Nov 2017 Charity & NFP Law Update
On September 22, 2017, the Ontario Superior Court of Justice released its decision in Ahmed v Hossain, which involved a governance dispute at the Danforth Community Center (the “Center”), a not-for-profit corporation established under the OCA. The By-law for the Center (the “By-law”) established two separate boards, a “Board of Trustees” and a “Board of Directors” to govern different aspects of the Center. The By-law stated that the Board of Trustees was responsible to hold the property for the Center, monitor usage of the said property, provide accountability over the Board of Directors, and act as the Board of Directors if that board was dissolved, but only until such time that a new Board of Directors had been elected. The By-law stated that the Board of Directors was responsible for the day-to-day operations of the Center, as outlined in greater detail in the By-law.
An emergency meeting of the members was called, at which the Board of Trustees purported to dissolve the Board of Directors and usurp the authority of the Board of Directors. In separate incidents, the Board of Trustees also purported to bar a member indefinitely from entering the Center’s mosque and also bar two of the members (who were also applicants to the above case) from running for any administrative office at the Center for ten years.
The court held that neither the Board of Trustees nor the members had the authority under the Center’s general operating by-law, the OCA, or under the applicable common law to dissolve the Board of Directors, to install the Trustees in place of the Board of Directors, or to suspend the rights of the members as outlined above. As such, the court declared the purported dissolution of the previous Board of Directors and the steps taken by the Board of Trustees to suspend the rights of the applicant members to be unlawful and of no force or effect. The court noted that since proper notice of the emergency membership meeting was not given, even if the By-law did provide authority to carry out the above actions, those decisions would have been invalid due to insufficient notice.
This case confirms that while courts are generally reluctant to intervene in the internal affairs of not-for-profits, where an organization does not comply with its general operating by-law or the applicable corporate statute, the courts may take steps to intervene in those situations. In addition, as a practical suggestion, a single board structure is much simpler to work with from a governance perspective and will help to avoid confusion on the allocation of responsibilities that could otherwise arise where a double-board structure is utilised, as evidenced by this case.