Menu

Conflict of Interest Rules for Directors under the OCA

The Ontario Corporations Act contains a set of rules that directors of all non-share capital corporations must observe if they wish to avoid having certain contracts or transactions, or proposed contracts or transactions, set aside. If set aside, the director or officer may also be required to account for any profit. This conflict of interest regime is superimposed on the duty of loyalty and, in the case of a corporation carrying on charitable activities, on charity law.

Section 71 of the OCA is summarized in the following table:

Subsection of Section 71

Component

Description

(1)

Persons captured

Directors and officers of all Part III OCA corporations

Transactions captured

Interests in contracts or proposed contracts with the corporation (regardless of materiality) if the director or officer was in any way directly or indirectly interested in the contract

Disclosure requirement

Nature and extent of the conflicting interest must be disclosed in writing. . While a director must disclose the nature and extent of her interest, there is no precise formula that will determine the extent of detail that is required.

Manner of disclosure

To the directors

(2)

Time of disclosure for directors - general rule

At the meeting at which the proposed contract or transaction is first considered

(3)

General notice of interest

A general notice to the directors declaring that a director or officer is to be regarded as interested in a contract or transaction with a party is a sufficient declaration.

(4) and (5)

Approval by non-conflicted directors or all the members entitled to vote

A material contract or transaction cannot be avoided and a director or officer cannot be required to account for any profit realized from it if:

● She disclosed her interest in accordance with section 71;

● The contract or transaction was approved by: (a)

the non-conflicted directors or (b) a simple majority of the votes cast at a general meeting of members; and

● In the case of board approval under (a) above, the conflicted director did not vote in respect of the contract.

(6)

Remedial orders

If a director or officer fails to comply with section 71, the director or officer is liable in respect of her profit on the contract and the contract may be voided, at the option of the corporation.

More generally, a director has fiduciary obligations to the corporation, including a charitable corporation governed by the OCA. As such, a director must put the interests of the corporation ahead of any conflicting personal interests (as well as the interests that the director owes to others, including her employer). Nothing in the OCA suggests that, by disclosure and abstaining from voting at a board meeting, a director is relieved of her common law duty of loyalty. As stated by an Ontario trial court,, disclosure is only part of acting in good faith. It is not the whole scope of that duty. Once disclosure has been made, the director or officer must thereafter continue to place the interests of the corporation ahead of her own.

.

No Comments

Leave a comment
Comment Information

Contact The Firm

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an lawyer-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Contact

Gray, Whitley LLP
400 - 36 King Street E.
Toronto, ON M5C 3B2

Phone: 647-560-3705
Fax: 647-256-6601
Map & Directions

top