Carmen Theriault - Trustees - Directors of Private Companies: Which Hat Rules?
TRUSTEE-DIRECTORS OF PRIVATELYHELD COMPANIES – Which hat rules? Presented by: Carmen S. Thériault, Q.C. January 19, 2011
Duties Imposed UponDirectors :1. Must act honestly and in good faith with a view to the best interests of the corporation.2. Must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Duties Imposed UponTrustees :1. Act personally2. Avoid conflicts of interest3. Duty of Care4. Even hand principle5. Duty to Account
Trustees Exercising Powers asShareholders : Power to buy and sell shares Power to vote shares Power to compel the disclosure of corporate information Power to call shareholder meetings and have resolutions/amendments put before them
Butt v. Kelson  1 Ch. 197 (CA):“The only rights that the beneficiarieshave are rights to see that the trusteesuse their voting power attaching to thetrust holding in the best interests of thebeneficiaries themselves;”
Kordyban v. Kordyban  6 WWR606, 13 BCLR (4 th ) 50 (BCCA):“To determine whether the court should intervene,it must first determine what the intentions of thetestator are. Where trustees fail to exercise adiscretionary power and do not act one way or theother, the question is whether that failure, or itsconsequence, is consistent with or frustrates thetestator’s intentions. If the failure of the trustees toact frustrates the testator’s intention, the court mustthen determine, considering the interests of thebeneficiaries, on whose side to intervene (that is,whether to grant the relief sought on theapplication).”
Trustee as Director: Must a Trustee act as a director in order to satisfy the standard of care imposed by law? When exercising director powers, whose interests does he represent – those of the corporation or those of the beneficiaries?
Distribution of Funds from a privatelyheld corporation: Form Rule Re Fleming  3 O.R. 588 (Ont.H.C.) Re Welsh (1980) 111 D.L.R. (3d) 390 (Ont.H.C.)
Form Rule: A dividend that is in essence a cash payment out to shareholders is income, including a capital dividend. A dividend that is a distribution of profits is capital, including stock dividends, proceeds of redemption, proceeds from a purchase for cancellation, options to subscribe for new shares, additions to paid up capital or property distributed when a corporation is wound up.
Disclosure of Corporate Information toBeneficiaries: Trustee has a duty to disclose Director has a duty to keep corporate information confidential
Lindholm v. Lindholm (2000) 76 BCLR(3d) 167: Beneficiaries have right to all information available to the trustees as shareholders, (i.e. shareholder resolutions, company’s financial statements, correspondence between the company and trustees relating to shareholder matters) Information received by trustees as directors or officers would not necessarily be required to be disclosed Corporate law duty of confidentiality takes priority over a beneficiary’s right to information
Other Corporate ManagementIssues: A Trustee must not personally benefit from the trust What if a Trustee-director is paid a director fee?
General Rule:Unless the trust instrument providesotherwise, if the opportunity forremuneration arose as a result of adiscretion vested in the trustee, it shouldnot be allowed – but this rule has beeninconsistently applied.