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The first loyalty of a corporate director is to the company

Categories:

Business law, Civil and commercial litigation

Given the possibility of having multiple business partners as well as the competing interests that come along with such partnerships, the Law imposes a duty of loyalty to all directors in favour of the corporation to the board of which they are appointed.

In effect, a director must act in the best interests of the corporation (the corporation being a distinct legal entity) and not in his own best interest, nor that of a third party. When this duty of loyalty is breached, several remedies may become available to the affected stakeholders, and legal action can be taken against the director at fault. Such remedies include injunctions, claims for damages, as well as the dismissal or removal of the said director, to name a few.

In a recent case, the petitioner was seeking an injunction against a director, alleging that corporate clients were being diverted to a competing business, independently owned by another group to which the director also belonged.

After analyzing the facts, the Court concluded that the defendant:

  1. ceased to act for the benefit of the business; and
  2. misappropriated corporate property for the benefit of third parties and acted in a manner that harmed the petitioner, the corporation and its stakeholders.

As a result, the defendant was condemned to pay substantial compensatory damages to the corporation and its shareholders.

For this or any other kind of issue regarding corporate directorships, do not hesitate to contact us, to avoid potential future problems.


 

Harry Karavitis, Attorney-at-Law
Alepin Gauthier Avocats inc.

This text contains legal information of a general nature and should not replace legal advice with a lawyer or notary who will take into account the particularities of your situation.

The first loyalty of a corporate director is to the company
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