Directors can Only be Removed in Specific Situations

Gerry Hyman has another article for the Toronto Star.

I would like to discuss two of the questions raised:

QUESTION: Our condo board recently excluded one of the directors from an executive board meeting at which the other four board members voted to remove the excluded director from the board. Was this proper?

ANSWER:No, it was not. The other directors could not exclude one of the directors from the board meeting and could not vote on his removal from the board. The Condominium Act provides for the disqualification of a director only if the director becomes an undischarged bankrupt or mentally incompetent, or if the director does not discharge a lien against the director’s unit within 90 days of the registration of the lien.

The Condominium Act, 1998 permits a bylaw providing for the removal of a director from the board. For example, a corporation may have a rule requiring directors to comply with a code of ethics. The corporation could have passed an amendment to its bylaws, permitting the board to vote to remove a director who fails to comply with the corporation’s code of ethics.

The bylaw amendment must permit the director to appear before the board to present their position prior to the board’s vote. In the absence of such a removal provision in a bylaw, or disqualification in accordance with the Act, the director could only be removed by a vote of a majority of owners at a meeting where that vote is on the agenda.

I concur with Mr. Hyman on this one.  Unless the By-laws allow for the removal of a director due to breaching the Code of Ethics, or in comes cases missing three or more Board meetings in one calendar year without a valid reason, the Board cannot remove the director without getting a Requisition signed by owners representing at least 15% of the units (Sections 33 and 46 of the Condominium Act, 1998.)  However, a majority of all owners must approval the removal.

However, if the By-laws allow for removal from office by the Board because the director has missed three or more meetings in a given year, or has breached the Code of Ethics, then Mr. Hyman is correct in that the director should be given an opportunity to defend himself/herself.  For example, the director may not have been aware that he/she had to notify the Board that he/she would be missing a meeting or why he/she would not be attending.  Or perhaps the director was ill and was unable to notify the Board.

I would contend, though, that this is an issue that was not addressed in the current Act, or the changes that are due to take effect later this year.  Instead of the Board ‘judging’ the case (effectively acting as Prosecutor, Judge, and Jury), the issue should be dealt with by a three to five member Special (Adhoc) Committee to hear the case (one or two members appointed by the Board, one or two members appointed by the accused director, and the Chairman appointed by the two – or four – members.)  This keeps the issue fair and above Board.  The current Board, for example, could use the Code of Ethics By-law to remove a fellow director they do not like which is totally unfair and undemocratic.

Another question raised was:

QUESTION:  A director who is also president of our condo corp. is a real estate broker. Several owners have suggested that he has a conflict of interest since he has access to the condo records dealing with the owners and their units. Is this a real issue or just a perception that can be ignored?

ANSWER:  The Condominium Act entitles unit owners to examine the condominium corporation’s records with certain exceptions. The exceptions include records relating to other owners or units owned by other owners.

An owner who is also a director, or officer, of the condominium is not entitled to access the records of other owners or their units, or to use the information contained in those records — except as may be necessary to carry out his functions as a director or officer.

Of course, if it were not so hard, the owners could simply elect someone else as a director when the director’s term is up.  However, thanks to the Condominium Act allowing a small group of people holding as many proxies as they can collect, it can be extremely hard to do so.  And as the Act requires the By-laws to be changed only by a vote of a majority of the unit owners, it is likely hard to change the By-laws to require any director not to act as a real estate agent on any transaction in the condominium.  While a director cannot vote on, or be involved in the discussion, on any issue where they have an interest as per the Act, the Act does not extend to the purchase or sale of units in the condominium, or other similar work.  This is an issue.  While it is usually above board, in order to maintain the appearance of keeping everything above board, it is best to have such a policy.

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