Corporate Governance: Creditors, Investors, Public Interest & The Environment

How Does CBCA Protect Creditors

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Directors/officers may be held personally liable if they irresponsibly manage the corporation's assets.

Insolvency

Having liabilities in excess of the realizable value of one’s assets or being unable to pay one’s debts as they fall due

Solvency Test

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Share capital cannot be repaid by way of dividends or redemption of shares if it renders the corporation insolvent.

What is the Maintenance Test

Cannot Declare Dividends Where:


1. The corporation wouldn't be able to pay liabilities as they become due
2. The realizable value of assets would be less than liabilities and share capital

How Are Investors Protected

Investors are protected under securities legislation, governed by the Ontario Securities Commission.

Main Goals of Securities Legislation

* Prevent and punish frauds
* Require full disclosure of financial information to prospective buyers of shares and bonds

Main Tools of Securities Legislation

* Brokers and other dealers in securities are licensed
* Corporations must publish a prospectus if they intend to distribute shares
* Corporations are required to meet ongoing disclosure obligations for material changes
* Regulations of takeovers or reorganizations of corporations

How Is Public Interest Protected

Legislation governs the control of corporations where their actions would be contrary to the public good, like health and safety, environment and anti-monopoly laws

Environmental Offences

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Usually strict liability offences that involve the protection of air, water, and land pollution; governed by the Canadian Environmental Protection Act

Defence to Environmental Damages

* Due Diligence

What Is The Directors Standard of Care in an Environmental Offence

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Directors are held to a higher standard of care since they have knowledge in the field, must be knowledgeable if the corporation is engaged in environmentally hazardous activities

Liable Parties in Environmental Offence

1. Actor who caused environmental damage is personally liable
2. Directors/officers can be held personally liable if they acquiesced to the hazard in questions

Sentencing Factors in Environmental Offences

* Nature of the environment affected
* Extent of the damage actually inflicted
* Deliberateness of the offence
* Attitude of the defendant
* Attempts to comply with Regulations