Consider Continuance to Saskatchewan for more Hospitable NFP Regime

The Canada Not-for-profit Corporations Act (the "CNCA") is inhospitable to directors in several respects. Nova Scotia and, especially, Saskatchewan, are more hospitable to directors than the federal regime.

1. CNCA as a Regime Inhospitable to Directors

The Canada Not-for-profit Corporations Act (the "CNCA") is inhospitable to directors in several respects. Notably, the CNCA:

● requires each director to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (creating a negligence or misfeasance standard) and, except in the limited case where a non-soliciting corporation puts in place a unanimous member agreement shifting the decision-making authority to the members, disallowing any attempt by the director to contract out of his or her liability for misfeasance;

● imposes liability on directors for all debts owing by the corporation to employees for services rendered to the corporation, not exceeding six months' wages payable to each employee for services performed for the corporation while he was a director. Notably, the director's liability under the CNCA covers all employees of the corporation worldwide; and

● imposes liability on directors for payments or distributions to a member or director contrary to the CNCA (including payment of an indemnity contrary to the CNCA).

2. Less Inhospitable NFP Regimes

Saskatchewan and Nova Scotia are more hospitable to directors than the federal jurisdiction.

(a) Saskatchewan

Subject to various exceptions and limitation, no director or officer of corporation incorporated or continued under the Saskatchewan Non-profit Corporations Act, 1995 (the "Saskatchewan Act") is liable in a civil action for any loss suffered by any person. For this purpose, loss means any pecuniary or non-pecuniary loss respecting, arising out of or stemming from any act or omission of:

● the corporation; or

● any act of a director, officer, employee or agent of the corporation in the exercise or supposed exercise of any of his or her powers or in the carrying out or supposed carrying out of any of his or her duties.

The liability shield is, however, subject to the following exceptions and limitations:

● The director must have acted in good faith at the time of the act or omission giving rise to the loss.

● The loss must not have been caused by fraudulent or criminal misconduct by the director.

● The act or omission of the director or officer that caused the loss must not constitute an offence against the Act, any other statute of Saskatchewan or any federal statute.

● Another "Act" must not expressly provide otherwise. For example, the liability of directors and officers for unpaid wages, salaries, annual holiday pay, public holiday pay, pay in lieu of notice and other debts for services performed for the corporation under the Saskatchewan Labour Standards Act falls under the exception to the liability shield. However, the Saskatchewan Labour Standards Act only protects those employees who work in Saskatchewan (in contrast to the CNCA, which covers all employees worldwide). Legislation in other provinces (such as the Ontario Employment Standards Act, 2000) may apply to protect employees in those jurisdictions. Therefore, a complete analysis of the liability shield depends on where the employees are located.

(b) Nova Scotia

Under the Nova Scotia Volunteer Protection Act ("VPA"), no volunteer of a non-profit organization is, subject to various conditions and exclusions, liable for damages caused by an act or omission of the volunteer on behalf of the organization.

A volunteer (which may include a director) is an individual performing services for a non-profit organization who does not receive in respect of those services compensation (other than reasonable reimbursement or allowance for expenses actually incurred) or money or any other thing of value in lieu of compensation in excess of $500 a year.

A non-profit organization is defined in the VPA to include any non-profit corporation or society incorporated under the Nova Scotia Societies Act and conducted for public benefit and operated primarily for charitable, civic, educational, religious, welfare, health, sport, recreation, tourism, heritable or culture purposes.

Damages includes both physical and non-physical losses and both economic (that is, pecuniary loss resulting from damages, including loss of earnings or other benefits related to employment) and non-economic (that is, losses for physical and emotional pain and suffering, including injury to reputation) loss. Essentially, the VPA is directed at uninsured tort damages such as might be suffered by the beneficiary of a service at the hands of a negligent volunteer.

To qualify for liability protection, the volunteer must have been:

● acting within the scope of his responsibilities in the non-profit organization at the time of the act or omission; and

● properly licensed, certified or authorized, if required by law, by the appropriate authorities for the activities or practice undertaken by the volunteer at the time the damage occurred.

The liability shield would not apply to any of the types of liability imposed on directors under the CNCA other than certain acts or omissions of negligence. It also does not apply if the damage was caused by wilful, reckless or criminal misconduct or gross negligence of the volunteer.

2. Continuance

Directors of a CNCA corporation who are concerned about their liability exposure might carefully consider the advantages of continuing the corporation under the Saskatchewan Act.