The settlement agreement recently entered into between Staff of
the OSC and David Horsley, former CFO of Sino-Forest Corporation,
provides meaningful guidance on the responsibilities of senior
executives, particularly those serving for issuers with overseas
The settlement agreement outlines the weaknesses in
Sino-Forest's disclosures and controls, including the failure
to disclose the relationships it had with certain suppliers and
customers, the inability to confirm cash flows for most of its
purchase and sale transactions, non-disclosure of the company's
high dependence on (and the weaknesses and risks associated with)
certain commercial arrangements, and critical flaws in the
documentation process (including backdating of agreements).
Horsley, in his capacity as CFO, had oversight of all financial
aspects of Sino-Forest's affairs, and was ultimately
responsible for the integrity of its financial reporting. The
settlement agreement emphasizes Horsley's failure to obtain the
requisite first-hand knowledge of the company's business and
operating environment; a duty that was heightened because of the
company's overseas operations (in the People's Republic of
China). Most key contracts were written in a foreign language.
Horsley acknowledged in the settlement agreement that he placed
undue reliance on the representations made to him by other members
of Sino-Forest's senior management team, who were based in
The settlement agreement makes clear that:
officers of publicly-traded issuers have personal, individual
responsibility to diligently acquire first-hand knowledge necessary
to fulfill their roles;
such executives will be held accountable for sins of omission,
even where there are no allegations of fraud or no indication of
dishonesty or wilful blindness; and
while the issuer's operations may be conducted in distant
jurisdictions, Canadian standards for internal controls, disclosure
controls and public disclosure generally will be applied, and the
remoteness of those operations may impose heightened
responsibilities on management team members.
Under the terms of the settlement, Horsley agreed to pay a
$700,000 fine and was permanently banned from being an officer or
director of a public company or investment fund manager, and from
acting as a registrant, investment fund manager or promoter.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).