DIRECTOR LIABILITY IN FOR-PROFITS

Transcription

1 DIRECTOR LIABILITY IN NOT-FOR FOR-PROFITS Presented to FMI Regina Chapter Leadership, Governance and Accountability September 25, 2007 Gordon Gunn, CA, CISA, CMC, PMP KPMG LLP

2 SO, WHAT DO YOU KNOW? As directors of a not-for-profit organization How can personal liability arise as a result of your actions/inactions as a director? How can the actions/inactions of the Board result in personal liability to you? How can the actions of your volunteers and members result in personal liability to you?

3 OBJECTIVES To understand how personal liability can arise for directors of a not-for-profit organization Identify measures to reduce the risk of personal liability To be aware of the typical coverage provided and exclusions in Directors and Officers Liability Insurance

4 DIRECTOR LIABILITY General rule--directors are not personally liable for the contracts of, or the actions or omissions of, the organization they serve. Referred to as the "corporate veil". General standard of care. Exceptions director liability can arise in four basic areas: contracts, torts, common law and statutes.

5 1 LIABILITY AND CONTRACTS Directors not personally responsible for contracts they sign on behalf of the corporation, provided they have proper legal authority to sign. Personal liability can arise at common law or under statute if the corporation is not satisfactorily identified on documents.

6 2 LIABILITY IN TORT Tort is a civil wrong and for which the injured party may seek damages. Directors liable if their conduct is tortious (e.g. negligent, careless).

7 2 VICARIOUS LIABILITY Directors may have vicarious liability for the actions of others. Arises when a person is held responsible for the tort of another even though the person being held responsible may not have done anything wrong.

8 2 LIABILITY FOR BREACH OF FIDUCIARY DUTY Directors who breach their duties may be liable if the organization suffers a loss that can be directly attributed to their actions or omissions. Directors must by loyal, honest, act in good faith and avoid conflicts of interest

9 3 COMMON LAW LIABILITIES Directors acting outside the scope of their authority are personally responsible for any decisions or actions. Directors are considered to have acted as individuals rather than as a corporate body.

10 4 STATUTORY LIABILITIES Provincial and federal statutes impose personal liability on directors Most common relate to employees, reporting requirements, taxation and environmental regulations.

11 4 STATUTORY LIABILITIES Employees Wages Source deductions EI/CPP Wrongful termination Discrimination, GST Failure to collect

12 10 MEASURES TO REDUCE THE RISK 1. Be informed of the potential for liability 2. Understand your responsibilities and accountabilities 3. Act in good faith and in the best interests of the organization 4. Act within your scope of authority 5. Monitor payment of employee remuneration and withholdings

13 10 MEASURES TO REDUCE THE RISK 6. Supervise the hiring of employees and the recruitment of volunteers 7. Avoid conflicts of interest 8. Implement a risk management system 9. Act to address problems as and when they arise. 10. Maintain Directors and Officers Liability Insurance

14 FMI Example: Directors & Officers Insurance Coverage $1,000,000 per claim/policy period Covers: Director and Officers Wrongful Acts Non-Profit Outside Directorship Liability Employment Practices Wrongful Acts Fiduciary Wrongful Acts Penal Defence Cost Liability Defence Chapters are covered through policy Endorsement #1

15 Directors & Officers Insurance Coverage Exclusions, including: Bodily injury, sickness, mental anguish, disease or death of any person or damage to or destruction of any tangible property Discharge, dispersal, release or escape of POLLUTANTS Deliberate fraudulent, dishonest or criminal acts Claims related to any INSURED gaining any profit, remuneration or advantage not entitled.

16 REVIEW What is the general rule with respect to director liability? What is Vicarious Liability? What are the four basic areas in which director liability can arise? Identify five ways in which your risk of personal liability as a director can be reduced.

17 RESOURCES Liability of Directors - Jane Burke- Robertson, Barrister and Solicitor Charityvillage.com nteers the_law_book.pdf