Directors’ And Officers’ Transactions With The Corporation

This article was originally published in Blakes Bulletin on Litigation September 2004

In keeping with the customs of our system of law, the legal recognition of corporations and their evolution brought with it judicial decision making which cast a common law standard respecting dealings by directors and officers with their corporation.

The common law standard recognized a fiduciary duty and set a standard of zero tolerance, where no conflict of interest was to be brooked and there would be a strict accountability for any profits made by a director or officer in such a transaction. The common law has essentially been supplanted by statutory standards embodied in the governing corporate legislation. In Section 122(1)(a) of the Canada Business Corporations Act (CBCA) and Section 134 of the Ontario Business Corporations Act (OBCA), the standards are set forth as those of honesty, good faith and acting in the best interests of the corporation, and the exercise of due care, diligence and