What does it take to resign as a director of a corporation? An undated and unsigned resignation that sits in a lawyer’s file will not suffice, according to R v Chriss, 2016 FCA 236, rev’g 2014 TCC 254.
C and G were directors of an Opco of which their husbands were the “owners and executives”. In 2001 C and G told their husbands that they wished to resign as directors. The husbands gave instructions to lawyers to prepare the resignations. The resignations were never signed or dated, and, in the case of C’s resignation, at least, it never left the lawyer’s office.
Opco, of course, failed to remit employee source deductions between 2000 and 2005. C and G argued that they had resigned as directors of Opco in 2001.
The Court was having none of it. After citing subsection 121(2) of the Business Corporations Act, RSO 1990, c B.16, the Court wrote:
[14] It is thus self-evident that the status of directors must be capable of objective verification. Reliance on the subjective intention or say-so of a director alone would allow a director to plant the seeds of retroactive resignation, only to rely on it at some later date should a director-linked liability emerge. The facts of this case illustrate why subsection 121(2) of the OBCA has been drafted the way it is: the dangers associated with allowing anything less than delivery of an executed and dated written resignation are unacceptable.
[15] There was no “written resignation received by the corporation” within the meaning of subsection 121(2). Unsigned letters of resignation with no effective date, were found in the solicitor’s file, thus, the judge erred in concluding that the intention of the respondents’ to resign satisfied the necessary preconditions of an effective resignation.
C and G also argued that, because they had a reasonable belief that they had resigned, they had exercised due diligence. The Court was not impressed:
[21] As noted by the Court in Buckingham, a higher standard is an incentive for corporations to improve the quality of board decisions through the establishment of good corporate governance rules and discourages the appointment of inactive directors who fail to discharge their duties as director by leaving decisions to the active directors. One consequence of this is that a person who is appointed as a director must carry out the duties of that function on an active basis and will not be allowed to defend a claim for malfeasance in the discharge of his or her duties by relying on his or her own inaction.
[22] The judge did not consider the due diligence defence in light of these principles.
[23] The test applied by the judge in this case also set far too low a standard. He applied a test whereby a director who requests (orally) the executives of the corporation to arrange for counsel to prepare and draft a resignation can, by virtue of that act alone, reasonably believe that they have resigned. On this standard, a director need not ever sign a document or receive an indication to the effect that his or her resignation was delivered to the company.
[24] Directors must carry out their duties on an active basis. A director cannot raise a due diligence defence by relying on their own indifferent or casual attitude to their responsibilities. A reasonable director would insist on being satisfied that their intention to resign had been effected.
The Court agreed with the trial judge that neither C nor G had lost de facto control of Opco so that they could avail themselves of the due diligence defence:
[28] The respondents cite a number of cases for the proposition that when a director has lost de facto control of a company, such that they are unable to remit, they are no longer liable for failure to do so: see in particular Worrell v. Canada, 2000 CanLII 16269 (FCA), [2001] 1 C.T.C. 79, 2000 D.T.C. 6593 (F.C.A.); Liddle v. Canada, 2011 FCA 159 (CanLII); Moriyama v. Canada, 2005 FCA 207 (CanLII).
[29] These authorities do not help the respondents. In all of the cases the respondents cite in which a director was found not liable, the directors were unable to discharge their responsibilities because a bank or creditor had intervened and had the legal ability to prevent the company from remitting funds.
