Morgans Hotels Group undertook a review of various strategic
alternatives, striking a special committee of directors. Kalisman
was one of the directors on that committee, but at a certain point
he was frozen out of the committee's deliberations and told by
other members that nothing was really happening. Au contraire: the
other members of the special committee formulated a plan to
recapitalise the company by transferring assets to a group of
investors controlled by another Morgans director, in exchange for
shares, warrants and a financial backstop for a rights offering.
Kalisman found out about the plan on the eve of a special meeting
of the full board, convened to approve the transactions. Kalisman
objected to the adequacy of notice of the meeting but it went ahead
anyway, and the recapitalisation plan was approved with only one
vote against -- Kalisman's. He then went to court to block the
transaction through a derivative action for breach of fiduciary
duty, requesting production of the legal advice the company had
received with respect to the proposed transactions. The company
asserted attorney-client privilege.
No way, said Vice-Chancellor Alster of the Delaware Court of
Chancery: Kalisman v Freidman (2013 Del Ch LEXIS 100). A
director's right to information is 'essentially
unfettered' and extends to privileged information provided to
the company or its board. A company 'cannot pick and choose
which directors get information by asserting the attorney-client
privilege' against some but not all directors. There are only
three exceptions to this rule: where (1) a director has agreed in
advance to be excluded (although presumably not where this would
hinder the director's ability to fulfil fiduciary duties); (2)
a special committee has been appointed, with the knowledge of
excluded directors, and retains its own legal counsel for the
purposes of some special investigation or transaction (but
presumably the special committee will not be able to shield
information from non-committee directors once the committee's
work is completed); and (3) sufficient adversity of interest exists
between the corporation and the director, and the latter
effectively ceases to be the client of the company's counsel.
None of the three exceptions applied to privileged documents
created before the crucial board meeting. Privilege could be
asserted over documents prepared in the course of defending
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).