{"id":31969,"date":"2008-03-26T16:35:41","date_gmt":"2008-03-26T21:35:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/issues-in-directors-amp-officers-liability-litigation.html"},"modified":"2008-03-26T16:35:41","modified_gmt":"2008-03-26T21:35:41","slug":"issues-in-directors-amp-officers-liability-litigation","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/corporate-governance\/issues-in-directors-amp-officers-liability-litigation.html","title":{"rendered":"Issues in Directors & Officers Liability Litigation"},"content":{"rendered":"
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In a rapidly evolving corporate environment, directors and officers are constantly faced with difficult strategic decisions. While it has always been understood that these decisions would affect the bottom line of their corporations, it has become uncertain to what extent these decisions may affect directors and officers personally. In the wake of corporate scandals such as Enron, Tyco, Global Crossing, Parmalat and WorldCom, there is growing fear among directors and officers that they will be held personally liable for decisions made in their corporate capacities.<\/span><\/p>

Public opinion of directors and officers is near an all-time low. Their integrity is being questioned. The dramatic downfall of the stock market in 2000 eroded trillions of dollars of investors' equity. It also eroded investor confidence in the men and women at the helm of the world's largest corporations. Inevitably, the result has been increased litigation. Directors and officers of both public and private companies are being sued more frequently and for more money than in the past. In response to corporate scandal and market demise, it appears that courts may be questioning their historic deference to the decisions of corporate executives.<\/span><\/p>

The issue of director and officer liability, while not new, has become a serious concern in boardrooms across Canada<\/st1:place><\/st1:country-region>. Outside directorships, once sought as a reward for success in business, are now being shunned. Although courts continue to say that they are not judging the decisions of directors and officers against the perfect vision of hindsight, the reality is that the past is coloured by the present. Predictably, some recent judgments in Canada<\/st1:country-region> and the United States<\/st1:place><\/st1:country-region> have demonstrated a greater willingness to question the decisions of directors and officers. This has led to understandable fear and uncertainty about which corporate actions will attract the scrutiny of the courts. The law is clearly evolving.<\/span><\/p>

Corporate Law Duties<\/span><\/b><\/p>

Where directors or officers have breached their duties to the corporation, an action may be commenced against them pursuant to relevant corporate legislation.<\/span>1<\/span><\/sup> For corporations incorporated under the laws of Canada, the duty of loyalty and care owed by directors and officers is set out in section 122(1) of the Canada Business Corporations Act<\/i> (the "CBCA"):<\/span><\/p>

Every director and officer of a corporation in exercising his or her powers and discharging his or her duties shall:<\/span><\/p>