Directors sit at the centre of a corporation's governance, and the law imposes real duties on them. Broadly, directors owe two core duties: a fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation, and a duty of care to exercise the care, diligence, and skill of a reasonably prudent person. Two Supreme Court of Canada decisions define who benefits from these duties and how directors should approach difficult decisions.
Peoples Department Stores v. Wise (2004)
In Peoples v. Wise, the Court addressed a recurring question: when a company is in financial trouble, do directors owe their fiduciary duty to creditors? The Court held that the fiduciary duty is owed to the corporation itself — not directly to creditors. Directors must act in the best interests of the corporation, not any single stakeholder group. The Court did note that creditors are not left unprotected, because they have other legal tools available, but the fiduciary duty itself runs to the corporation.
BCE Inc. v. 1976 Debentureholders (2008)
BCE built on Peoples. The Court confirmed that acting "in the best interests of the corporation" is not the same as maximising short-term shareholder value at all costs. Directors may consider — and sometimes must balance — the reasonable expectations of a range of stakeholders, including shareholders, employees, and creditors, in deciding what is best for the corporation as a whole. The decision also connected this analysis to the oppression remedy, which protects stakeholders whose reasonable expectations are unfairly defeated.
What "best interests of the corporation" means in practice
Together, these cases tell directors to focus on the long-term best interests of the corporation as an ongoing enterprise, using a fair process and good-faith judgment, rather than mechanically favouring one group. Courts generally respect business decisions made honestly, on an informed basis, and within a range of reasonable choices — often described as a degree of deference to directors' business judgment.
Practical guidance for directors
- Act in good faith and in the interests of the corporation, not personal or single-stakeholder interests.
- Be informed — review relevant information before major decisions and document the process.
- Consider the reasonable expectations of affected stakeholders, especially in significant or contested decisions.
- Manage conflicts of interest carefully and disclose them.
Note: General information only, not legal advice.
This article is general information for educational purposes only and is not legal advice. For advice on your situation, book a consultation.