Extra diligence needed with director resignations

An industry expert explains why HR must be vigilant when it comes to accepting notice from certain stakeholders.

Accepting an employee’s resignation might not seem like a particularly difficult task but one industry expert has warned HR that – when it comes to directors – extra diligence is always required.

MaryAnn Loney, an associate with McLennan Ross, specialises in tax planning and dispute resolution – she says it’s important for employers to know exactly when a director resigned because they have to be held accountable at a later date.

“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 (including withholding to non-residents and payroll source deductions) or GST,” she explained.

“Directors may also be jointly and severally liable for unpaid wages under employment legislation,” she continued. “This makes it very important to determine when a director has resigned.”

Loney’s comments come after a recent Federal Court of Appeal case – Canada v. Chriss – found that specific measures must be met for a resignation to be considered valid.

In the case, the two directors had expressed an intention to resign to their husbands who instructed the corporation’s lawyer to prepare the paperwork. An unsigned resignation was found in the lawyer’s file but arbitrators rules this didn’t satisfy the necessary preconditions of an effective resignation in the Ontario Business Corporations Act.

“Under the Ontario Business Corporations Act, a director's resignation is only effective at the later of when the resignation is received by the corporation and the effective date,” explains Loney. “The Alberta Business Corporations Act contains a similar provision.”

According to Loney, a director resignation is only effective if it is signed and delivered to the corporation’s registered office.

“We recommend that the resigning director ensure the resignation is also properly recorded in the corporation's minute book and a change of directors is appropriately filed with Corporate Registries,” says Loney.

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