Two recent Ontario decisions have dealt with the
perplexing question of when the resignation of a director of a non-share
capital corporation becomes effective and whether or not a director can later
revoke such resignation after having made the resignation or, alternatively,
before the date specified in the resignation. On June 28, 2012, the Ontario
Superior Court of Justice released a decision in the matter of Adams v.
Association of Professional Engineers. This decision then was applied in the decision of Kandolo v. Kabelu, which was released on September 7, 2012.
This Charity Law Bulletin summarizes these
decisions, as well as provides commentary concerning the effective date of
resignation of directors under the Canada Not-for-profit Corporations Act and the Ontario Not-for-profit Corporations Act.
B. OVERVIEW OF DECISIONS
1. Adams decision
In Adams, a member of Council for the Association
of Professional Engineers of Ontario ("PEO") submitted a resignation
by email to the other Council members indicating that he had resigned. The
following day he sent a further email to the Council of PEO indicating that his
resignation would be effective at the next annual general meeting of PEO. Ten
days after sending this resignation the Council member sent a further email
indicating that he was revoking his resignation. However, the remaining Council
members subsequently voted to accept the resignation.
The court was left to decide when the resignation of a
director of a non-share capital corporation becomes effective and whether or
not it can be withdrawn by the director without the consent of the remaining
directors. PEO was created by an act of legislature under the Professional
Engineers Act and was therefore governed by that act, its regulations, the Canada
Corporations Act, and PEO’s own by-laws. The by-laws of PEO did not address
the resignation of a director. The court examined the Canada Corporations
Act and determined that the statute was also silent on the matter of a
director's resignation. However, the court consulted the Ontario Business
Corporations Act, as well as the Canada Not-for-profit Corporations Act (“CNCA”),
which provide that a resignation is effective at the time the resignation is
received by the corporation or at the time specified in the resignation,
whichever is later.
Adams argued that directors of non-share capital
corporations should not be subject to the standards of for-profit corporations
under the Ontario Business Corporations Act. The court, however, found
that there was no principled reason to treat directors of non-share capital
corporations differently from other directors. In this regard, the court noted
that the rational that directors of for-profit corporations should be able to
effectively resign without having their resignation accepted applied equally to
directors of non-share capital corporations. The court adopted the rationale of
not requiring the acceptance of a director’s resignation by the remaining
directors concerning for-profit corporations, and stated as follows:
First, to create certainty for the director as to when
any liability he or she has might end and second, because absent some special
contractual arrangement or special provision in the articles of incorporation,
the corporation is not in a position to refuse the director’s resignation and
force him or her to stay on. Similarly, if effective resignations could be
delivered and then revoked at will by the director, this could create
uncertainty and confusion for the corporation and its remaining directors.
Having found that the resignation was unequivocal, the
court found that the resigning director could not thereafter revoke his
resignation without the consent of the other directors.
2. Kandolo decision
This decision concerned the effective date of the
resignations of two directors of the Olangi Washo Foundation, a non-share
capital corporation under the Canada Corporations Act and registered
charity, and whether or not the directors could revoke their resignations.
A lawyer for the two directors wrote a letter to the board
of directors of the foundation stating that the two directors were resigning
and that the foundation was to notify all government agencies that they no
longer had any obligations with the foundation. Enclosed with the letter were
signed written resignations addressed to the board of directors. Approximately
two months later the lawyer for the two directors wrote a letter to the
foundation attempting to revoke the resignations of the directors.
The court followed the decision in Adams and
considered the resignation of the two directors of a corporation under the Canada
Corporations Act to have been effective when they were sent by letter to
the corporation, subject to there being a contrary provision in the by-laws. Of
note, the court examined the Canada Business Corporations Act (“CBCA”),
which differs slightly from the Ontario Business Corporations Act (“OBCA”) that had been examined in Adams, in that the OBCA states the
resignation is effective when it is received, while the CBCA states the
resignation is effective when it is sent.
C. COMMENTARY AND CONCLUSION
These decisions provide guidance for directors of charitable
and non-profit corporations incorporated under the Canada Corporations Act.
In addition, it should also be noted that the Ontario Corporations Act is silent on the resignation of a director. As a result, the decisions likely
also apply to those charitable and non-profit corporations incorporated under
the the Ontario Corporations Act. In this regard, subject to any
contrary provision in the by-laws of a charitable or non-profit corporation,
individuals holding the office of director should be certain they wish to
resign from the corporation prior to submitting a written resignation to the
corporation. Unlike the schoolyard, for corporate directors there are no
"take-backs" for a resignation. In addition, even if it is a general
practice of a corporation to accept resignations of directors or not, the
acceptance of the resignation by the board of directors is not necessary in
order for the revocation to be effective.
As noted in Adams, the CNCA will provide some
clarity to situations like those discussed in the cases. The CNCA, similar to
the CBCA, states at subsection 129(2) that a resignation of a director becomes
effective at the time a written resignation is sent to the corporation or at
the time specified in the resignation, whichever is later. The ONCA, like its
OBCA model, states in subsection 25(2) that a resignation of a director becomes
effective at the time the resignation is received by the corporation or at the
time specified in the resignation, whichever is later. While these cases confirm
that a resignation cannot be revoked by a director, a director who is resigning
should be aware of the subtle distinction between “sent” and “received”
contained in each statute in order to determine when their resignation is