Directors’ Duties
FIDUCIARY DUTIES – Directors have (i) a fiduciary duty to the corporation to act in the best interests of the corporation; and (ii) a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances. – Directors must exercise their powers for the benefit of the corporation and not for an improper purpose such as the entrenchment of directors and management. – Directors must consider the best interests of the corporation. Directors may also consider the interests of shareholders or particular groups of stakeholders, including employees, suppliers, creditors, consumers, governments and the environment. – Shareholders, including controlling shareholders, do not owe fiduciary duties to other shareholders. DIRECTORS’ DUTIES IN CHANGE OF CONTROL TRANSACTIONS – The Supreme Court of Canada affirmed in the BCE decision that, in determining what is in the best interests of the corporation, there is no priority rule that requires that shareholders’ interests prevail in all cases. – In Canada, a board is not required to conduct an auction in every change of control transaction. Canadian courts have generally given boards considerable latitude in change of control transactions, deferring to the reasonable and informed business judgment of the directors. Canadian courts have specifically rejected the Revlon line of cases, which requires the maximization of shareholder value when the board decides to sell the company. DIRECTORS’ DUTIES IN RESPONDING TO UNSOLICITED BIDS – U.S. courts have held that if directors of a target company have reasonable grounds for believing that a threat to the company exists (such as the possibility of a coercive or unfair bid), they discharge their duties if they adopt measures that are reasonable in relation to the threat posed, and they act diligently and on the basis of full information. – Canadian courts have held that the conduct of directors is subject to the objective prospective reasonability principle of Paramount Communications (i.e., if the board selected one of several reasonable alternatives, a court should not second-guess that choice even though it might have decided otherwise or subsequent events may have cast doubt on the board’s determination).
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Canadian Mergers & Acquisitions
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