Statutory Liabilities Of Directors: Marking The Risk Areas To Avoid Sliding Out Of Control

In our last article, entitled "Beyond the Duties of Care and Loyalty ... the Civil Liability of Directors"1, we dealt with the civil liability regime that sanctions civil faults2 committed by directors. When damage ensues from such a fault, the victim is entitled to claim compensation.

Statutory liabilities are of a different nature. We touched on them very briefly in our article entitled "Duties and Obligations of Directors: a Brief Overview"3. In this article, we will deal with them in more detail.4

1. Statutory liabilities that pose risks for directors

The word "statutory" comes from the word "statute", which means an act of a legislature, whether federal or provincial. Statutory liability thus derives from a specific piece of legislation, as opposed to liability under the Civil Code of Québec, Article 1457 of which refers to "rules of conduct" without specifically defining them, thus leaving it to the courts to determine if an instance of conduct runs afoul of that provision.

The scope of the statutory regime5 applicable to an organization and its members varies with the nature of the organization and its activities. While some statutory liabilities concern the majority of corporations, others will affect only a small number of them. By way of example, virtually all legal persons are subject to tax legislation6, whereas the Cultural Heritage Act7 affects only a limited number of them.

These statutory norms have a protective function and are aimed at preventing reprehensible conduct that may harm society as a whole or certain of its members8. Identifying such statutory norms can allow to mark the risk areas specific to an organization and, consequently, its directors. It is therefore very important to be aware of these norms, not only to avoid being punished for contravening them, but also in order to educate oneself on the standards of conduct to be adopted within the organization, thus encouraging the embedment of a culture of compliance that will result in better day-to-day management of the organization9.

To make it easier to understand statutory liabilities, here are a few concrete examples in various areas of the law:

i) Legislation to recover money owed to the government

Compelling directors to personally pay amounts due and unpaid by the corporation on account of withholdings and deductions at source;10 Compelling directors to personally pay amounts due by the corporation on account of excise taxes;11 ii) Legislation to protect workers

Compelling directors to personally pay unpaid wages;12 Sanctioning directors personally for offences under the Occupational Health and Safety Act committed by or on behalf of the corporation;13 iii) Legislation to protect investors

Sanctioning directors personally for an offence committed by or on behalf of the corporation under the Securities Act;14 Facilitating civil actions by investors against directors, pursuant to the Securities Act;15 iv) Legislation to protect the environment

Sanctioning directors...