Directors' Liability

Fact sheet explaining Director's Liabilities in the role of a co-operative.

Excerpt:

Introduction 

Being a director or officer of a co-operative is a heavy responsibility.  Directors and officers are expected to contribute time, skill, and energy to an organization in their role as director.  They are also expected to make decisions in the best interests of the co-op while they serve, and make those decisions in good faith and adhere to a certain standard of care.  Directors can be held liable for their decisions.  This means that even if directors act in good faith and in the best interests of the co-op, it is possible for them to be sued as a result of their actions.  Co-ops can provide a measure of protection for directors and officers by stating in their by-laws that directors and officers will be indemnified” if they are sued. This means that the co-op will cover the legal costs and pay any judgment.   

In 2004, the Co-operative Corporations Act was amended to give important benefits for directors and officers of Ontario co-operatives.  Until this amendment, co-ops could not cover directors if they were not careful enough and made an error in judgement while they were carrying out their duties. This is called negligence, and it was not possible for a co-operative to purchase insurance to cover directors for this.  However, business corporations have been able to provide a much broader indemnity to directors for more than 20 years.  

Since the amendment to the Act, a director or officer of a co-operative can be covered for negligence, just as car insurance covers an individual if they are negligent in driving a car and get into an accident.

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