The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
Issue link: https://digital.carswellmedia.com/i/218955
DIRECTOR LIABILITY "IN ORDER FOR THE [ONTARIO SECURITIES COMMISSION] TO ACCEPT A SETTLEMENT, THEY NEED TO FIND FACT. ANY FACTS YOU AGREE TO … WILL FIND THEIR WAY INTO OTHER PROCEEDINGS [SUCH AS CIVIL LITIGATION, AND] AS A PRACTICAL MATTER THAT MEANS YOU WANT TO SETTLE WITH THEM LAST." Alex Cobb > Osler, Hoskin & Harcourt LLP with a flag and everything." REACH American citizens can find themselves facing director's liabilities in several ways under Canadian laws, Cobb says. First, and most obviously, if a company is incorporated under the CBCA or provincial statute, directors can be liable under Canadian law regardless of nationality. Directors of any company acting as an employer in Ontario can be liable for unpaid wages or payroll deductions under the Ontario Employment Standards Act, no matter where the company is incorporated. Any company listed on the TSX is subject to the Securities Act (Ontario) and other "real and substantial connections" to Ontario may also make directors liable in provincial courts. This includes liability for the accuracy of disclosures by issuers of any securities traded within the province, regardless of where the issuer is listed. "If there is a 'real and substantial connection' to Ontario, then an Ontario court may consider that it has jurisdiction," he says. Bresner says roughly 100 Canadian statutes impose liability on directors if they "authorize, permit or acquiesce" in a corporate action that violates one of these statutes, making it vital to ensure dissenting opinions are both expressed and recorded in minutes of board meetings. This is a wider view of liability than US case law that generally requires "participation" or "control" by an individual director. NO CONTEST Where criminal proceedings are concerned, Cobb notes that there's a very important difference between the OSC and the SEC. While the SEC has been very successful using no-contest agreements to impose fines and settle cases against companies and individuals for various misdeeds, the OSC is not currently permitted to accept no-contest settlements. 14 | LEXPERT • December 2013 | www.lexpert.ca "In order for the OSC to accept a settlement, they need to find fact," Cobb says. "Any facts you agree to … will find their way into other proceedings [such as civil litigation, and] as a practical matter that means you want to settle with them last." To change this dynamic, the OSC has proposed allowing no-contest settlements, except where a person has engaged in "egregious, fraudulent or criminal conduct." But a June 17 hearing on the matter encountered heated opposition from investor advocates and the plaintiffs' class action bar. THE KEY In both countries, the key to hauling directors before the courts in a civil action lies in "piercing the corporate veil"; convincing the court to set aside the limited liability protections of the company in order to hold directors liable. On both sides of the border, courts show considerable reluctance to set aside the separate-entity status of corporations, but American legal scholars count "veil piercing" as the most heavily litigated issue in US corporate law. US common law has established five causes of director liability: 1) a company acting as the "alter ego" of an individual; 2) corporate undercapitalization; 3) fraud; 4) failure to uphold corporate governance requirements; and 5) co-mingling of personal and corporate assets. But experts say US courts have shown reluctance to find directors liable in the absence of direct participation and intent. Canadian common law has established four similar causes for piercing the corporate veil, and one that has been called "uniquely Canadian." The Canadian outlier occurs when failure to attach personal liability would be "flagrantly opposed to justice." While the Supreme Court of Canada has given some credence to the dictum of "flagrantly opposed to justice," other courts have expressed doubts about this high-sounding but seldom-used