively monitor the actions taken by their corporation. Directors will not be permitted to turn a blind eye to the operations of the corporation even if their authority has been delegated. Instead, it is advisable that directors keep themselves informed by periodically making reasonable inquiries as to the corporation's compliance with environmental standards.

It is important that directors take active steps to ensure that officers of the corporation are complying with environmental legislation, and that appropriate procedures and safeguards have been implemented to ensure such compliance. Due diligence may require that formalized system of inspections and audits of operations be carried out to detect all potential risks. Once risks are detected, directors have a duty to take all reasonable steps to prevent contamination from occurring. Therefore, directors should implement thorough and understandable training programs for all those involved in this system. Courts will look favorably on programs, such as employee training, enacted by the corporation to prevent any environmental violations.

G. ANTI-SPAM LEGISLATION

1) An Act to promote the efficiency and adaptability of the Canadian economy by regulating certain activities that discourage reliance on electronic means of carrying out commercial activities, and to amend the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act and the Telecommunications Act

The purpose of Canada's Anti-Spam Legislation ("CASL") is to promote the efficiency and adaptability of the Canadian economy by regulating commercial conduct that discourages the use of electronic means to carry out commercial activities, because that conduct impairs the availability, reliability, efficiency and optimal use of electronic means to carry out commercial activities; imposes additional costs on businesses and consumers; compromises privacy and security of confidential information; and undermines the confidence of Canadians in the use of electronic means of communication to carry out their commercial activities in Canada and abroad. CASL applies to any corporation that is expressly declared by or under federal or provincial legislation when acting in the course of any commercial activity.

Directors of corporations that commit a violation or offence under CASL are liable if they directed, authorized, assented to, acquiesced in or participated in the commission of the violation, whether or not the corporation is proceeded against.

Directors are not liable for a violation if they establish that they exercised due diligence to prevent the commission of the violation.

Offences under CASL are punishable on summary conviction and may result in a fine of not more than $10,000 for a first offence or $25,000 for a subsequent offence, in the case of an individual or to a fine of not more than $100,000 for a first offence and $250,000 for a subsequent offence, in the case of any other person. Under CASL, "person" means an individual, partnership, corporation, organization, association, trustee, administrator, executor, liquidator of a succession, receiver or legal representative.

H. PRIVACY LEGISLATION

The Personal Information Protection and Electronic Documents Act ("PIPEDA") directs how businesses must collect, use and disclose personal information in the course of commercial activity. This legislation applies to all business organization in Canada involved in the collection, use or disclosure of personal information in the course of commercial activity, unless provincial privacy legislation exists that is substantially similar to PIPEDA.

Under PIPEDA, every person is guilty of an offence punishable on summary conviction and liable to a fine not exceeding $10,000 or an indictable offence and liable to a fine not exceeding $100,000 if he or she:

1. Knowingly does not retain information that an individual has requested disclosure of for as long as necessary to allow the individual to seek recourse under PIPEDA;
2. Knowingly dismisses, suspends, demotes, disciplines, harasses or disadvantages an employee or denies an employee a benefit of employment by reason that the employee has complied with PIPEDA; or
3. Obstructs the Commissioner or the Commissioner's delegate in the investigation of a complaint or in conducting an audit.

I. PANDEMICS

Directors have a fiduciary duty of loyalty towards the corporation and must act honestly, in good faith, and in the best interests of the corporation. Each director must exercise the care, diligence and skill a reasonably prudent person would exercise in comparable circumstances. In the context of COVID-19 and other pandemics, these duties remain the same. However, as circumstances change, considerations may fluctuate based on restrictions on travel and work, changes to the market and supply chains, and employees' rights and employers' obligations during a pandemic.

For these reasons, it is important that corporations have a business continuity plan. Directors are responsible for oversight of management, and so must ensure that management is addressing immediate, short term, and long term impacts of a pandemic. While management may decide to have, or government orders may require, employees work from home, it is the directors' responsibility to ensure management does not fail to implement appropriate cyber security measures. This includes ensuring that there is a secure platform to permit ongoing annual activities such as annual meetings of shareholders, and to ensure that the by-laws of the corporation are sufficiently worded to permit the holding of meetings via electronic or other artificial means of communication. Pursuant to the MCA, both shareholder and director meetings may be held by electronic means provided the communication facility permits all participants to communicate adequately with each other during the meeting.

Further, businesses that defy orders to cease operations may face fines or other penalties. Specifically, if a corporation commits an offence under The Public Health Act, a director who authorized, permitted or acquiesced in the commission of the offence is also guilty of the offence (see penalties in Section D.1 The Public Health Act (MB) above)

Pandemics also raise workplace safety and health concerns. Directors who oversee the workplace safety and health of the workers employed by the corporation must take reasonable care to ensure that the corporation complies with workplace safety and health legislation. Employers must ensure, so far as is reasonably practicable, the safety, health and welfare at work of all its workers. Specifically, the employer must provide and maintain a workplace, necessary equipment, systems and tools that are safe and without risks to health, so far as is reasonably practicable. A worker may refuse work if they believe, on reasonable grounds, that the work constitutes a danger to their safety or health or to the safety or health of another worker or another person. Employers must investigate the dangerous conditions, pursuant to section 43 of the WSHA in Manitoba, and determine if the work refusal is reasonable and whether any steps need to be taken to remedy the dangerous conditions (see section B.4 The Workplace Safety and Health Act (MB) section above).

Directors must also be aware of potential liability under the MCA and BIA during a pandemic for decisions resulting in the insolvency or capital impairment of the corporation. Because of the dynamic nature of pandemics, it is important for directors to make decisions based on up-to-date information (see section A.1 Insolvency above). This includes considering what geographical areas are affected by a pandemic, impact on supply chains, travel restrictions, among other things, to ensure directors do not make decisions that result in the insolvency or capital impairment of the corporation. Directors also must consider potential personal liability related to employee wages and premiums. For example, directors may be liable for unpaid wages in certain circumstances (see sections B.1 MCA, B.2 Employment Standards Code above) and for failing to remit employment insurance premiums (see section B. Employment Insurance Premiums above).

To avoid liability during a pandemic, directors ought to give careful consideration to all stakeholder interests and act in the best interests of the corporation. As long as directors act with honesty, prudence, good faith, and a reasonable belief that their actions are in the best interests of the corporation, the court will generally defer to business decisions made by directors, a presumption commonly known as the "business judgement rule" (Unique Broadband Systems, Inc. (Re), 2014 ONCA 538).

PROTECTIVE MEASURES

1) Indemnification

The MCA permits a corporation to indemnify a director for all costs, charges and expenses including an amount paid to settle an action or satisfy a judgment, reasonably incurred in any civil, criminal or administrative proceeding by reason of being or having been a director, provided that he or she acted honestly and in good faith with a view to the best interests of the corporation. In the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, a director must show that he or she has grounds for believing that his or her conduct was lawful. Court approval is required for an indemnity from the corporation in favour of directors in respect of actions against them by the corporation or on its behalf.

If a director was substantially successful on the merits in his or her defence of the action or proceeding and fulfills the conditions set out above the director will be entitled to indemnification from the corporation as of right.

Notably, in Bennett v. Bennett Environmental Inc., 2009 ONCA 198, upon considering substantially similar legislation to the MCA, the Ontario Court of Appeal confirmed that the onus to show the director did not act honestly and in good faith with a view to the best interests of the corporation and that the director did not have reasonable grounds for believing his conduct was lawful rests on the corporation. The Court in that case also explained the policy rationale for indemnification as helping to "attract qualified candidates to director and officer positions by providing an assurance that they will be held harmless from possible adverse consequences arising from their work with corporations."

2) Insurance

The MCA permits corporations to purchase and maintain insurance for the benefit of any director against any liability incurred by him or her in his or her capacity as a director, or where he or she acts or acted in that capacity at the corporations request. A director will not be insured where the liability relates to his or her failure to act honestly and in good faith with a view to the best interests of the corporation.

3) Establishment and Evidencing of Available Defences

Directors should be aware of the reliance on various "due diligence" defences they are entitled to in respect to certain statutory liabilities. Directors should assess whether their actions and practices to date are sufficient to establish those defences and determine which, if any, additional actions and procedures should be implemented. It is advisable that directors ensure, to the extent possible, that corporate procedures and arrangements are in place to cause the applicable corporate obligations to be satisfied. Furthermore, it is important that directors ensure that records are kept of the information they receive and the steps that they take to guarantee the corporation is meeting its statutory obligations.

4) Resignation

Resignation will not permit directors to escape civil or statutory liability for unpaid wages, employee benefits and taxes that came into existence while they were directors. However, directors will be able to avoid further liability and start the limitation period for the commencement of an action against a director for various liabilities. Resignation becomes effective at the time a written resignation is sent to the corporation, or at the time specified in the resignation, whichever is later.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.