In Syed v. Choudry (released December 2015), Gray J. of the Ontario Superior Court of Justice set aside a flawed election of directors of a not-for-profit corporation continued under the Canada Not-for-profit Corporations Act (Act) and ordered a fresh independently-run election process.
The Muslim Association of Milton is a charitable corporation continued under the new federal Act. Upon receiving a petition from 63 members requesting a special meeting, the entire board resigned. The solicitor acting for the corporation at the meeting advised that, since the entire board had resigned, it would be necessary to elect a new board, which was set for February 2015. That much is correct.
However, those present at the meeting proceeding to elect an interim board, which is not correct. Before the special meeting was held, the memberships list swelled from 197 to 281 members. At the special meeting, the election proceeded and the members of the interim board were elected as directors, each for a two year term.
Several members then applied to court to set aside that election.
While recognizing that a court should be reluctant to interfere in the internal workings of the charitable corporations, Gray J. stated that the statutory requirements and by-laws of the corporation set out basic requirements that must be followed. These include:
- defining who can and cannot vote;
- the term to be served by a director;
- elements of basic fairness such as giving candidates for election some ability to reach the members who may vote for them. This is particularly important if some candidates have information that allows them to reach members while other do not.
In this case, the judge found that the onus was on the so-called interim directors to show that, on a balance of probabilities, the membership list as it was at the time that the entire board resigned since directors must admit members. Also, the two-year term of directors differed from the five-year terms specified in the by-laws (which, incidentally exceeds the four-year maximum term for a director permitted under the Canada Not-for-Profit Corporations Regulations). The judge found that these were fundamental defects and not mere irregularities that the court could overlook.
Therefore, the court set aside the purported election and, because of the factionalism that had plagued the corporation, order an new election conducted by an independent solicitor. The interim board could not run the election because they were not properly elected and had a personal stake in the outcome. The list of members was fixed at those set out in the list of members at the time that the former board resigned en masse.
3. Key Observations
It is possible that the petition by the members could have been construed as a requisition for an election of directors at an annual meeting. If so, one or more of the requisitions could have called the meeting on 21 days after delivering the requisition. The notice of the meeting would require a further 21 days. Alternatively, one or more of the members could have applied to court for a court-ordered meeting if the requisitioned meeting was impracticable for any reason.
However, there is no such thing as authority to create an interim board. There either directors or not. Anything that the interim board purported to do, including adding to or otherwise changing the list of members, was invalid - as the court correctly held in this case. Again, the optimal solution was for the court to appoint an independent solicitor to run the election.