Minimizing Risk For Creditors' Nominee Directors

A nominee director of a corporation appointed by one of its creditors may encounter risk of liability where that creditor is engaged with the corporation in efforts to restructure its debt. Steps can be taken to minimize the risk of such liability.

Nominee Directors in Canada

Canadian law relating to corporate directors' duties differs from U.S. law. In particular, the directors' fiduciary duty requires a director to act in the best interests of the corporation. This duty does not change when the corporation is in the "vicinity of insolvency". In particular, the directors' duty remains with the corporation and does not shift to creditors. Further, a director has a positive obligation to share third party information, including confidential information, with the corporation if the information affects the corporation in a vital aspect of its business. Nominee directors are subject to the same fiduciary duty as any other director. They may not prefer the interests of