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There may be various reasons that a director of a corporation needs to be removed or replaced. Perhaps the director is no longer able to fulfill their duties, has breached their duties to the corporation, or is conducting the affairs of the corporation in a manner that is oppressive to shareholders or stakeholders.

Who Can Remove A Director?

Generally, only two entities have the authority to remove a director from office:

1. Shareholders; or
2. the Court.

Removal by Shareholders

The statutory provisions of the Canada Business Corporations Act (“CBCA”) and the Business Corporations Act of Ontario (“OBCA”) each have provisions under which a director can be removed from office by it’s shareholders.

Sections 109(1) of the CBCA and 122(1) of the OBCA provide that shareholders can remove a director by an ordinary resolution of the shareholders passed at a special meeting of the shareholders called for that purpose.

Removal by the Court

A removal of a director by way of a court order is an exceptional remedy and one that is rarely exercised unless corrective sanctions are necessary. Usually the director’s actions must rise to a significant level of misconduct such that it would trigger relief under the oppression remedy.

Situations where a director has been removed by Court Order include:

• Where the director has perpetrated a fraud or misappropriated funds;
• Where the director has engaged in self-dealing or set up a competing business;
• Where the director prefers their own interests over the corporations;
• Where the director engages in a conflict of interest and deceit;
• Where the directors negligent and incompetent management amounts to unfairly prejudicial conduct; or
• To prevent the likelihood of future oppression.

The Courts have wide and flexible statutory discretion under sections 240 and 241 (3) of the CBCA and 246(4), 247 and 248(3) of the OBCA to make any order on an interim or final basis that it thinks fit. Including an Order removing a director.

Indeed, the appointment and replacement of a director is specifically contemplated at 241(3)(e) of the CBCA and 248(3)(e) of the OBCA. While these sections don’t use the word “removal” of a director, the courts have held that such authority is implicit in this section and that the specific types of orders identified under those sections are not exhaustive.

Gilbertson Davis LLP has lawyers with experience in seeking the removal or replacement of a director by way of court order.

If you have issues concerning the conduct of directors of a company please contact Gilbertson Davis LLP for an initial consultation.