A new dimension to directors’ duties: Bill C-97

Torys Quarterly: Mid-year outlook

Canadian corporate directors should be aware of Bill C-97 as it articulates meaningful changes to the duties they bear.

By altering the Canada Business Corporations Act (CBCA), Bill C-97 expands the class of stakeholders to which directors must turn their minds when stewarding a corporation. Bill C-97 codifies past judicial treatment of this issue and adds new contours to directors’ legal obligations. Understanding these developments is of vital importance for boards of directors in discharging their legal duties.

Expanding duties

Bill C-97 clarifies directors’ duties of loyalty to the corporation referred to as “fiduciary duty”. Specifically, Bill C-97 elucidates those factors that directors may consider when acting in the best interests of the corporation, seeking to make legislation more consistent with the Supreme Court of Canada’s decision in BCE Inc. v 1976 Debenture Holders (BCE).1

Amending the CBCA, Bill C-97 sets forth factors that directors may consider when acting in the “best interest of the corporation”. To elaborate, directors may take into account considerations about the environment, government, creditors, the long-term interest of the corporation and other factors. Furthermore, the legislation as drafted suggests that none of these interests automatically prevails over any other. Thus, acting in the best interest of the corporation means more than taking into account the interests of shareholders alone. Directors may consider the interests of other stakeholders (creditors, government, environment, bondholders, etc.). This statutory provision is an explicit legislative rejection of a shareholder primacy approach to corporate governance.

Following precedent

Bill C-97 makes the statutory duty more consistent with the Supreme Court of Canada’s leading decision in BCE.2 The CBCA currently provides that: “every director and officer of a corporation in exercising their powers and discharging their duties shall 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”.3 In BCE, the court explained the duty is not owed to shareholders alone or any other particular stakeholder group in the corporation. Rather, “the directors owe a fiduciary duty to the corporation, and only to the corporation…”.4 The court then listed several stakeholder groups that may be considered while directors discharge this duty, some of which are noted above.

While Bill C-97 codifies this judicial precedent, directors already had the option to consider concerns other than shareholders’ interests under BCE. It is important to note Bill C-97 is potentially broader than the BCE case. For example, Bill C-97 specifically enumerates retirees and pensioners stakeholder groups not mentioned in the BCE case. Furthermore, the proposed list in Bill C-97 is non-exhaustive and directors can therefore consider stakeholders that are not enumerated in the legislation.

Conclusion

While some may say that Bill C-97 and BCE “watered down” directors’ duties, it likely will not have a significant impact on directors’ decision-making. At the cost of identifying who is the recipient of their fiduciary duty, Bill C-97 provides directors with more flexibility and allows them to consider the interests of various stakeholders when making a decision. Even in M&A, where the interests of target shareholders are paramount, Bill C-97 will likely not mean much change for directors, though one could argue that it raises the onus on directors to consider stakeholder groups that they may not otherwise have considered.

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1 BCE Inc v 1976 Debenture Holders 2008 SCC 69.

2 BCE at para 40.

3 Canadian Business Corporations Act, RSC 1985 chapter C-44, section 122.

4 BCE at para 66.

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