Given the sweeping changes in global trade conditions and the evolving domestic landscape concerning environmental, social and governance issues, directors of corporations in Canada may wish to take this opportunity to revisit their legal responsibilities.
In this bulletin, we provide an overview of the duties and possible sources of liability for directors of corporations constituted under the Canada Business Corporations Act ("CBCA")1 and the British Columbia Business Corporations Act ("BCBCA"),2 as well as suggest best practices for directors to help mitigate their risk.3
Duties of a Director
Pursuant to the CBCA, every director of a corporation owes a duty of care and a fiduciary duty to the corporation. The fiduciary duty requires that the director act honestly and in good faith with a view to the best interests of the corporation,4 while the duty of care requires directors to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. This includes making prudent and timely business decisions and ensuring that the corporation does not incur unnecessary liabilities. Equivalent provisions of these duties also exist in the BCBCA.5
In exercising their managerial responsibilities, directors owe a fiduciary duty to the corporation, as distinct from its shareholders, or other stakeholders such as employees. The common law incorporates a duty of confidentiality, which prohibits directors from disclosing confidential information of the corporation, as well as a duty of loyalty into the fiduciary duty. Accordingly, a director can face conflict of interest issues, particularly in light of their fiduciary duty that requires that they pursue the interests of the corporation while setting aside all personal interests. Directors also have a statutory duty to avoid conflicts of interest and if a director is in a conflict of interest with respect to a contract or transaction that is material to the corporation, they are required to disclose the conflict and refrain from voting on approval of such contract or transaction.6 The BCBCA further specifies that directors must provide disclosure if they hold any office or any property, right or interest that could create a duty that materially conflicts with their duties as a director.7
At times, the director's duty of loyalty may mean that a director cannot simultaneously serve as a director of two (or more) corporations. While there is no general rule against someone holding directorships in more than one corporation, the courts have cautioned that a director should not serve on multiple boards if the corporations, of which they are directors, are in active competition with one another.8 The reasons for this are obvious: directors' fiduciary duties, including a duty to disclose material information the director knows to one corporation may come into direct conflict with the director's duty of confidentiality to the other corporation. On the other hand, the courts have contemplated the possibility of a director serving on the boards of two corporations in the same line of business, where the two businesses operate in geographically distinct markets.9 Overall, whether a director can simultaneously serve on two (or more) boards is a fact-specific inquiry focused on whether a director can fulfill their fiduciary duties to each corporation.10
Moreover, conflicts of interest may arise for "nominee directors," or directors who are appointed by a shareholder or shareholder constituency. While nominee directors may consider the interests of their appointing shareholder, they do not represent their appointing shareholder on the board. Rather, a nominee director owes the same fiduciary duty to the corporation as other directors and is not permitted to subordinate the interests of the corporation to those of the shareholder(s) who appointed them. This means, for example, a nominee director cannot disclose confidential information of the corporation to their appointing shareholder. Observing such duties may be difficult in the face of the often-close relationships between nominee directors and their appointing shareholders. Nevertheless, if a nominee director prioritizes the nominating shareholder's interests over the best interests of the corporation, it is possible that nominee director, along with the appointing shareholder, may be held personally liable.11
A director is also subject to the corporate opportunity doctrine, which prohibits them from personally benefiting by taking a maturing business opportunity that the corporation is actively pursuing.12 This includes redirecting such opportunities to another corporation.13
Possible Personal Liabilities for Directors
If a director breaches any of their aforementioned duties, they may be exposed to personal liability through derivative actions and/or oppression remedies. These are statutory rights available under corporate legislation which allow the courts to redress harm done to the corporation and/or its stakeholders. Derivative actions are claims brought by a "complainant" on behalf of the corporation to enforce a right, duty or obligation owed to the corporation, or to obtain damages for breach of such a right, duty or obligation.14 Under both the federal and provincial regimes, a broad range of stakeholders may bring derivative actions, including any other persons whom the court deems "proper" or "appropriate."15
Oppression remedies are available for stakeholders who believe their legal or equitable interests have been harmed. Like derivative actions, oppression remedies are available to a broad range of stakeholders but would generally be limited to those who have an interest in the corporation similar to that of a shareholder.16] Unlike in derivative actions, in oppression proceedings, the claimant brings the action on their own behalf. Therefore, at least in British Columbia, the claimant must have experienced a loss or damage that is separate and distinct from the indirect effect of the wrong suffered generally by all shareholders.17 The court conducts a fact-specific inquiry on (i) whether there was a reasonable expectation held by the claimant and, if so, (ii) whether the reasonable expectation violated in such a way that would fall within the terms "oppression," "unfair prejudice" or "unfair disregard" of a relevant interest.18
However, directors may be able to shield themselves from personal liability if they have acted prudently on a reasonably informed basis.19 This deference is provided by the legal principle known as the "business judgment rule," which allows for directors to exercise their discretion in good faith when making business decisions.
In addition to the above, there are a number of statutes in Canada that hold directors of corporations personally liable should such corporation breach a legislative requirement. For example, the CBCA provides that directors may be personally liable for up to six months of unpaid wages for employees.20 For corporations with employees in British Columbia, the Employment Standards Act (British Columbia) provides that directors may be personally liable for up to two months of unpaid wages.21
There are numerous other federal and provincial statutes which impose personal liability on directors, including the Income Tax Act, the Fisheries Act, the Canadian Environmental Protection Act, the Migratory Birds Convention Act, the Environmental Management Act and the Mines Act.22 A recent addition to this list is the Fighting Against Forced Labour and Child Labour in Supply Chains Act or the Modern Slavery Act, pursuant to which directors can be personally liable for offences committed by a corporation.23
Best Practices for Directors
In general, directors should be actively engaged in their duties to monitor important developments of the corporation. They should regularly attend board meetings to weigh and consider key decisions that may impact the corporation financially or attract liabilities. Directors should clarify key issues by asking questions to the corporation's management and should not be afraid to disagree with other board members or to criticize the performance of management. If a director believes that the board is making a decision that is against the corporation's best interests, the director should ensure that their dissenting opinion and/or vote is entered into the minutes of the corporation. For this reason, a director should also ensure that detailed and accurate minutes are being kept during board meetings.
Directors should be mindful of how their actions or roles, including being a director of another corporation, outside of their directorship could place them in a conflict of interest with the corporation. If a director finds themselves in a conflict of interest, they should promptly disclose the conflict to the corporation and where necessary, recuse themselves from board deliberations.
To protect themselves against the risk of personal liability, directors should consider entering into an indemnification agreement with the corporation, where the corporation agrees to indemnify the director in certain situations. Such indemnification agreements may require the corporations to maintain directors and officers (D&O) insurance in case of large or unexpected claims. Further, although both the CBCA and the BCBCA allow corporations to make advances to indemnify directors, an indemnification agreement can make such advances mandatory, preventing directors from incurring out-of-pocket expenses.24
When in doubt about their duties or possible liabilities, directors should seek independent legal advice to understand their exposure to any risks and their options.
Footnotes
1. Canada Business Corporations Act, RSC 1985, c C-44 [CBCA].
2. Business Corporations Act, SBC 2002, c 57 [BCBCA].
3. The information in the bulletin is only applicable to corporations that are incorporated under the CBCA and BCBCA, and thus may not be applicable to directors or corporations incorporated under other statutes or located outside of British Columbia. We further note that this bulletin does not encompass obligations of directors serving on boards of not-for-profit or public companies.
4. CBCA, s 122.
5. BCBCA, s 142.
6. CBCA, s 120; BCBCA, s 147.
7. BCBCA, s 153.
8. Jordan Inc. v Jordan Engineering Inc., 2004 CanLII 5863 (ON SC).
9. Regulvar Canada Inc., v Ontario, CanLII 6318 (ON CA).
10. Jordan Inc. v Jordan Engineering Inc., 2004 CanLII 5863 (ON SC).
11. PWA Corp. v Gemini Group Automated Distribution Systems Inc., 1993 CanLII 9401(ON SC), aff'd 1993 CanLII 8475 (ON CA).
12. Can. Aero v O'Malley, 1973 CanLII 23 (SCC), [1974] SCR 592.
13. 7868073 Canada Ltd. v 1841978 Ontario Inc., 2022 ONSC 4557.
14. CBCA, s 239(1); BCBCA, s 232.
15. CBCA, s 238; BCBCA, s 232.
16. CBCA, s 241; BCBCA, s 227.
17. 1043325 Ontario Ltd. v CSA Building Sciences Western Ltd., 2016 BCCA 258.
18. BCE Inc. v 1976 Debentureholders, 2008 SCC 69 (CanLII).
19. Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 (CanLII), [2004] 3 SCR 461.
20. CBCA, s 119.
21. Employment Standards Act, RSBC 1996, c 113, s 96.
22. Income Tax Act, RSC 1985, c 1 (5th Supp), s 277.1(1); Fisheries Act, RSC 1985, c F-14, s 78.2; Canadian Environmental Protection Act, 1999, SC 1999, c 33, s 280(1); Migratory Birds Convention Act, 1994, SC 1994, c 22, s 78.2; Environmental Management Act, SBC 2003, c 53, s 121(1); Mines Act, RSBC 1996, c 293, s 36.1.
23. Fighting Against Forced Labour and Child Labour in Supply Chains Act, SC 2023, c 9, s 20.
24. CBCA, s 124(2); BCBCA, s 162.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
