Best Interests Considerations Now Codified in CBCA

On June 21, 2019, the Federal Government’s omnibus budget implementation bill (Bill) received royal assent. The Bill includes certain significant amendments to the Canada Business Corporations Act (CBCA), some of which are now in force.

The most significant amendment is to codify into the CBCA some of the principles relating to directors’ duties set out in the landmark 2008 decision of the Supreme Court of Canada (SCC) in BCE Inc. v. 1976 Debentureholders (the BCE Decision).

The CBCA requires directors and officers, in discharging their duties to the corporation, to "act honestly and in good faith with a view to the best interests of the corporation." Until the BCE Decision, it was often believed that acting in the best interests of the corporation was equivalent to acting in the best interests of the shareholders of the corporation. However, in the BCE Decision, the SCC confirmed that "directors owe their duty to the corporation, not to stakeholders and that the reasonable expectation of stakeholders is simply that the directors act in the best interests of the corporation." The SCC provided further guidance on these duties by concluding that the interests of other stakeholders in the corporation may be relevant in an assessment of the duties of directors. While this may sound somewhat passive, the practical effect of the BCE decision is that directors have effectively been required to assess a range of interests when exercising their business judgment.

The Bill now codifies the BCE Decision into the CBCA by providing that directors and officers may consider, but are not limited to, the interests of shareholders, employers, retirees and pensioners, creditors, consumers and governments, as well as the environment and the long-term interests of the corporation, when acting with a view to the best interests of the corporation.

Accordingly, directors and officers must now take care in exercising their fiduciary duties to consider the interests of the relevant “stakeholders,” the environment and the long-term interests of the corporation.

You can access the Bill here.

DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.