Directors' Liability

When a limited company goes bankrupt and there is a shortfall to creditors, the directors in most cases are not liable for any shortfall.

The directors are liable for a shortfall only if they have given personal guarantees for debt or if laws have been passed specifying that directors will be liable if there is a shortfall. These statutory creditors are as follows:

• Wages of employees - Directors are responsible for wages in accordance with the laws in the various provinces. An exception is in BC where directors are not liable for wages effective with the Employment Standands Act that came into force on May 31, 2002. Where the corporation is in receivership, bankruptcy or subject to action under Section 427 of the Bank Act, the director or officer of a corporation is not personally liable for severance pay.

• Source Deductions - Officers and directors are personally liable for unpaid source deductions.

• GST - Directors and officers are personally liable for GST owing.

• Provincial Sales Tax  - Directors and officers are personally liable for PST owing in some of the provinces.  For example, in B.C. if they were "hands on" managers and hence knew or should have known that PST should have been remitted. [BC Court of Appeal "R. Vs. Thomas D'Sena" - 1995]


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