Business judgment rule

Directors meet this rule when shareholders challenge their approval of a sale or buyout. BCE concerned a plan of arrangement to buy out a corporation. For the shareholder’s side, see how dissent rights work.

What the Court said

The Court said that in considering what is in the best interests of the corporation, directors may look to the interests of, among others, shareholders, employees, creditors, consumers, governments and the environment to inform their decisions. It said courts should give appropriate deference to the business judgment of directors who do so, and that deference should be accorded to business decisions of directors taken in good faith and in the performance of the functions they were elected to perform. The Court explained that the rule reflects that directors, who are mandated under section 102(1) of the CBCA to manage the corporation, are often better suited to determine what is in its best interests.

The duties behind it

Section 122(1) of the CBCA requires directors and officers to act honestly and in good faith with a view to the best interests of the corporation, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Whether a particular decision falls within the range is for a court, on its facts. This entry covers corporations under the federal Act; a corporation under another statute follows its own law.