Directors’ and officers’ fiduciary duty modified in forthcoming CBCA amendments
Announced on 19 March 2019, the federal government’s 2019 budget included significant proposed amendments to the Canada Business Corporations Act (CBCA), including adjustments to directors’ and officers’ statutory fiduciary duties contained in the legislation.
The CBCA currently imposes a duty on directors and officers to act honestly and in good faith with a view to the best interests of the corporation. Bill C-97 incorporates an aspect of flexibility into this duty by codifying components of the common law from the Supreme Court of Canada’s seminal 2008 decision, BCE Inc. v. 1976 Debentureholders (BCE). Specifically, Bill C-97 amends the CBCA to provide that, in satisfying their statutorily mandated fiduciary duties, directors and officers may consider, but are not limited to considering, (1) the interests of shareholders, employees, retirees and pensioners, creditors, consumers and governments; (2) the environment; and (3) the long-term interest of the corporation. Legal analysts expect Bill C-97, and the associated legislative amendments to the CBCA, to come into force in June 2019.
Although executives, boards and Canadian courts were already well aware of the soon-to-be codified principles initially espoused in BCE – and in many cases already abided by them – there will now be corresponding legislative clarity. In practicality, this amendment will likely change little in the decision-making process of directors and officers as they strive to act in the best interests of the corporation. But, however well-intentioned executives and board members may be, it is impossible to fully insulate oneself from making an error in judgement or a negligent oversight – or the potential liability that flows from those events. A directors’ and officers’ (D&O) liability insurance policy provides these corporate decision-makers with financial protection in the event they are faced with allegations of wrongdoing while acting in their capacity as a director or officer. In cases where a breach of fiduciary duty is alleged, the policy could respond to provide coverage for legal defense costs, settlement and judgment amounts. The new provisions of the CBCA, once in effect, could potentially provide directors and officers with a stronger defense in these cases by providing them with more tools to justify their actions and decisions that led to the claim.