Business Judgment Rule Does Not Trump Unanimous Shareholders’ Agreement

Directors of a corporation cannot invoke the business judgment rule to justify decisions that violate a unanimous shareholders' agreement, the Ontario Divisional Court held recently.¹

Facts

In 2005, Bruno Barbieri and Peter, John, and David Herwynen bought Platinum Wood Finishing Inc., a company that pre-finishes hardwood floors and plywood. The Herwynen brothers acquired a 70% interest through their holding company, and Mr. Barbieri acquired a 30% interest, also through a holding company. The Herwynen brothers insisted that Mr. Barbieri pay a premium for his 30% interest, which they justified on the basis that their sawmill, Herwynen Sawmill, would continue to be Platinum's biggest customer. Mr. Barbieri agreed, but on condition that a unanimous shareholders' agreement would specify, among other things, that he would be President of Platinum at an annual salary of $100,000, and that certain decisions, including changes to his pay, would require unanimous