From time to time, the shareholders of a corporation may wish to remove a director from office. This could be for several reasons, such as failing to meet their duty of care, diligence, honesty, or loyalty. In certain circumstances, directors may be personally liable for their (in)actions. Since we wrote a blog on this topic, so we won’t be covering it again in this article but we suggest reading about it.
Failing to Act
A director can be held responsible for failing to act. For example, a director that ignores the fraudulent behaviour of an officer can be grounds for removal from office.
Remaining Informed
Director’s cannot defend themselves by claiming that they were not aware of what the corporation was doing. Directors must remain informed about the activities of a corporation. This means they should conduct their research without blinding relying on information provided by the officers. By remaining informed, directors are able to act in the best interest of the corporation. This information, however, should not be used for a director’s personal gain.
Conflicts of Interest
An important part of running a corporation is avoiding situations of conflicts of interests. Directors must act in the best interests of a corporation, and when they are placed in a conflicting position they must disclose in writing their interest in the matter.
How do Shareholders Remove Directors?
The procedure for removing a director is similar under both the Quebec Business Corporations Act (the “QBCA”) and the Canada Business Corporations Act (the “CBCA”). In today’s blog, we’ll cover the removal of directors from either act and highlight any key differences.
Shareholders may opt not to re-elect directors at the end of their terms, or the directors can choose to resign. Alternatively, the shareholders of the company can remove the directors from office before the end of term [1].
Under the CBCA, directors can be removed from office by ordinary resolution passed at a special shareholders' meeting [2]. A director who receives notice of removal or otherwise learns about it is entitled to submit a written statement opposing the removal [3]. The corporation must then circulate that statement to the shareholders and the Director of Corporations Canada [4].
Similarly, under the QBCA an ordinary resolution passed at a special shareholders' meeting can be used to remove a director from office [5]. If the articles of the corporation include cumulative voting then the shareholders will have to count the number of votes attached to the shares held by all the shareholders to determine whether the director will be removed [6].
As with the CBCA, the QBCA also allows directors to object to their removal. Specifically, the director may attend the shareholder meeting and be heard. Or they can explain in a written statement read at the shareholders meeting why they oppose their removal [7]. While no such provision exists under the CBCA, corporations governed by the QBCA can avoid this opposition by passing a written resolution in lieu of a meeting signed by each shareholder approving the removal of a director [8]. Under the CBCA, if a director submits a written statement opposing their removal, then the shareholders cannot pass a written resolution in lieu of a meeting [9].
Let Us Help You
There are multiple steps involved in removing a director from the office, which include updating the minute book and filing updating declarations with corporate registries. We can help you review your options and complete the documents, forms, and government filings required on your behalf.
This blog post is not legal advice and is for general informational purposes only. Always speak with a lawyer before acting on any of the information contained herein.
[1] 142 QBCA, 108(1) CBCA
[2] 109(1) CBCA
[3] 110(2)(b) CBCA
[4] 110(3) CBCA
[5] 144 QBCA
[6] Ibid.
[7] 150 QBCA
[8] 178 QBCA
[9] 142 CBCA