Breach of Fiduciary Duty
Fiduciary duties apply to directors and officers of a corporation who had a duty to act in the best interest of the corporation. A fiduciary duty is an additional level of responsibility provided to key players in an organization who are exposed to confidential and sensitive information. As such, breaches of fiduciary duties can have grave consequences on the individuals, and the companies themselves.
The Canada Business Corporations Act, and the Ontario Business Corporations Act directors and officers of a corporation must:
- Act honestly and in good faith with a view to the best interests of the corporation, and
- Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Considering that directors and officers typically have greater insight into a company’s financial and other highly sensitive information, they carry a greater responsibility to ensure that the information is not used in any way that is unfavourable, or is not in the best interest of the organization.
The best interests of a corporation typically include the best interests of shareholders, employees, retirees and pensioners, creditors, consumers, governments, the environment, and the long-term interests of the corporation.
Directors and officers who are facing a claim of breach of fiduciary duty typically have two defences available to them being, (1) the director or officer exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, or (2) the director or officer relied in good faith on financial statements of the corporation presented to him or her by an officer of the corporation or an auditor, or a report produced by a professional person.
A common remedy used by shareholders against wrongful corporate conduct is oppression remedy. In assessing a claim of oppression, the Supreme Court of Canada in BCE Inc. v. Debentureholders identified two questions to be asked:
- Does the evidence support the reasonable expectation asserted by the claimant?
- Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
It is important for individuals or corporations facing an oppression claim to seek legal advice, as a finding of oppression provides the court with broad powers to rectify the oppressed conduct. The courts can order:
- The payment of money
- By directing the majority to buy the aggrieved person’s shares for a reasonable price (as determined by professional valuation)
- By reinstating the aggrieved person to his or her former position in the business
- Holding an auction at which all of the shareholders have the right to purchase shares of the corporation.
Appropriate shareholder policies, checks and balance systems, and processes within an organization can aid in ensuring that fiduciary employees are operating according to their duties and obligations. At Achkar Law, we understand the importance and the significant risks or breaching fiduciary duties, and can assist with disputes amongst shareholders, internally and through litigation if needed.