Authors: Stathy Markatos, Samer Awadh, Ethan Reis
What should directors and officers of Saskatchewan corporations know about incoming changes to Saskatchewan’s corporate legislation concerning the fiduciary duty they owe to their corporations?
In this second part of this blog series that examines key features of The Business Corporations Act, 2021 (the “New SBCA”), we will cover the changes that apply to fiduciary obligations of directors and officers of a corporation.
In our first blog, we noted that the New SBCA comes into force on Sunday, March 12, 2023. The New SBCA will replace The Business Corporations Act (Saskatchewan) (the “Old SBCA”), which has been the law in Saskatchewan for over 40 years. The New SBCA will modernize corporate legislation in Saskatchewan by, among other things, reducing red tape for businesses operating in Saskatchewan and creating create efficiencies by expressly allowing for the use of modern technologies to better reflect current business practices.
Codifying a non-exhaustive list of factors for determining whether a director or officer acted in good faith
One of the most notable changes to be introduced by the New SBCA concerns the fiduciary duty that directors and officers owe to their corporation. More specifically, the New SBCA will codify a non-exhaustive list of factors for determining whether a director or officer has fulfilled their obligation to act in the best interests of the corporation.
Pursuant to section 117 of the Old SBCA, directors and officers are subject to a fiduciary duty to “to act honestly and in good faith with a view to the best interests of the corporation”. However, the legislation is silent with respect to the content of the duty—in other words, against what standard should one attempt to determine the best interests of the corporation and what factors may directors and officers consider when fulfilling this obligation?
The courts have long recognized that it is often difficult to point to what the best interests of the corporation are, especially in light of the fact that directors and officers must often accommodate diverging stakeholder interests in fulfilling their duty to the corporation. The well-established “business judgement rule” gives wide discretion to directors and officers to make decisions concerning the business and affairs of the corporation, so long as the decision falls within a range of reasonable alternatives.
Accordingly, the Supreme Court of Canada characterized the fiduciary duty as a broad, contextual concept and held that the practical implications of this duty will vary between situations; however, the duty is owed to the corporation itself, rather than to the shareholders or to any other particular stakeholder group.
For many years, relevant factors pertaining to the content of the fiduciary duty have been governed by common law principles. In two landmark decisions,[1] the Supreme Court established that, when acting with a view to the best interests of the corporation, the directors and officers of the corporation could consider several factors, including the interests of shareholders, employees, suppliers, creditors, consumers, governments and the environment.
There has been a recent shift toward codifying a non-exhaustive list of factors for determining the best interests of the corporation that both reaffirms the factors enunciated in the case law and adds to the list of factors relevant to the analysis. For example, subsection 122(1.1) of the Canada Business Corporations Act provides that, when acting with a view to the best interests of the corporation, directors and officers may consider factors such as the interests of shareholders, employees, retirees and pensioners, creditors, consumers and governments, the environment and the long-term interests of the corporation.
The New SBCA clarifies the fiduciary obligations of directors and officers
The New SBCA provides clarity on the contents of the fiduciary duty by codifying a non-exhaustive list of factors that directors and officers of Saskatchewan corporations may consider when acting with a view to the best interests of the corporation. The new subsection 9-23(2) will read as follows:
9-23…
(2) When acting with a view to the best interests of the corporation pursuant to clause (1)(a), the directors and officers of the corporation may consider, but are not limited to, the following factors:
- the interests of:
- shareholders;
- employees;
- retirees and pensioners;
- creditors;
- consumers; and
- governments;
- matters respecting diversity;
- the environment; [and]
- the long‑term interests of the corporation.
Including matters relating to diversity, the environment and the long-term interests of the corporation confirm the requirement of a more holistic approach to determining the best interests of the corporation and the content of the fiduciary duty that directors and officers owe to the corporation. The change confirms the common law position that corporations do not exist solely to maximize profits for shareholders and that directors and officers may consider a broader list of factors when determining what is in the best interests of a corporation. In the coming years, case law considering subsection 9-23(2) of the New SBCA will help determine the practical implications of these new factors and the weight that should be assigned to each of them.
The New SBCA will become law in Saskatchewan on Sunday, March 12, 2023. If you would like to learn more about the fiduciary obligations of directors and officers under the New SBCA, the Saskatchewan corporate governance team[2] at MLT Aikins would be happy to provide you with assistance.
[1] Peoples Department Stores Inc (Trustee of) v Wise, 2004 SCC 68, [2004] 3 SCR 461 and BCE Inc v 1976 Debentureholders, 2008 SCC 69, [2008] 3 SCR 560.
The MLT Aikins corporate governance practice group has extensive experience assisting individuals and organizations as they navigate the corporate landscape in Saskatchewan. Please contact us to learn more about the changes brought about by the New SBCA and how they may affect your business.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.