Session 10

Question 1

Fiduciary Duty

Answer 1

• Requires offers and directors to act honestly and in good faith with a view of the best interest of the corporation.
• The fiduciary duty is owed to the corporation not to individual shareholders.
• Fiduciary duty and duty of care developed by common law courts and now enshrined in statutes.

Question 2

Duty of Care

Answer 2

• Requires officers and directors to exercise the care.
• Diligence and skill that resonably prudent person would exercise in comparable circumstances.

Question 3

Liability of Torts

Answer 3

• No automatic liability of officers and directors for torts committed by the corporation just by virtue of their position.
• Courts have held directors and officers liable fot torts in certain circumstances.

Question 4

What are some other duties of officers and directors?

Answer 4

• Countless other duties imposed by corporate law and other statutes on directors and officers.
• Critics argue that increased risks of liability for directors discourages qualified individual from becoming a director.

Question 5

To whom does the director/officer fiduciary duty: shareholders or the corporation?

Answer 5

The corporation.

Question 6

Which is older fidicuary duty or CBCA?

Answer 6

Fidicuary Duty

Question 7

What is the usual breach of fidicuary duty in the best interest of the corporation (as it is not defined)?

Answer 7

Usually personal gain.

Question 8

Hostile Takeover Bid

Answer 8

Somebody tries to takeover the corp by buying up the shares of other shareholders.

Question 9

What does a hostile takeover often cause?

Answer 9

Management to be fired.

Question 10

Are transactions of the fiduciary with the corporation forbidden?

Answer 10

They are not per se forbidden or result in the contract being voidable by the corporation.

Question 11

True of false: Directors and officers have disclosure obligations for transactions with the corporation.

Answer 11

True

Question 12

When does the notification and approval requirement apply?

Answer 12

1. If officer/directors is party to a material contract or transaction with the corporation.
2. If officer/director is a director/officer of a party to such a contract or transaction with the corporation.
3. If officer/director has a material interest in a party to such a contact or transaction with the corporation.

Question 13

How to determine whether there was a breach of the fiduciary duty?

Answer 13

• Nature of the corporation’s interest.
• Relationship of fiduciary to the opportunity.
• Other questions that are tricky in practice.

Question 14

What are the measures of the nature of the corporations interest?

Answer 14

• How close is the corporation to acquiring the opportunity?
• Was it a unique opportunity or just one of many?
• Had the opportunity been rejected by the corporation before the fiduciary acquired it?
• Was the opportunity widely publicly known?

Question 15

What are the measures of the relationship of the fiduciary to the opportunity?

Answer 15

• The higher up the fiduciary, the higher the level of duty.
• Did the fiduciary negotiate the opportunity on behalf of the corporation?
• How much knowledge about the opportunity did the fiduciary acquire through their role?
• How long after termination did fiduciarty acquire the opportunity?

Question 16

What are the measures of the other questions that are tricky in practice?

Answer 16

• Is every opportunity in the corporation’s business per se a corporate opportunity?
• How to determine if the opportunity belongs to the corporation?
• Can the fiduciary take the opportunity after they resigned?

Question 17

True or false: The fiduciary taking a “once in a decade” opportunity is likely a breach of fiduciary duty.

Answer 17

True

Question 18

True of false: Permission of the corporation keeps you safe from a breach.

Answer 18

False: It can help you as the fiduciary if you acquire permission of the board/corporation, but must keep in mind that you still owe fiduciary duty to the to the corporation, so this does not keep you safe from a breach.

Question 19

True or false: If a fiduciary competes they will likely have to pay all profits from the competing business to the corporation.

Answer 19

True

Question 20

Can fiduciaries compete with the corporation after termination?

Answer 20

Yes, so long as there are no obligations which extend beyond termination.

Question 21

What is an example of obligations which extend beyond termination?

Answer 21

Having the terminated employee sign a non-compete.

Question 22

Do courts like non-competes?

Answer 22

Not particularily, they apply more scrutiny to lower level employees, but less scrutiny to higher ups signing one.

Question 23

True or false: One person can be in the roles of mulitple directorships at the same time.

Answer 23

True, howeverthey cannot be in competing companies as a director at the same time.

Question 24

When are directors not liable when relying on others in good faith?

Answer 24

1. Financial statements of the corporation represented to them by an officer or in a written report by the auditor to reflect fairly the financial position of the corporation.
2. A report of a person whose profession lends credibility to a statement made by the person.

Question 25

Shareholder Ratification

Answer 25

The ability of shareholders to approve a breach of fiduciary duty (limited under CBCA)

Question 26

The Duty of Care

Answer 26

- Exercisse the care, diligence and skill that a resonably prudent person would exercis in comperable circumstances.

Question 27

True or false: The duty of care was invented along with the CBCA.

Answer 27

False: Duty of care existed under common law, but is now under the CBCA.

Question 28

Can incompetence be a defence under duty of care?

Answer 28

No, there is the expectation that you have an understanding of what you are doing.

Question 29

Dummy Director

Answer 29

A member of the board of directors who acts and votes on behalf of a non-board member.

Question 30

The Business Judgement Rule

Answer 30

Courts do not want to get involved in issues that are only business decisions.

Question 31

What has made more people choose not to become a officer or director recently?

Answer 31

The expanding personal liabilities.

Question 32

Directors are personally liable to the corporation if they voted for...

Answer 32

- Payment of a dividend resulting in the corporationn being unable to pay its liabilities. - A share buy back resulting in the corporation being unable to pay its liabilities as they become due. - Payment of an indemnity for a director or officer in violation of the CBCA. - Payment of an unreasonable commission to a person purchasing the shares of the corporation. - A redemption of shares if payment for such redemption would result in the corporation being unable to pay its liabilities as they become due.

Question 33

Is there automatic liability of officers or directors for torts committed by the corporation?

Answer 33

No, directors and officers may be liable for torts committed by themselves in the course of their employment.

Question 34

True or false: It is a defence that committing the tort was for the benefit of the corporation.

Answer 34

False: This is not a defence for committing a tort.