The responsibilities of company administrators are governed by several laws. Those laws’ provisions and legal scope are often unknown or misunderstood. It is then all the more important to remind them that the obligations they entail do not vanish automatically if the company goes bankrupt or becomes insolvent.
Given that such responsibilities may vary from one province to another, it is strongly recommended that administrators who operate a company outside Quebec or Ontario consult a legal advisor on the subject.
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Fiscal Responsibilities
The Canadian tax legislation imposes various joint and several liabilities for the administrators and the company concerning fiscal debts. In concrete terms, this means that if the company goes bankrupt or becomes insolvent, the administrators will be liable to pay the amounts due in respect of such taxes. Interest and penalties might also be added in some cases.
Tax debts to be considered include:
- payroll deductions at source which, withheld for income tax purposes, have neither been paid nor remitted
- Goods and Services Tax (GST) and Quebec Sales Tax (QST) remittances
- contributions under the Régime des rentes du Québec (RRQ)
- contributions to the Employment Insurance fund
- payments to the Commission de la santé et de la sécurité du travail (CSST)
Administrators must prove their good faith. By ensuring with diligence that the company complies, or has complied, with its obligations under tax legislation, they will lessen their liability in this regard. Prudent, they will record in writing follow-up plans for the payment of these various remittances and they will make sure that such payments have actually been made, while monitoring diligently the progress of the company’s financial situation.
Furthermore, it is important to mention that an administrator will not be discharged from this responsibility even if he or she resigns before the company goes bankrupt or becomes insolvent.
Responsibilities for unpaid wages
In order to protect the rights of employees, various provincial and federal laws establish that, when a company goes bankrupt or becomes insolvent, the responsibility for unpaid wages lies also with the administrators of the company.
While it is important that administrators always act in good faith and with diligence in such matters, it is also crucial for them to see that the company pays the amounts due in respect of wages, leave and vacations, and sums related to termination notices. Failing this, if the company goes bankrupt or becomes insolvent without paying this debt, they will have a joint and several liability to settle it.
Bankruptcy and Insolvency Act
When a company goes bankrupt or becomes insolvent, there is a remedy against the administrators which allows the reimbursement of dividends or redemption of shares within 12 months before the bankruptcy. The trustee will be allowed to exercise such a remedy if the company was or became insolvent as a result of the payment of these dividends or redemption of shares.
To avoid this remedy, the administrator will have to prove that he or she was not aware that the company was insolvent when the payment was made and that he or she acted prudently and diligently.
Contractual Responsibilities
Administrators are more and more frequently required by financial institutions and suppliers to guarantee or endorse loans, services or advances they provide to a company. It is important for the administrator to clearly understand, when signing such a contract, what his or her responsibilities will be if the company goes bankrupt or becomes insolvent. An administrator who signs the documentation as a co-borrower, endorser or guarantor accepts a joint and several liability with the company. Therefore, he or she commits to pay any amount due by the company.
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In summary, it can be quite restrictive legally to become a company administrator in Quebec and in Canada. That is why it is important to act with caution in this matter. Seeking expert advice from lawyers, accountants or insolvency and restructuring professionals such as trustees should help get a better understanding of the subject.
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