Can directors be personally liable for declaring an unlawful dividend in Ontario?

Yes. The Ontario Business Corporations Act prohibits a corporation from declaring or paying a dividend if there are reasonable grounds to believe the corporation is or would after payment be insolvent — meaning unable to pay its liabilities as they become due, or if the realizable value of its assets would be less than its liabilities and stated capital. Directors who vote for or consent to a dividend that violates this solvency test are jointly and severally liable to restore to the corporation the amount paid out.

A director who was present at the meeting when an unlawful dividend was declared is presumed to have assented to it unless they voted against it or their dissent was recorded in the minutes. A director who was absent from the meeting may also be liable if they were aware of the resolution and did not promptly register dissent.

The practical implication is that directors must review financial information before declaring dividends. Relying entirely on management's representation that the solvency test is satisfied, without making any inquiries, may not protect a director who later faces a liability claim. The amount of the liability is the dividend paid — which can be significant. Directors who are uncertain about solvency before a proposed dividend should request up-to-date financial statements and, where the situation is complex, seek legal or financial advice before voting.