Director's Liability For Source Deductions Where No Consent To Serve Was Given

• Published date: 20 November 2020
• Subject Matter: Corporate/Commercial Law, Tax, Corporate and Company Law, Directors and Officers, Income Tax
• Law Firm: Borden Ladner Gervais LLP
• Author: Mr Ivan Boiarski

A recent decision from the Ontario Superior Court of Justice (the Court) confirms the importance of a director's written consent to serve for protection against liability.

In Bunton v. FTA Logistics Inc. and Ikenouye¹ (Bunton), the Court dealt with a situation where the Canada Revenue Agency (the CRA) claimed unremitted source deductions from an individual who was listed as a director of a corporation without her consent.

What you need to know

• Various statutes, including the Canada Business Corporations Act² and the Business Corporations Act (Ontario)³ (the OBCA), provide circumstances in which a serving director may be personally liable for the obligations of the corporation.
• In Bunton, the issue raised was whether Ms. Bunton was a director of FTA Logistics Inc. (FTA) such that she was liable for FTA's unremitted source deductions that were required under the Income Tax Act (Canada) (the ITA).
• Subsection 227.1(1) of the ITA provides that where a corporation fails to deduct, withhold, remit or pay source deductions in respect of salaries, wages, or other remuneration, the directors of the corporation at the time are jointly and severally, or solidarily, liable, together with the corporation, to pay that amount and any interest or penalties relating to it.

Director's liability and consent to serve

FTA was governed by the OBCA, and as such, section 119(9) of the OBCA was applicable, pursuant to which, an election or appointment of a director is not effective unless the person consents in writing within 10 days following the date of the election or appointment.

In Bunton, the Court dealt with a situation where the CRA demanded payment of unremitted source deductions from the applicant, Ms. Bunton, as a result of her being listed as a director of FTA.

Several years before the CRA demanded payment of the unremitted source deductions from Ms. Bunton, Ikenouye had asked Ms. Bunton for permission to add her as a director of FTA. Ms. Bunton declined the request, but unbeknownst to her, her name was added as a director, as it appeared in two letters from the CRA claiming Ms. Bunton's liability for the unremitted amounts.

Ms. Bunton's defence was to seek a declaration by the Court that she had never been a director of FTA due to a lack of written consent to serve on her part, and to seek an order that the records of FTA be rectified to remove her name.

In the absence of contradictory evidence presented by the respondents, the Court had no issue to conclude that...