In June 2014, I discussed the issue of Director’s and Officers’ duties under the Canada Not-for-Profit Corporations Act (“CNCA”). Another important aspect that volunteers should be aware of when they serve on Boards of either charities or not-for-profits (“NPOs”) is the personal liability that can arise in their roles as Directors.
Along with being responsible for their own personal actions, Directors of charitable and not-for-profit corporations are expected, in certain instances, to be responsible in law for the misdeeds of a corporation as they are perceived to be the directing minds of the corporation. As a result, Directors can be found liable:
- to repay the corporation any money or property paid or distributed if the Director has voted for or consented to a resolution authorizing a payment or distribution to Members Directors and/or Officers or payment of an indemnity contrary to the CNCA
- Directors need to ensure that they register their dissent for any resolution that may be passed by the Board
- abstaining is no longer allowed under the CNCA – if a Director does not register their dissent then they will have been deemed to have agreed to the resolution
- for up to six months of unpaid wages for employees of the corporation
- this liability is valid while an individual is a Director and for up to two years after the Director has left the Board;
- for general offences
- there is a general offence provision under the CNCA for any contravention of the the CNCA or its Regulations;
- Directors (and Officers), however, are still required to comply with the CNCA and its Regulations, the corporation’s Articles and By-laws and any Unanimous Member Agreement;
- for making, or assisting in making, false or misleading statements in any document required under the CNCA or its Regulations; and
- for any misuse of membership information
- a Director cannot use information obtained from a membership list other than for reasons that are listed in the CNCA.
The CNCA does offer Directors and Officers a “reasonable diligence defence” which states that a Director or Officer is not liable if they “exercised the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.” This defence can help exonerate Directors from liability for improper payments to members and employees’ unpaid wages.
Directors, and Officers, are also offered indemnification under the CNCA. Both current and former Directors and Officers are entitled to be indemnified against all defence costs reasonably incurred by them in any civil, criminal, administrative, investigative or other proceeding, due to their association with the corporation, as long as:
- the Director or Officer in question has not been found by a court to have committed any fault or omitted to do anything they ought to have done;
- the Director or Officer fulfilled his or her duty to act honestly and in good faith with a view to the best interests of the corporation; and
- the Director of Officer had reasonable grounds for believing that their conduct was lawful in the case of a criminal or administrative action or proceeding that was enforced by a monetary penalty.
It is also important to note that the CNCA does allow for corporations to purchase and maintain personal liability insurance for the benefit of current and former Directors and Officers in order to cover any actions against an individual in their capacity as a Director or Officer. Charitable corporations should be aware however, that certain provincial jurisdictions have restrictions on the purchase of insurance, so before investing in a policy Boards should investigate their provincial legislation to ensure that it is legal.
Depending on the provincial jurisdiction in Canada, a Director of a corporation that is also a registered charity, may not only be required to disclose his/her conflict of interest, but also to resign from the Board should the charity decide to proceed with a contract that results in a personal benefit to the Director. This is because at common law, Directors of incorporated charities cannot place their personal interests in conflict with their duty to the Corporation.
Individuals wishing to take on the role of a Director or Officer in a federally incorporated charity or NPO should ensure that they familiarize themselves with the CNCA, its Regulations, and the organization’s incorporating and governing documents before accepting such a responsibility.