1. Powers, Duties and Liabilities
of Directors and Officers
Catherine Graham
January 5, 2015

2. Powers, Duties and Liabilities of Directors and Officers
• What CAN you do?
• What MUST you do?
• What SHOULD you do?
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3. What Can You Do? – Directors Can Run the Business
Directors are elected by shareholders.
“The directors of a company must, subject to this Act, the
regulations and the memorandum and articles of the company,
manage or supervise the management of the business and affairs
of a corporation.”
Directors:
• Call all shareholder meetings
• Approve all share issuances and set the price
• Declare dividends and set the price
• Appoint officers
• Approve annual financial statements
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4. What Can You Do? – The Board Can Delegate Powers
BC Act: “The articles of a company may transfer, in whole or in
part, the powers of the directors to manage or supervise the
management of the business and affairs of the company to one or
more other persons.”
The persons to whom those powers are transferred have all the
rights, powers, duties and liabilities of the directors, and the
directors are relieved of their rights, powers, duties and liabilities
to the same extent.
Person = individual or company or other entity
Articles must reference the transfer, but shareholders agreement
can also be used (662/3 % voting approval vs. 100% signed
approval of shareholders).
Federal Act: Similar concept but transfer can only be to
shareholders under unanimous shareholders agreement.
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5. What Can You Do? – Officers
The directors may appoint officers and may specify their duties.
Someone may be both a director and an officer, and hold multiple
officer positions.
Unless specifically delegated under articles, officers cannot:
• Call shareholder meetings
• Issue shares or set the price
• Declare dividends or set the price
• Appoint other officers
• Approve annual financial statements
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6. 6
What Must You Do? - Duties
Basic Duties of Directors and Officers
• Fiduciary Duty
• Duty of Care
You cannot contract out of these duties.

7. What Must You Do? – Fiduciary Duty
Fiduciary Duty
• What is a fiduciary?
• Legal and ethical relationship of trust between two or more parties
• A fiduciary duty is the highest standard of care at either equity or law
• Obligation of undivided loyalty
• There must be no conflict of duty between fiduciary and principal, and the
fiduciary must not profit from his position as a fiduciary (unless the
principal consents)
• Other examples:
• Doctor/patient
• Lawyer/client
• Priest/parishioner
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8. What Must You Do? – Fiduciary Duty
Fiduciary Duty
Act honestly and in good faith with a view to the best
interests of the company
• An overarching duty to the corporation, which contains two
component duties
• a duty to protect shareholder interests from harm, and
• a procedural duty of "fair treatment" for relevant stakeholder interests.
• Maximizing shareholder value vs. interests of all stakeholders
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9. What Must You Do? – Fiduciary Duty
Fiduciary Duty
• Avoid conflict – no self dealing
• Corporate Opportunity Doctrine
• Directors and officers must not take for themselves any business
opportunity that could benefit the corporation
• Line of business – an activity as to which the corporation has
fundamental knowledge, practical experience and ability to pursue
• Consent of Company – interest disclosed / directors or shareholders
approve by resolution (with interested party abstaining from vote)
• Fiduciary duties cannot conflict
• Confidentiality vs. duty to disclose when acting for more than one
company
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10. What Must You Do? – Duty of Care
Duty of Care
Exercise the care, diligence and skill that a reasonably
prudent individual would exercise in comparable
circumstances.
• Directors and Officers must discharge their duty of care.
• Addresses the attentiveness and prudence in performing their
decision-making and supervisory functions.
• Must use their training, ability, experience and education in the
same way as a reasonably prudent person would do in a similar
situation.
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11. What Must You Do? – Business Judgment Rule
Business Judgment Rule
• You can be wrong, but the process must be right.
• Presumes that directors and officers carry out their functions in
good faith, after sufficient investigation, and for acceptable
reasons.
• Unless this presumption is overcome, courts abstain from
second-guessing well-meaning business decisions even when
they are unsuccessful.
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12. What Should You Do? - Strategies
Strategies
• Officers
• Ensure material business decisions are approved by directors
• Decisions, transactions and material agreements outside the ordinary course
of business
• Share issuances, dividends, redemptions
• Uncomfortable? Seek board clearance.
• Know and understand what’s going on!
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13. What Should You Do? - Strategies
Strategies
• Directors
• Hold regular board meetings and attend those meetings
• Approve all decisions by vote at meeting or written consent resolutions of
all directors
• Keep record in written and signed meeting minutes and consent
resolutions
• If you are present at meeting or not present, you are deemed to have
consented unless director explicitly dissents in meeting minutes or delivers
written dissent within 7 days of becoming aware
• Know and understand what’s going on!
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14. What Should You Do? - Strategies
Strategies
• Know your responsibilities
• You must spend the necessary time
• You must read others’ (including experts) reports, think about
them and ask questions if they arise
• Get legal and other expert advice
• Use independent board committees – include independence
from management where possible
• If conflicted: declare your interest and directors should abstain
from voting when conflicted (legally required)
• Document your process!
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15. What Should You Do? - Strategies
Indemnification & Payment
• Company may indemnify directors and officers against
proceedings to which the individual is a party or may be liable
in respect of a judgment, penalty, fine or related expenses
(including legal fees) by virtue of the individual acting as a
director or officer
• Ensure indemnity is set out in articles or separate indemnity agreement!
• Company should purchase D&O insurance
• Company must pay the expenses reasonably incurred by
director or officer after final disposition of proceeding if the
director or officer is wholly or substantially successful in the
outcome of the proceeding
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16. What Should You Do? - Strategies
Indemnification & Payment
• Indemnity and payment are automatically voided if:
• fiduciary duty was violated (did not act honestly and in good faith with a
view to the best interest of company)
• in criminal, regulatory or other non-civil proceeding, the individual did not
have reasonable grounds for believing his or her conduct was lawful
• If proceeding = company suing director or officer
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17. Case Study 1
“Repo 105”
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18. Case Study 1
“Repo 105”
• Company has a substantial amount of debt outstanding.
• CFO uses “repo 105” accounting maneuver to minimize debt in
financial statements.
• Repo 105 is a type of short-term repurchase agreement – assets
are “sold” for cash but company agrees to buy back assets
days later.
• Cash is used to pay down debt, allowing the company to appear
to reduce its leverage by temporarily paying down liabilities—
just long enough to reflect on the company's published balance
sheet. After the company's financial reports are published, the
company borrows cash and repurchases its original assets.
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19. Case Study 1
“Repo 105”
• Company wants Repo 105 to be accounted for as “sale” rather
than “loan”
• CFO seeks support from legal counsel
• Local counsel says must be accounted for as “loan” – no go
• Second opinion by foreign counsel says “sale” ok – Repos pushed to
foreign jurisdiction.
• Auditors give unqualified audit report
• Issue not specifically taken to the board
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20. Case Study 1
“Repo 105”
Executives:
“It’s basically window-dressing.”
“I see … so it’s legally do-able, but doesn’t look good when we actually
do it? Does the rest of the street do it? Also, is that why we have so much
BS [balance sheet] to Rates Europe?”
“Yes, No and yes. :)”
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21. Case Study 1
“Repo 105”
What are CFO’s duties?
What did he/she do right?
What did he/she do wrong?
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22. Case Study 1
“Repo 105”
Lehman Brothers
Bart McDade, who became Lehman’s president and chief operating
officer in June 2008, in an email called Repo 105 transactions:
“another drug we R on.”
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23. Case Study 2
Canada Metals Exploration Ltd. v. Wiese
(2007 BCCA)
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24. Case Study 2
Canada Metals Exploration Ltd. v. Wiese
(2007 BCCA)
• Canadian Metals Exploration Ltd. (“CME”) – mineral exploration
company
• Wiese, a de facto director, staked mineral claims adjacent to
CME’s property for Quorum, his management company
• CME’s consultant geologist had recommended that CME stake
the claims
• Wiese believes that CME has passed on the opportunity and
consents to him staking the claims
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25. Case Study 2
Canada Metals Exploration Ltd. v. Wiese
(2007 BCCA)
What are Weise’s duties?
What should Weise do to avoid liability?
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26. Case Study 2
Canada Metals Exploration Ltd. v. Wiese
(2007 BCCA)
• No formal directors’ meeting called or notice given
• Certain directors and certain members of management met
spontaneously throughout the day to discuss the adjacent
claims
• No agenda, no notes, no minutes, no resolutions of the meeting
• Not all present at meeting at the same time
• CME was being investigated by the BC Securities Commission
at the time
• At the meeting, it was suggested that the claims be staked by
another company to be founded by same directors and officers,
not same shareholders
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27. Case Study 2
Canada Metals Exploration Ltd. v. Wiese
(2007 BCCA)
What went wrong?
Any issue with claims going to new company?
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28. Questions & Discussion
Questions?
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29. Thank You
montréal  ottawa  toronto  hamilton  waterloo region  calgary  vancouver  beijing  moscow  london
Catherine Graham
Tel: 604 891-2765
Email: catherine.graham@gowlings.com