Why Directors Are Accountable To Their Shareholders.DIRECTORS LIABILITY AND INSURANCE COVER Directors Liability and Insurance Cover By Lezel Crook The Companies Act (the Act), specifically section 247 of the Act, renders void any provision in the articles of a company or stipulation in a contract with the company, purporting to exempt or indemnify a director, who is guilty of any liability in respect of negligence, default, breach of duty or breach of trust, in relation to the company.
Liability Directors' Liability Directors' Liability When a limited company goes bankrupt and there is a shortfall to creditors, the directors in most cases are not liable for any shortfall. Those with increased personal liability must have access to an adequate defenceA director shouldn't be held liable for something they do not control. In limited circumstances a director may establish a defence to the liability for the debts of the company if that director can establish that he or she was provided with information about the company's solvency that came from a competent and reliable person and that that information disclosed the company trading as being solvent at the time. Providing that the Board of Directors and the key management personnel are not aware of the position of insolvency they can be excused of liability and responsibility for the poor performance of the company. Directors liability and reckless trading Creating, Managing and. All directors need to be aware of the statutory duty they owe to the company not to trade recklessly and of their potential personal liability for the debts of the company if they do so. A case I argued in the Ontario Court of Appeal has helped clarify the law surrounding the personal liability of corporate directors acting in the ordinary course of their duties. Next it considers alternatives to director liability, before concluding that no other means of creditor compensations provides the same measure of deterrence of improper behaviour by the directors. A director, whether of a private company or one that is publicly traded, does not have the comforting limited liability status of the company's shareholders. It is important that every director be aware of personal exposure, in order to take steps to avoid liability. A common example of a source of liability from federal legislation is found in the Income Tax Act where a director may be personally liable for income tax deductions that the company failed to withhold from its employees. An example of a source of liability found in provincial legislation is under the Employment Standards Act where the Act holds a director of a company personally liable for up to two months' unpaid wages of a company's employees. For example, a director who exercises "the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances" may escape liability. Due to the onerous duties imposed on directors by the Act and the common law it would desirous for a director to obtain insurance cover in the event that such director incurs liability. Nevertheless, it is possible for a director to obtain insurance cover arising from liability in respect of negligence, default, breach of duty or breach of trust. However, only the director can be indemnified against the liability against the company and in truth the company will be taking out insurance cover on behalf of the director. In addressing directors' liability, we must ensure that capable men and women are encouraged to serve. There are essentially two forms of directors' liability: direct liability and indirect liability. Indirect liability provisions in statutes make directors liable for a corporation's failure to comply with the law. The direct liability relates to financial obligations where directors face personal liability for a corporation's failure to make certain monetary payments such as wages. Some of these offences impose absolute liability on directors. Conclusion The main criticism one may raise is the fact, that the law ignores that American corporate directors liability is of contractual nature, while that of French corporate directors is of a legal nature. |