The Ontario Ministry of Government Services Consumer
Protection and Service Modernization Act, 2006 has
received royal assent and will come in to force on August 1,
2007. Among other changes, the Act will amend the Ontario
Business Corporations Act to clarify that corporate
directors and officers owe their statutory fiduciary duty (to
act honestly and in good faith) and duty of care (to exercise
care, diligence and skill) only to the corporation.
This effectively overrules, for Ontario corporations, a
Supreme Court of Canada decision which had held that directors
also owed their statutory duty of care to other corporate
stakeholders, including creditors. In that case, the
corporation's trustee in bankruptcy claimed its directors
breached their statutory duties to its creditors by
implementing a new procurement policy that was ultimately
unsuccessful. The Supreme Court held that directors do not owe
their statutory fiduciary duty to a corporation's
creditors. The Court held:
... at all times, directors and officers owe their fiduciary
obligation to the corporation. The interests of the
corporation are not to be confused with the interest of the
creditors or those of any other stakeholder.
This makes sense, because there will be times where the
interests of the corporation differ from those of its
shareholders or creditors. For example, when a company is
approaching bankruptcy, creditors may prefer the directors to
steer a safe course, designed to maximize the value of their
claims, while the corporation may prefer a higher-risk move, to
attempt to revitalize the company's business.
However, the Supreme Court interpreted the statutory duty of
care differently. The relevant statutory provision read:
...[e]very director and officer of a corporation in
exercising their powers and discharging their duties shall
... exercise the care, diligence and skill that a reasonably
prudent person would exercise in the circumstances.
The Court held that because this provision did not identify
a specific beneficiary of the duty of care, the directors owed
that duty to, in that case, the corporation's creditors, as
well as to the corporation itself.
The amendment clarifies that directors owe their statutory
duty of care to the corporation. As a result, after August 1,
2007 Ontario directors and officers will owe both their
statutory fiduciary duty and their statutory duty of care to
the corporation and not to any other stakeholders. Accordingly,
where directors' business decisions are within a range of
reasonable options in the best interests of the corporation,
they will not be questioned or found to be in breach of their
statutory obligations, even if they are not in creditors'
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.
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