Consent Requirements for the Appointment of Corporate Directors
In a recent Ontario decision, a court was faced with a case in which a woman was named director of a corporation without her consent and was facing liability for unpaid taxes as a result.
Applicant Named Director Without Consent
The applicant had provided bookkeeping services for an Ontario corporation on an informal basis and for a limited period.
Several years prior to the court hearing, the applicant was asked for permission to add her name to the list of the corporation’s directors. The applicant declined the request.
Despite this refusal, the applicant was, without her consent, listed as a director of the corporation effective as of November 1, 2006.
It was only years later the applicant learned that her name had been added as a director of corporation.
In fact, in the latter half of 2019, the applicant received two letters from the Canada Revenue Agency (“CRA”). In those letters, the applicant was identified as a director of the corporation and, as such, the CRA was entitled to collect outstanding unpaid source deductions owed by the corporation, in the amount of approximately $11,160.
As a result, the applicant went to court to rectify the records of corporation by, specifically, removing the her name from the corporation’s list of directors. The applicant made the request because it was her understanding that the CRA would cease looking to her for payment of corporation’s outstanding deductions if she provided them with a copy of a court order stating that she was not, and never had been, a director of the corporation.
At issue was whether the applicant had been appointed as a director of the corporation without her consent and, if so, to what relief she was entitled.
Court Finds Applicant Was Never a Director
The court began by explaining that the election and appointment of directors of a corporation is governed by s. 119 of the Ontario Business Corporations Act (the “Act”). Section 119 of the Act addresses the term of directors whose names appear in the articles of incorporation, as well as the election of directors at a first meeting and at subsequent annual meetings of shareholders.
Section 119 also deals with the consent required from an individual elected or appointed as a director. Under s. 119(9), “the election or appointment of a director under this Act is not effective unless the person elected or appointed consents in writing before or within 10 days after the date of the election or appointment.” If, however, the person elected or appointed consents within that ten-day period, then the election or appointment of that individual as a director is valid under s. 119(10).
Citing a previous case, the court noted that the purpose of the consent requirement exists for the following reason:
“This presumably relates to the liability issues which directors face in assuming such a role within a corporation and establishes the requirement of personal knowledge by that director of his election or nomination to that role.”
The court stated that consent in writing is required before the appointment of a director becomes effective and held that there was no evidence that the applicant had ever consented to her appointment.
In terms of relief, the court explained that an individual whose name has been identified, without their consent, as a director of an Ontario corporation may seek relief from the court under s. 250(1) of the Act, which provides that:
“Where the name of a person is alleged to be or have been wrongly entered or retained in … the registers or other records of a corporation … any aggrieved person may apply to the court for an order that the registers or records be rectified.”
Additionally, under s. 250(2) of the Act, the court is given discretion to grant relief in the form of an order, including an order requiring that the registers or records of the corporation be rectified and compensating a party who has incurred a loss.
In the result, the court declared that the applicant had never been a director of the corporation and ordered the corporation to take the necessary steps to rectify both its past and present registers and records such that the applicant’s name was removed from its list of directors.
Mark Feigenbaum brings together many years of litigation experience with a deep knowledge of tax law, corporate law, accounting, finance, and other related practice areas. Mark can help you avoid the biggest risks that may arise in tax disputes.
Prior to founding his law firm, Mark worked in the cross-border tax department of an international Big 4 firm, and held accounting management positions across a variety of sectors in both Canada and the United States.
With tax legislation in constant flux on both sides of the border, Mark takes great care to stay current on all relevant developments in law and policy. He carefully considers all solutions available to craft a response that proactively considers the policies and best practices of a given tax authority.
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