Introduction:

When buying a business in British Columbia, two primary methods are available: an asset purchase and a share purchase. Each approach comes with its own legal, financial, and tax implications, and understanding these differences is crucial for making an informed decision that aligns with the buyer’s goals. This blog post will explore the key distinctions between asset purchase and share purchase transactions in British Columbia.

Nature of the Transaction: An asset transaction involves the acquisition or divestment of certain or all of a company’s assets, which may include equipment, inventory, real property, contracts, or lease agreements. Some liabilities may still transfer due to successor liability rules, but the seller retains ownership of some of the operating entity. On the other hand, a share purchase involves acquiring shares or ownership interests of the target company, resulting in ownership of the entire business, including assets, liabilities, and obligations. The buyer inherits all existing liabilities and risks associated with the business, even those not immediately apparent.

Liabilities and Risk: With an asset purchase, the buyer has more control over the liabilities they assume, leaving behind unwanted debts with the seller. However, certain liabilities may still transfer due to certain legislation. In a share purchase, the buyer assumes all existing liabilities and risks, including known and unknown ones, like pending lawsuits and tax obligations. If the business being purchased carries substantial potential for unknown liability claims, such as product liability, professional negligence, or environmental hazards, it may strongly indicate the necessity of opting for an asset purchase.

Contracts and Permits: In an asset purchase, the buyer usually negotiates or obtains new contracts, licenses, and permits to continue business operations, as existing agreements do not automatically transfer. On the other hand, in a share purchase, existing contracts and permits typically remain in force since the legal entity remains unchanged, avoiding the need for extensive renegotiations. This can be beneficial as in most cases it allows the buyer to continue business operations without the need for extensive renegotiations or obtaining new approvals.

Tax Implications: The choice between a share acquisition or asset acquisition becomes more complex due to the inherent conflict between the interests of the vendor and purchaser regarding income tax considerations. Typically, buyers prefer asset purchases as it provides a cost base for certain assets which can be depreciated. On the other hand, sellers prefer share purchases as it may result in preferential tax treatment, treating the sale proceeds as capital gains. Resolving this conflict becomes a matter of negotiation.

Due Diligence: Share purchase due diligence is broader and more encompassing, as it involves assessing the entire target company and assuming all its liabilities. On the other hand, asset purchase due diligence is more focused, as it centers on the specific assets to be acquired and allows for more control over the liabilities taken on by the purchaser.

Transfer of Employees: In an asset purchase, employment contracts do not automatically transfer to the buyer. While the asset purchase allows for a selective assembly of the workforce, certain obligations, such as length of service for severance pay, may still transfer. On the other hand, in a share purchase, the purchaser inherits the entire workforce and all severance obligations to employees, significantly impacting future plans for downsizing or integration.

Conveyancing Costs: Transferring shares is simpler than completing an asset transfer. Share transfers involve limited conveyance documents, while asset transfers require an extensive set of documents and potential third-party consents. Asset transfers may also incur significant registration costs and Property Transfer Tax. Share purchases may have to deal with contracts with third parties that contain restrictions on a change in control.

Want to know more?

What Are Usual Or Typical Conditions Precedent That a Purchaser Would Want in an Asset Purchase Agreement? 

What Are Usual Or Typical Conditions Precedent That a Purchaser Would Want in a Share Purchase Agreement?

 

Introduction:

A letter of intent (LOI) is a valuable tool for parties seeking to assess their initial agreement on significant business terms before diving into formal purchase and sale negotiations. Acting as “term sheets,” a LOI streamlines the creation of final binding agreements.

Common LOI Terms

Parties: Clearly identify the involved parties accurately, providing their full legal names and addresses, ensuring the document’s legality and a strong foundation for negotiations. Additionally, the LOI should identify any rights that are assignable to a third party.

Purchase Price: Outline the purchase price, either as a fixed figure or within a negotiable range, along with payment method and timing details. Additionally, the sellers may often require purchasers to make a deposit towards the purchase price.

Assets and Liabilities: Clearly specify the assets and liabilities to be included in the purchase to avoid any misunderstandings during negotiations.

Due Diligence: Grant the buyer the right to conduct due diligence on the business to ensure transparency and assess viability.

Exclusivity: Consider an exclusivity clause to commit both parties to negotiate exclusively during the specified period.

Important Dates: To ensure a smooth and efficient transaction, it is advisable to establish a well-defined timeline that outlines key dates for signing the purchase agreement, target closing date, and other critical milestones.

 

Non-Solicitation: The seller will aim to incorporate a binding clause in the letter of intent, preventing the buyer from soliciting or recruiting the seller’s employees if the transaction does not proceed. On the other hand, the buyer will seek to restrict the non-solicitation provision to enable hiring the seller’s employees through general job postings.

Confidentiality: Include a confidentiality clause to safeguard proprietary information exchanged during negotiations. Additionally, the confidentiality prevents employees from becoming preoccupied with the ramifications of the sale and maintains their loyalty.

Binding or Non-Binding Nature: Explicitly state whether any part of the LOI is binding on the parties.

Termination: Address conditions for termination, such as mutual agreement or failure to reach a definitive agreement.

Conclusion

The LOI sets the stage for negotiations when purchasing a business in British Columbia. By outlining key terms and conditions, buyers and sellers establish a framework for discussions and ensure a smooth and transparent transaction process.

 

Introduction:

 

Arbitration has become a popular alternative to court proceedings for resolving disputes. It offers a range of benefits, including privacy, informality, and efficiency, making it an attractive option for many businesses. However, like any legal process, it also has its downsides. This article will explore the advantages and disadvantages of arbitration clauses to help you make an informed decision when choosing this method for dispute resolution.

 

Advantages

 

Privacy and Confidentiality:

One of the main reasons for the inclusion of an arbitration clause in contracts is the ability to keep the proceedings private. Unlike court proceedings, where documents are public and hearings are open, arbitration takes place behind closed doors, shielding the parties from public scrutiny. This confidentiality enables the parties to argue their case without fear of reputational damage, which can be critical for maintaining a positive business image.

 

Informality and Speed:

Arbitration offers a more informal process compared to court proceedings. The rules of procedure and evidence before an arbitrator are more relaxed, providing a less rigid and intimidating atmosphere. Additionally, arbitration is typically much faster, allowing cases to be resolved in a matter of months, whereas court cases can drag on for years due to backlogs in the legal system.

 

Specialized Decision-Maker:

In arbitration, parties have the advantage of selecting an arbitrator with specialized knowledge and expertise in the area of law relevant to their case. This is in contrast to the court system, where judges are assigned randomly and may lack experience in specific legal fields. The ability to choose a knowledgeable decision-maker can lead to more informed and fair judgments.

 

Cost Flexibility:

Arbitration offers flexibility in cost allocation. Parties can negotiate who pays for the arbitrator’s fees, the venue, and the legal fees of the winning party. Moreover, by avoiding complex legal procedures like discovery, which occurs in court, parties can limit their overall costs. However, it is worth noting that the availability of qualified arbitrators on Vancouver Island and the potential high costs may be a drawback.

 

Disadvantages:

 

Limited Discovery:

One significant drawback of arbitration is the limited discovery process. Unlike court proceedings, arbitration may not allow for an extensive exchange of information about witnesses and evidence before a trial. This can make it challenging to gather sufficient evidence to prove a party’s position.

 

Finality of Decisions:

Perhaps the most significant downside of arbitration is the limited avenue for appeal. Once an arbitrator renders a decision, it is usually final and binding on both parties. In contrast, court decisions can often be appealed to higher courts. This finality can leave parties with little recourse if they believe the arbitrator made a mistake.

 

Conclusion:

 

Arbitration offers several advantages that can be highly beneficial in resolving disputes. It provides privacy, efficiency, and the ability to choose a specialized decision-maker. However, it also comes with its drawbacks, such as limited discovery and the finality of decisions. Before including arbitration clauses in contracts, it is crucial for parties to carefully consider their specific needs and preferences, seeking legal advice to ensure the chosen method aligns with their goals.

 

Our Corporate and Commercial clients should take notice that Bill 41 – 2022: Workers Compensation Amendment Act (No. 2), 2022, received Royal Assent on November 24, 2022 (the “Amendments”).

These Amendments introduce important changes to BC’s Workers Compensation Act (the “WCA”). This has many implications for how employers are expected to deal with injured workers. Employers should be up to date on these changes since they have a significant effect on administrative decisions, cost calculations, and employee relations policies.

First, employees who have been employed for 12 continuous months before their injury and who were injured at work are entitled to reinstatement in a suitable role. This applies to employees who sustained their injuries within two years of the amendments coming into force. Employers now have an obligation to accommodate such injured employees to the point of undue hardship. This standard is measured by the specific circumstances of the case but financial detriment and workplace disruption can be taken into account. An employer who terminates an injured employee within 6 months of returning to work can be deemed in breach of the new obligations unless the employer can show that the termination is for other legitimate reasons. Businesses who employ fewer than 20 employees are exempt. Additionally, if an employee has not returned to work two years after being injured, the employer is then released from their obligation to maintain employment.

WorkSafeBC is in charge of resolving disputes between employers and employees and each is entitled to make complaints about the other. As such, both employers and employees have a duty to cooperate in order to find suitable work for an injured employee.

Under the Amendments, employers face additional penalties if they attempt to prevent employees from reporting injuries or claim compensation. WorkSafeBC will investigate and impose fines if an employer is in breach of the obligations. To facilitate these investigations the Amendments also established a Fair Practices Commissioner who reports to WorkSafeBC, makes recommendations, and creates an annual report.

Since many of these amendments result in increased administrative costs, employers would be prudent to update their workplace injury policies in response to these changes. Proactivity will also reduce the likelihood of being found in breach of the new obligations.

URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

We write to advise that effective November 30, 2021, the B.C. Government requires that
any Corporation, Trust or Partnership that owns an interest in real estate must file a
Land Owner Transparency Report with the Land Owner Transparency Registry.
Failure to file may result in government-imposed penalties.

What is the Land Owner Transparency Registry?

The Land Owner Transparency Registry is a publicly searchable registry of information about
beneficial ownership of land in British Columbia. Beneficial land owners are people who own or
control land indirectly, such as through a corporation, partnership, or trust.

The Registry is intended to end hidden ownership of land and combat money laundering in B.C.
The B.C. provincial government created the LOTR to identify the individuals that actually own
real estate in the province.

Does the Land Owner Transparency Registry apply to you?

With few exceptions, all corporations, partnerships, and trusts that own real estate in British
Columbia must register. Trusts include formal trusts, bare trusts, and prescribed trusts.

What do you need to do?

If you own an interest in land in a corporation, partnership, or trust, you must prepare and
register a Transparency Report with the LOTR by November 30, 2022. An interest in land
includes a fee simple interest, life estate, or long-term lease.

Only a Legal Professional can register the Report.

The Transparency Report contains information about:

1. The corporation, partnership, or trust that owns real estate (“Reporting Bodies”);
and,

2. The individuals who are beneficial owners of the corporation, partnership, or
trust, as well as settlors of trusts (“Interest Holders”).

The Transparency Report discloses information about Interest Holders, including:

1. Name
2. Citizenship
3. Social Insurance Number (or Individual Tax Number)
4. Date of Birth,
5. Residency for Tax Purposes, and
6. Address

Only some of this information will be publicly searchable, and certain Interest Holders are
eligible to restrict what is available to the public. Government agencies will have access to all
information. All Interest Holders must be advised that their personal information was included
in a Transparency Report and a special letter giving notice under the legislation must be
provided to the Interest Holder.

The Transparency Report must be uploaded to the LOTR Registry online.

The report must also be updated when the information concerning the Interest Holder changes, for
example, a change in residential address, name, or ceasing to be an interest holder.
Specific reporting requirements apply for each type of corporation, partnership, trust, and
Interest Holder.
A failure to prepare and upload a Transparency Report may result in the government pursuing
administrative penalties of up to $50,000 or 5% of the assessed value of the real estate.

What can Heath Law LLP do to help?

We have a team of lawyers and staff well versed in preparing Transparency Reports and
compliance under this new LOTR legislation.

Please advise our office by November 1, 2022, if you own real estate in a corporation, trust or
partnership, and if you would like our assistance in preparing and filing a Land Owner
Transparency Report.

Yours truly,
HEATH LAW LLP

6362222 Canada Inc. v. Prelco Inc., 2021 SCC 39: A Victory for Limited Liability Clauses

In general, limitation of liability clauses are valid in both Quebec’s Civil system and in the Common Law provinces. However, in Quebec limitation of liability clauses are tempered by articles in the Civil Code of Quebec prohibiting the exclusion of liability for intentional fault, bodily injury, and other public order issues. A recent Supreme Court of Canada case has strengthened the power of limited liability clauses and narrowed the applicability of the Breach of Fundamental Obligation Doctrine.

The case centered on a contractual dispute between 6362222 Canada Inc. (“Createch”), and their client, Prelco Inc. Createch is a consulting firm offering integrated management systems and performance improvement solutions. The parties entered into a contract which included a limited liability clause, stipulating that Createch’s liability to Prelco for damages for any cause whatsoever would be limited to amounts paid to Createch under the contract. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue, from the use of products, for any other special, consequential, or indirect damages relating to services and/or material provided pursuant to the contract.

Two years into the contract, Prelco opted to terminate the relationship due to numerous problems with the system and Createch’s implementation. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. The Superior Court found the limited liability clause to be unenforceable as it went to the essence of a fundamental obligation, and as such ordered a substantial judgment against Createch. The Court of Appeal dismissed the appeal.

The Supreme Court allowed the appeal, stating that the test for unenforceability due to the Doctrine of Breach of a Fundamental Obligation had not been satisfied. In order to find a clause inoperable on this basis, the validity of the clause has to either (a) be contrary to a public order limitation or (b) deprive a contractual obligation of its purpose. The SCC found that the clause did not run contrary to a public order limitation and that since Createch still owed significant obligations to Prelco the validity of the clause would not deprive the contract of its purpose to the extent required by the Doctrine. As such, the principle of freedom of contract supported the enforceability of the limited liability clause.

Takeaway: if you are contracting with a party that is insisting that there be clauses within the contract whereby they are excused from any liability, even for their own negligence, be aware that a Court will probably uphold the limitation of liability clause in the contract. In such a situation, you should consider the extent to which you can insure over the risks that flow from the contracting party’s negligence.

Relief from forfeiture is an extraordinary equitable remedy that the courts can apply at their discretion, which allows them to forgive imperfect compliance with a contractual or statutory requirement. In choosing to apply relief from forfeiture, the court is deciding to protect a party against a loss that would otherwise occur from that party’s breach on the basis that not to do so would be unequitable.

In a recent case, Airside Event Spaces Inc. v Langley, 2021 BCCA 306, the courts have reiterated that an applicant must act in good faith in order for relief from forfeiture to be appropriate, regardless of the disproportionality between the loss suffered on forfeiture and the loss suffered by the other party due to the breach of contract.

In this case, the company was leasing a hangar at the Langley Regional Airport from the city of Langley, which the city had terminated because the company breached the lease contract. The company admitted that it had breached the lease in numerous ways, and to having failed to remedy the breaches when Langley gave it the chance. Still, the company claimed that the loss that they would suffer compared to the loss that Langley had suffered through their breaches was so disproportionate that the court should use their power to apply relief from forfeiture. The company had paid $440,000 for the premises in 2013, and claimed to have invested in excess of $1.5 million in improvements over the years that it had leased the space. The B.C Supreme Court Judge found that since the company had misled Langley, attempted to conceal breaches of the lease, altered the premises contrary to the lease and without the lessor’s consent, and performed all manner of other misconduct that the company had not remotely acted in good faith. As such, the Judge dismissed the application and refused to apply relief from forfeiture.

On appeal, the Court confirmed that Judge had correctly considered the evidence in this case, and did not commit an error by finding that the consequences of the forfeiture, although significant, did not justify relief from forfeiture due to the company’s clear bad faith.

URGENT: B.C. LAND OWNER TRANSPARENCY REGISTER (“LOTR”)

We write to advise that effective November 30, 2021, the B.C. Government requires that
any Corporation, Trust or Partnership that owns an interest in real estate must file a
Land Owner Transparency Report with the Land Owner Transparency Registry.
Failure to file may result in government-imposed penalties.

What is the Land Owner Transparency Registry?

The Land Owner Transparency Registry is a publicly searchable registry of information about
beneficial ownership of land in British Columbia. Beneficial land owners are people who own or
control land indirectly, such as through a corporation, partnership or trust.

The Registry is intended to end hidden ownership of land and combat money laundering in B.C.
The B.C. provincial government created the LOTR to identify the individuals that actually own
real estate in the province.

Does the Land Owner Transparency Registry apply to you?

With few exceptions, all corporations, partnerships and trusts that own real estate in British
Columbia must register. Trusts include formal trusts, bare trusts, and prescribed trusts.

What do you need to do?

If you own an interest in land in a corporation, partnership or trust, you must prepare and
register a Transparency Report with the LOTR by November 30, 2021. An interest in land
includes a fee simple interest, life estate, or long-term lease.

The Transparency Report contains information about:

1. The corporation, partnership or trust that owns real estate (“Reporting Bodies”);
and,

2. The individuals who are beneficial owners of the corporation, partnership or
trust, as well as settlors of trusts (“Interest Holders”).

HEATH LAW LLP

The Transparency Report discloses information about Interest Holders, including:

1. Name
2. Citizenship
3. Social Insurance Number (or Individual Tax Number)
4. Date of Birth,
5. Residency for Tax Purposes, and
6. Address

Only some of this information will be publicly searchable, and certain Interest Holders are
eligible to restrict what is available to the public. Government agencies will have access to all
information. All Interest Holders must be advised that their personal information was included
in a Transparency Report and a special letter giving notice under the legislation must be
provided to the Interest Holder.

The Transparency Report must be uploaded to the LOTR Registry online.
The report must also be updated when the information concerning the Interest Holder changes, for
example, a change in residential address, name, or ceasing to be an interest holder.
Specific reporting requirements apply for each type of corporation, partnership, trust, and
Interest Holder.

A failure to prepare and upload a Transparency Report may result in the government pursuing
administrative penalties of up to $50,000 or 5% of the assessed value of the real estate.

What Heath Law LLP can do to help?

We have a team of lawyers and staff well versed in preparing Transparency Reports and
compliance under this new LOTR legislation.

Please advise our office by November 1, 2021, if you own real estate in a corporation, trust or
partnership, and if you would like our assistance in preparing and filing a Land Owner
Transparency Report.

Yours truly,
HEATH LAW LLP

Short Answer:

Generally, a director will not be held liable for corporate income tax absent misconduct. However, s.160 of the Income Tax Act introduces liability in certain circumstances where assets have been transferred by a taxpayer who owes a tax debt. The purpose behind this provision is to ensure that the CRA is able to collect tax debts where assets have been divested for less than market value.

Discussion:

Unlike s. 227.1 of the Income Tax Act, where a director’s liability is limited to tax withholdings and the like, s.160 creates liability for the recipient in a non-arm’s length transfer if the transferor has any kind of tax debt.

S. 160 applies to a person who has received a non-arm’s length transfer of property when the transferor owed a tax debt at the time the transfer occurred, and the transferee did not pay the market value for the property. Per s. 160(1), the transferee may be held jointly and severally liable for the tax debt, including interest, to the lessor of:

a) The value of the property transformed minus consideration given for it by the transferee; or
b) The total tax and interest that the transferor was liable to pay in or in respect of the year of the transfer and any preceding years.

In Borealis Geopower Inc. v the Queen, 2018 TCC 189 the Court applied s. 160 to corporate income tax. S.160, therefore, creates a situation where a director could incur personal liability for all or a portion of the income tax debt of the corporation if they were the transferee as described above.

BRIEF ANSWER

In the absence of fraudulent or illegal conduct or conduct that is beyond the scope of the director’s authority, a director will not generally face personal liability. However, a director may be held personally liable if they fail to indicate that they are acting in their capacity as a director, breach their fiduciary duties, or fail to act in an objectively reasonable manner. A director may also face personal liability for any amounts owing to the government that the company has failed to pay for income tax, GST, Employment Insurance or the Canada Pension Plan. A director may protect against personal liability by prudently fulfilling their obligations as a director and by ensuring that there are proper protections in place to minimize the risk of personal liability.

DISCUSSION

In general, a company will shield a director from personal liability while they are acting as a director, provided that they are not acting fraudulently or illegally. However, there are certain circumstances in which a director will face personal liability.

A director owes a duty of care to the company by virtue of their position. The applicable standard of care is set out in the Business Corporations Act to be that of a reasonably prudent individual in comparable circumstances. Directors with special expertise or knowledge (such as a lawyer, accountant, etc.) will be held to a higher standard of care. A director may delegate responsibilities to others, such as an officer or an expert; however, the director remains responsible to ensure that the individual is competent and that they adequately perform their duties. A director who breaches their duty of care to the company may face personal liability for any loss that the company suffers as a result.

A director has a fiduciary duty to act honestly and in good faith, with a view to the best interests of the company. This requires the director to avoid the pursuit of personal gain where it is inconsistent with the best interests of the company, act selflessly and loyally as a director of the company, maintain the confidentiality of information acquired by virtue of their position, and avoid conflicts of interest or disclose conflicts in a timely manner. A conflict of interest may arise where a director has a material interest in a contract, decision, or transaction contemplated by the company, when a director enters into a contract that competes with the company, or when the director takes an opportunity that rightfully belongs to the company. A director who breaches their fiduciary duty to the company may face personal liability for any loss that the company suffers as a result of the breach.

A director may face personal liability if it is not clear to other parties that he or she is acting in their capacity as a director of the company. If third parties believe they are dealing with an individual and not a company, the director may face liability for any obligations or losses resulting from the transaction. A director will also be personally liable for their tortious conduct to third parties if the director is not acting within the scope of their authority or on behalf of the company. A director must act in accordance with the applicable statutes, regulations, memorandum and articles of the company. If they fail to do so and behave improperly, they may be held personally liable.

Although directors generally only owe a duty to the company, in certain cases courts have held directors personally liable for breaching a duty to creditors. For example, failing to act reasonably by preferring one creditor over another when the company was insolvent, or engaging in other conduct prohibited by the Bankruptcy and Insolvency Act may give rise to personal liability. A director may also be personally liable for oppression or unfairly prejudicial conduct towards certain stakeholders, such as shareholders. These parties have reasonable expectations that directors will fulfill their duties to the company fairly. Consequently, in certain circumstances, a director may be personally liable if, for example, they gained a personal benefit or increased their control of the company as a result of the oppressive or unfairly prejudicial conduct.

Statutory provisions may also impose personal liability on a director. For example, a director will face personal liability if they pay a dividend, purchases, or redeems shares in the company where the company is insolvent or the action would render it insolvent. Indemnifying another director or officer where indemnity is not permitted by the company’s articles, its memorandum, or by statute may also result in personal liability. Authorizing the making of a false or misleading statement can give rise to personal liability. Significantly, while a director is generally not liable for the misdeeds of other directors if a resolution that authorizes illegal or improper conduct is passed while the director is absent, that director must dissent in writing within seven days of learning of the prohibited act or they will face personal liability. If there is a causal connection between a director’s inaction and a loss suffered by the company, then the director may be held liable for the loss.

Where the director failed to exercise due diligence, depending on the nature of the business a number of other statutes may also impose liability. A director may face personal liability if a company fails to pay the Canada Revenue Agency for any amounts owing, including interest and penalties, GST remittances, failure to withhold and remit income tax, or failure to deduct and remit for employment insurance or the Canada Pension Plan. Liability for these amounts only attaches to a director who was acting as a director when these amounts became due and has acted as a director within the last two years. A director should also be aware of a company’s need to withhold income tax for employees claiming tax exemptions under the Indian Act for Indian property that is not actually situated on a reserve. A director may face personal liability for any amounts that the company failed to withhold and that the CRA has been unable to recover from the company. A director may be excused from personal liability if they can demonstrate that they acted reasonably and diligently in the circumstances by trying to resolve any of the business’ financial difficulties to assist with payment and by ultimately ensuring that the company pays any amounts owing.

Under the Employment Standards Act, each director of a company may be liable for up to two months of unpaid wages for each employee. However, a director will not be personally liable for termination pay, vacation pay that becomes due after the director has ceased to hold office, or for money that remains in an employee’s time bank after the director has ceased to hold office if the company is in receivership or pursuing bankruptcy proceedings. Directors may also be liable for injuries related to unsafe working conditions.

A director may face personal liability for failure to comply with environmental laws where they did not exercise due diligence to prevent this failure. In certain cases, where a company’s actions have resulted in contamination, directors have been found personally liable despite not being a director at the time the company caused the contamination.

A director may reduce the risk of personal liability by properly fulfilling his or her duties as director, by being familiar and ensuring compliance with the applicable statutes and the company’s articles and other governing documents, by carefully appointing and maintaining proper supervision over officers and experts, and by maintaining appropriate governance policies. A director may also reduce his or her personal liability risk by ensuring that there is adequate liability insurance in place for directors and that there is an indemnity agreement from the company to provide indemnity for personal liability, when appropriate, that occurs while performing directors’ duties.

SUMMARY

The company will generally protect a director from personal liability; however, there are certain circumstances in which a director will experience personal liability. In addition to personal liability for fraudulent or illegal conduct, a director may also face liability for failing to represent oneself as a director of the company or failing to act within the scope of their authority as director. A director must also ensure that he or she is familiar with any laws under the statutes that apply to the company, and that any obligations arising from income tax, GST, Employment Insurance, or the Canada Pension Plan are withheld and remitted. In order to avoid personal liability, a director must fulfill their obligations to the company by acting in the best interests of the company, by exercising reasonable care, diligence and skill, and by acting in accordance with the applicable statutes, regulations, and the memorandum and articles of the company.