A destitution general meeting should not be convened indiscriminately!

 November 28, 2017 - The possible destitution of a director or of the entire Board of directors is often brought up when co-owners become dissatisfied with one of their decisions , when a faction intends to "take control" of a syndicate of co-owners and when expensive work is undertaken . This is a serious matter, both in small and large co-ownerships.

When and how to convene such a meeting?

The decision to ask for the destitution of a member or of all the members of the board of directors of a syndicate of co-ownership is not to be taken on a whim; the true reasons for destitution must be serious ones and not a strategy for personal revenge or based upon a mere disagreements. It is also necessary to distinguish between the true motives that may lead to a destitution from those the law considers as matters of qualification or of capacity to sit on the board of directors of a syndicate.

Blames

Several declarations of co-ownership contain one or more clauses, stating the reasons to destitute a director. They are all based on a crucial element: a director can be removed from office "for cause". Thus, a wrongdoing must have occurred: such as theft, illegal transfer of funds, acting in a manner detrimental to the syndicate’s rights, flagrant conflict of interest not denounced by the director, etc. Also, the law requires a director to act loyally and in the best interest of the syndicate (article 322 and following of the Civil Code of Québec); any material deviation from this standard may be alleged. In this context, a mere disagreement with a decision taken or a "settlement of account" or "personal matters" cannot legally be the basis of a request for destitution.

Incapacity

Some declarations of co-ownership (and the Law, article 327 C.c.Q.) provide that being bankrupt, under a regime of protection or under curatorship or in certain cases ceasing to be an owner entails the incapacity to hold the office of director.

Process

A request for destitution is presented before the general meeting of the co-owners (often specially convened for this purpose). In this context, it goes without saying that that the basic rules of equity militate in favor of giving the director concerned the opportunity to respond to his alleged shortcomings and to present his version of the facts. To act otherwise and without allowing such a rebuttal could be grounds to a claim for damages, more particularly because the destitution is often deliberated before a forum of many persons. Making negative statements on a director without allowing the director to respond may be problematic. Since the consequences are important, it is of the utmost importance to formulate adequately the reason and reproach justifying a destitution.

Moreover, as the law requires that an annual general meeting be held, it is sometimes advisable to wait for the next general meeting, if it is forthcoming, and simply not re-elect the director being the object of co-owners’ grievances instead of asking for his removal from office at a special general meeting called for that specific purpose.

Lastly, it is not because the syndicate does not go through the formal destitution process that an otherwise liable director is automatically exonerated from civil liability.

Case law of the Superior Court has already decided to disqualify, for a period of five years, a director who had placed himself in a situation of conflict of interest more than once, and who had been negligent: Roseberry et al. c. Desmarais et al., 2011 QCCS 5536.

 

Ghislain Raymond, lawyer and accredited mediator in civil and commercial matters
DE GRANDPRÉ JOLI-COEUR
2000, avenue McGill College
Bureau 1600
Montréal (Québec)  H3A 3H3
Phone : (514) 287-9535
Fax : (514) 499-0469
Mail : g.raymond@djclegal.com

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