Nov 26, 2014

Facts:

-Wise brothers acquire People’s from Marks & Spencer in early 90s and ran it as a subsidiary of Wise. Board of Wise elected to put in place a system to manage both company’s inventory together, but problems occurred right way. P ended up owing money to Marks and went bankrupt. Marks made claim against Wise for electing to implement a system that was not in its best interest, as it was better from Wise but not for People’s

Issue:

-Do directors owe a duty to creditors of a corporation?

Held:

-Yes, but not a fiduciary at common law between directors and creditors

Analysis:

-Court discussed responsibilities of a board of directors. Best to have clear corporate governance rules, a sufficient number of outside directors, etc.

oHowever, just because a system doesn’t work doesn’t mean it makes it an unreasonable decision

-Therefore, “because of the risk of hindsight bias”, Canadian courts adopted American “business judgment rule”

oCourts look to see that a director made a reasonable decision, not a perfect one

oNot on the court to cast its own judgment on what should have been done

oHere, even though decision screwed creditors, it was made to try to save the corporation and thus was done in its best interests

-Ratio:

-Courts will not second guess unsuccessful business decisions as unreasonable or imprudent in light of information that becomes available ex post facto

·With the DOL, the best interests of the company do not simply mean the bests interests of the shareholder

oBoards can consider the interests of other stakeholders

§BUT they don’t have to

·Boards must create a “better corporation

oIn doing so, they cannot favour any particular stakeholder group

·With regards to the DO Competence in 122(1) CBCA, there is no reference to a particular party

oThus, this duty must be much more open-ended

Note

·OBCA was amended particularly because of this case

oNOW, specifically states the duties are owed to the corporation

The CBCA will also likely be amended (Khimji)