Increased or Changing Obligations and Liabilities for Directors or Officers
Directors' and officers' liability exposure in an insolvency environment
These are challenging times for directors and officers. They owe duties to their companies but must be careful not to make decisions that could result in actions against them by stakeholders. Directors and officers need to understand their potential liabilities under common law and pursuant to a myriad of statutory provisions. It is also essential that directors and officers have in place adequate and effective director and officer insurance tailored to the exposure of the director and officer. Lastly, if a director or officer finds himself or herself involved in a restructuring proceeding the director or officer should be aware of the protections available for them within the restructuring process.
To obtain further information with respect to these issues see “Directors' and Officers' Liability Exposure in an Insolvency Environment”
Directors' liability for taxes
Directors of Canadian corporations may be jointly and severally liable for unpaid employee withholdings (taxes, CPP and EI), unremitted non-resident withholding tax and GST/HST (whether or not collected from customers). Directors are generally permitted to challenge any such director’s liability assessments on the basis of due diligence.
Legal considerations for the directors of UK companies which are facing potential insolvency
Directors - and, to a lesser extent, other officers of a company - face a number of areas of potential personal liability. Of most relevance is the liability of the directors for ‘wrongful trading’.
The directors will need to consider as a priority the viability of the company and how to proceed, which will include consideration of whether the company should be put into a formal insolvency process. Generally, assistance will need to be sought from a specialist Insolvency Practitioner.
Any attempt by the company to sell off assets at this point at an ‘undervalue’ or to give a ‘preference’ to a creditor, guarantor or surety of its debts, could be vulnerable to later challenge by a liquidator, who has the power to set aside such transactions.
For a more detailed discussion of these issues, click to see our bulletin on "Legal considerations for the directors of UK companies which are facing potential insolvency".
20 Questions Directors Should Ask About Directors' and Officers' Liability, Indemnification & Insurance
Directors face a range of legal exposures in respect of their association with, and fiduciary duty to, a corporation. They increasingly look to the state of their indemnities and insurance and to their professional advisors for assurances that they have an appropriate level of protection in place.
For a discussion of these issues, click to see our briefing paper on "20 Questions Directors Should Ask About Directors' and Officers' Liability, Indemnification & Insurance". This briefing paper is designed to be a concise, plain English introduction to the role of indemnification contracts and directors and officers insurance in corporate governance and risk management. The briefing paper provides practical examples of both pitfalls and opportunities to enhance coverage, in question and answer format."
Some Key Questions Directors Should Ask to Avoid Litigation or Disputes
Set out below are some key questions directors should ask to avoid litigation or disputes against them personally and/or against the corporation of which they are a director when navigating through unstable market conditions.
- Are the risks under control?
- Can the corporation meet key liabilities?
- Is executive compensation appropriate?
- Are your indemnification and insurance arrangements adequate?
For a discussion of these issues, click to see our article on "Some Key Questions Directors' Should Ask to Avoid Litigation or Disputes."
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