Frequently Asked Questions

Bankruptcy - Directors’ Liability Questions

What personal liabilities do directors of a corporation have?

When a limited company goes bankrupt and there is a shortfall to creditors, the directors in most cases are not liable for any shortfall unless they have personally guaranteed the corporate loans or are party to the debt.

There are situations where directors are liable for the debts of a corporation by law:

• Wages of employees - In accordance with the Employment Standards, a director or an officer of a corporation is personally liable in an amount not exceeding two months wages for each employee. (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.

There are many other situations where directors could have personal liability for actions of corporations that they direct. In all cases people agreeing to be directors of corporations, should discuss their liabilities with component legal advisors.

Resigning as a Director of a Corporation does not relieve you of any Directors' Liability that may have arose while you were a Director.