BLG's Charities and Not-for-Profit Group recently held its 14th Annual Sector Update for Charities and Not-for-Profit Organizations on November 13, 2013 in its Toronto office. I presented on director qualifications (please see my recent blog postings on this topic: http://blog.blg.com/nfp/Lists/Posts/Post.aspx?ID=169 and http://blog.blg.com/nfp/Lists/Posts/Post.aspx?ID=168) and liabilities under the new Canada Not-for-profit Corporations Act (the "CNCA") and the proposed Not-for-Profit Corporations Act, 2010 (Ontario) (the "ONCA").
Breaching the standard of care expected of directors can lead to personal liability for directors.
Under the Canada Corporations Act and the Corporations Act (Ontario), there is no statutory standard of care, and thus directors are subject to the common law. The common law imposes a subjective standard of care: a director must exercise the care, diligence and skill that may be reasonably expected based on the knowledge and experience of that director. Essentially this means that the greater knowledge and experience that a director has, the greater exposure that director has to personal liability.
The CNCA and the ONCA, however, set out a statutory standard of care. The statutory standard of care is that directors must:
- Act honestly and in good faith with a view to the best interests of the corporation; and
- Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
This new standard of care is an objective standard of care, which means that all directors have the same exposure to personal liability for the same actions, despite different levels of knowledge and experience.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
