Directors, Creditors and Insolvency: A Fiduciary Duty or a Duty Not to Oppress?

David Thomson

ABSTRACT

In recent years, courts in Australia, New Zealand, the United Kingdom, and the United States have considered the notion that directors might owe a fiduciary duty for the benefit of creditors when a corporation becomes insolvent. In Canada, a recent decision of the Quebec Superior Court expressed an intention to incorporate this notion into Canadian corporate law. However, a careful analysis of the jurisprudence used to support this development reveals the basic principle that, upon insolvency, the directors' fiduciary duty should be exercised in a manner that does not prejudice or disregard creditor interests. It is argued that the oppression remedy already provides this form of protection for creditors, without any requirement that the corporation be in a state of insolvency. In addition, the oppression remedy is available for a broader range of conduct than that captured by a breach of fiduciary duty. Moreover, there is developing case law that imposes rational limits on the ability of creditors to access the oppression remedy, reducing the likelihood that every debt claim will become an application for a broad, discretionary remedy.

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Citation: (2000) 58(1) U.T. Fac. L. Rev. 31.
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