Breach of Fiduciary Duty

What are Fiduciary Duties?

Fiduciary duties are the legal obligations of a person or entity to act in the best interest of another person or entity. The fiduciary must put the interests of the other party above their own and avoid any conflicts of interest. A fiduciary relationship is based on trust, and the fiduciary is expected to act with honesty, integrity, and loyalty.

Who has Fiduciary Duties?

Fiduciary duties can apply to many different relationships, such as those between a trustee and a beneficiary, a lawyer and a client, a financial advisor and a client, and a director or officer and a corporation. In the context of a corporation, directors and officers have fiduciary duties to act in the best interest of the corporation and its shareholders.

What Creates a Breach of Fiduciary Duty?

A breach of fiduciary duty occurs when the fiduciary fails to act in the best interest of the other party or engages in conduct that is contrary to their fiduciary obligations. For directors and officers of a corporation, breaches of fiduciary duties often involve acts of disloyalty, such as using their position for personal gain or making decisions that benefit themselves at the expense of the corporation.

A corporate lawyer can help by establishing practices and internal processes that will allow accountability through a checks-and-balance approach.

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 unfavorable. Or is not in the best interest of the organization.

The Best Interest of a Corporation

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 have a duty to balance the interests of all stakeholders and to ensure that the corporation operates in a sustainable and responsible manner.

Available Defences for Breaches of Fiduciary Duties

Directors and officers who are facing a claim of breach of fiduciary duty typically have two defences available to them. First, they can argue that they exercised the care, diligence, and skill that a reasonably prudent person would have exercised in comparable circumstances. Second, they can argue that they relied in good faith on financial statements or reports provided to them by the corporation or a professional person.

Remedies for Breaches of Fiduciary Duties

There are several remedies available for breaches of fiduciary duties. One common remedy used by shareholders against wrongful corporate conduct is the oppression remedy. This remedy allows the court to intervene and order the corporation to take specific actions to rectify the oppressive conduct.      

1)The payment of money

2)By directing the majority to buy the aggrieved person’s shares for a reasonable price (as determined by professional valuation)

3)By reinstating the aggrieved person to his or her former position in the business

4)Holding an auction at which all of the shareholders have the right to purchase shares of the corporation.

How to Prevent Breaches of Fiduciary Duties

The best way to prevent breaches of fiduciary duties is to establish appropriate policies, checks and balances, and internal processes within an organization. These practices can ensure that fiduciary employees are operating according to their duties and obligations and that conflicts of interest are identified and managed.

In conclusion, fiduciary duties are crucial for the successful operation of any organization. Directors and officers have a legal obligation to act in the best interest of the corporation, and breaches of fiduciary duties can result in serious consequences for both the individuals involved and the company itself.

It is essential for corporations to establish appropriate policies, checks and balances, and internal processes to ensure that fiduciary employees are operating according to their duties and obligations. Seeking the advice of a corporate lawyer can be beneficial in establishing these systems and processes and in resolving disputes that may arise amongst shareholders.

Contact us for help

At Achkar Law, we understand the importance and the significant risks of breaching fiduciary duties. We can assist with disputes among shareholders internally and through litigation, if needed. If you are an employer or a shareholder and require representation or seeking to clarify your rights, a corporate lawyer at Achkar Law would be happy to help you navigate your matter. Contact us at (800) 771-7882 , or email [email protected] and we would be happy to assist.