The Directors of a corporation may be held personally liable of certain debts of the corporation. Upon the foreclosure of a corporation pursuant to a bankruptcy or receivership, should these debts not be entirely paid by the proceeds of the sale of assets, Directors could be forced to pay them personally. Here is a summary of the claims which may affect Directors.
The amounts withheld on the employee salaries which are not remitted to the government agencies. These amounts constitute a priority charge on the assets of the corporation. However, in the event that the liquidation of the corporate assets does not generate sufficient sums to cover such claims, Directors would be personally liable for the deficit.
Salaries, Vacations, Termination Notices
Under the “Wage Earner Protection Program Act” (“WEPPA”), employees are protected by a priority charge on the current assets (accounts receivable, inventory, etc.) of the company for salaries and vacations owing six (6) months prior to the bankruptcy or receivership.
Source: Government of Canana
This super priority is limited to an amount of $2,000 per employee. In the event that an amount in excess of the super priority is owed to one or many employees, the Directors could be held personally liable for the difference. Here are a few examples:
|A||B||C (A+B)||D||E (A+D)|
|Salaries Owed||Vacations Due||Total||6 Months Portion Vacation||Total Priority Max $2,000|
Difference Claimed from Directors
|A||800||1 100||1 900||1 100||1 900||0|
|B||1 000||1 500||2 500||950||1 950||450|
|C||1 000||2 800||3 800||2 900||2 000||1 800|
In the event that the realization amount is insufficient to pay the priority portion ($2,000 per employee), the Directors would be responsible for the totality of the amounts owing with regards to salaries and vacations to employees.
The termination notices are also provided for in the WEPPA to a maximum of approximately $7,148 (the total priority salaries, vacations, termination notices is limited to 7 times the weekly insurable earnings in virtue of the Unemployment Insurance Act). Directors are not responsible for severance amounts owing to employees in the event of a foreclosure.
Directors may be held liable for GST and QST amounts owing by the corporation.
Since January 1st, 2011, the Commission des normes, de l’équité, de la santé et de la sécurité du travail (“CNESST”) has modified their legislation allowing a recourse against Directors for unpaid CNESST premiums including interest and penalties in the event that the corporation defaults in its payment. CNESST benefits from a priority on the assets of the corporation leaving Directors liable for any shortfall should the assets not cover for the total amount owing.
Do not hesitate to contact one of our advisors if you have any questions about your responsibilities as administrator.