Corporate Directors: Ontario: Ontario Business Corporations Act

A corporate director has both a statutory and common law duty to act honestly and in good faith with a view to the best interests of the corporation. A director’s fiduciary duty requires him or her to avoid situations in which his or her interests conflict with those of the corporation and not to abuse his or her position for personal gain. This duty dictates that a corporate director must not appropriate for himself or herself an opportunity properly belonging to the corporation.

These fiduciary obligations do not preclude a director absolutely from transacting with the corporation. However, where that occurs, the law requires that the director prove that the transaction was a righteous one. In order to do that, the director must prove that he or she made full disclosure of his or her interest in the transaction. If it is material, the disclosure must include an indication of the amount of the profit the director expects to gain.

The Ontario Business Corporations Act (“OBCA”) requires that a director’s disclosure be in writing or entered into the minutes of the directors meeting at which the proposed transaction is first considered and precludes the director from voting on the transaction.

However full disclosure of the director’s interest in the transaction is not enough. In addition, the transaction must be in the best interests of the corporation , even where a director has made proper disclosure of his interest in the transaction.

Where a director fails to make full disclosure or otherwise contravenes the provisions of s. 132 of the OBCA , a shareholder may apply for an order setting aside the transaction and requiring the director to account to the corporation for any profit or gain realized by virtue of it. *

William Poulos, Barrister

*This blog is not a substitute for legal advice. Should you require legal advice, a lawyer should be contacted to advise on the specific circumstances of your case.

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