Soulliere – Federal Court of Appeal finds that an incorporating director’s resignation was invalidated because he was not replaced

The taxpayer was named as the sole incorporating director of an Ontario corporation, and a few weeks later he submitted a written resignation as director without any replacement director having been appointed, as required by s. 119(2) of the OBCA, so that such resignation was invalid. However, the taxpayer submitted that there had been a deemed appointment of a replacement pursuant to s. 115(4) of the OBCA (so that s. 119(2) did not nullify his resignation). S. 115(4) provided:

Where all of the directors have resigned or have been removed by the shareholders without replacement, any person who manages or supervises the management of the business and affairs of the corporation shall be deemed to be a director for the purposes of this Act.

In rejecting this submission, Gleason JA stated, inter alia:

On its plain meaning, a deeming provision does not constitute an “election” or “appointment” … .

[T]hose who are deemed to be directors by virtue of subsection 115(4) of the OBCA may often be unaware that they have been deemed to hold that office. If incorporating directors were allowed to resign before the first meeting of the corporation’s shareholders where permanent directors are elected, the person deemed to be a director could well be unaware of their fiduciary obligations to the corporation and the steps mentioned in subsection 117(1) of the OBCA [respecting the appointment of the continuing directors] may not be completed.

Accordingly, the taxpayer’s appeals from assessments under ITA s. 227.1 and ETA s. 323 was dismissed.

Neal Armstrong. Summary of Soulliere v. Canada, 2022 FCA 126 under s. 227.1(4) and Statutory Interpretation - Consistency.