Effectiveness of a Director's Resignation

Can an individual resign from the board of a not-for-profit corporation, but subsequently withdraw the resignation? Ontario (President of the Assn. of Professional Engineers) v. Assn. of Professional Engineers (Ontario), decided in 2012, dealt with the effectiveness of a director's voluntary resignation.

1. Facts and Issues

Mr. Hogan was an elected member of council of the Professional Engineers of Ontario, a self-governing body responsible for regulating the engineering profession in Ontario. PEO is governed by the Professional Engineers Act (Ontario) and the Corporations Act (Ontario). The board of the PEO is called its "council" but will here be referred to as the board.

As a result of disputes internal to the board, Dr. Hogan sent an email to all board members advising that he was resigning from the board. The resignation stated that it was effective on the day sent (March 3).

However, the next day (March 4), Dr. Hogan sent a second email to the board stating that his resignation would not be effective until the PEO's annual meeting in May.

On March 14 (11 days after the original resignation), Dr. Hogan sent an email to the president of the PEO (with a copy to all other members of the board) purporting to retract his resignation.

On April 13, the board met and discussed the issue of Dr. Hogan's resignation. A motion was made and passed by the narrowest margin (i.e., one vote) to accept Dr. Hogan's resignation.

The by-laws and regulations of the PEO were silent on the issue of when a resignation becomes effective, if it must be accepted before it becomes effective, and whether a resignation can be withdrawn.

2. Rulings

Since the OCA is also silent on these issues, the case fell to be decided on common law principles.

Justice Sachs, writing on behalf of a panel of the Ontario Divisional Court, held as follows:

● The resignation of Dr. Hogan was unequivocal.

● His resignation was effective, at the latest, as of the date of the next annual meeting of the members.

● A resignation does not have to be accepted to be effective. There are two reasons for this finding:

● to create certainty for the director as to when any liability he may have may end; and

● to prevent the corporation from forcing a director to continue in office contrary to his will.

● Without the consent of the board, an effective resignation cannot be revoked at will by the director - again, because otherwise there could be uncertainty and confusion for the corporation and its remaining directors.

3. Key Observations

One might quibble with two of these rulings. The finding of fact on the unequivocal nature of the resignation and the ability of a director to resign without the consent of the other directors are both on solid ground.

However, the other two rulings are more debatable.

As to the effective date of Dr. Hogan's resignation, it initially stated that it took effect on March 3. If so, Dr. Hogan could no more extend the effective date of his resignation than withdraw his resignation. Therefore, technically, he should have ceased to be a director on March 3, not at the annual meeting in May. On the facts of the case, however, nothing may have turned on this issue as both dates had expired by the time of the hearing in June.

As to the ability to withdraw a resignation, the court's ruling suggests that the director's resignation could have been withdrawn with the board's consent. However, it is difficult to square this with the effectiveness of a director's resignation. If Dr. Hogan effectively resigned on Day 1, there is an immediate vacancy on the board. Depending on the underlying legislation and the particular constating documents of the corporation, either the remaining directors in office (if constituting a quorum), or the members, can fill a vacancy on the board.

Suppose that only the members of PEO could elect directors, including the election of directors to fill a vacancy. If the board can accept the withdrawal of a director's resignation, it would deprive the members of their right to fill the vacancy (including by re-electing the same individual who just resigned).

While it did not matter in this case (since the board did not accept Dr. Hogan's purported withdrawal), it is submitted that, once a resignation becomes effective, it is too late for the resignation to be withdrawn, with or without board consent. Instead, the board can, if it has the power to do so, fill the vacancy, including by re-appointing the director who has tendered his resignation and then changed his mind.

In most respects, the result is substantively the same as consenting to a withdrawal of the director's resignation. However, treating the resignation as effective is more consistent with corporate legislation, such as the Canada Not-for-profit Corporations Act, which embodies the concept of filling vacancies but not the alternative concept of allowing a director's resignation to be withdrawn. Again, it may be that only the members can fill vacancies. Allowing the withdrawal of a director's resignation would be inconsistent with this locus of membership power. Also, allowing a withdrawal would raise the issue of the director's status during the period between the time of his resignation and the time that the resignation is withdrawn. In this case, for example, almost six weeks passed between the resignation and the board meeting at which the resignation was considered. It would create an area of uncertainty if a director resigns but six weeks later his resignation is withdrawn. For example, is the withdrawn resignation effective retroactively or only from the date the board permits it to be withdrawn? Thorny questions such as this are best avoided.

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