Axa, Ogilvy Renault identify risks for directors of insolvent companies

Directors of insolvent or bankrupt corporations may be held liable for a multitude of sums whose payment to the government is required by law, including non-remitted sales tax and unpaid deductions on employee wages, cautions Ogilvy Renault and Axa Insurance in a joint report.
In ‘Identifying and Managing the Risks of Corporate Directorship,’ Axa and Ogilvy Renault outline likely sources of statutory liability for directors of corporations in an insolvency context.
Some of the main sources of statutory liability in this scenario include:
• directors of a corporation may be held jointly and severally liable to the corporation’s employees for up to six months’ wages;
• directors may be held jointly and severally liable with the corporation where the corporation fails to remit any taxes it is required to collect;
• directors may be held jointly and severally liable with the corporation for the non-payment of source deductions from employee wages; and
• directors may also be required to pay various employee and employer contributions not paid by the corporation – this may include contributions owed to the workers compensation board, pension plan payments and contributions required to be made to Quebec’s health insurance system.
Axa and Ogilvy Renault recommend that directors should have a heightened sense of prudence when a corporation is in financial difficulty. “They must ask more questions and insist on receiving detailed answers from management,” the report says. “If not, they may be held liable, as they won’t be able to demonstrate that they discharged the responsibilities that were incumbent on them.”