Directors’ Duties, Corporate Governance in British Columbia, and Personal Liabilities of a Director of a Corporation
For a company governed by British Columbia’s Business Corporations Act, SBC 2002, c. 57 (the “BCA”), the principal statutory duties of directors and officers are set out in s. 142(1).
When exercising their powers and performing their functions, directors and officers must:
• act honestly and in good faith with a view to the best interests of the company;
• exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances;
• act in accordance with the BCA and its regulations; and
• subject to the above, act in accordance with the company’s memorandum and articles.
The first two duties are the focus of this article.
They are separate obligations: the fiduciary duty concerns honesty, good faith, loyalty, conflicts of interest and the company’s best interests; the duty of care concerns the standard of prudence, diligence and skill expected in the circumstances. The Supreme Court of Canada has confirmed that these duties “are, in fact, distinct and are designed to secure different ends”: Peoples Department Stores Inc. (Trustee of) v. Wise, 2004 SCC 68 [Peoples] at para. 33.
Being a director does not protect a person from liability for breaching a statutory duty or for their own wrongful conduct. Whether a director is personally liable depends on the particular statute or legal claim and any available defences. Some statutes, such as those dealing with unpaid taxes and wages discussed below, make directors liable even where there has been no fraud or illegal conduct.
The fiduciary duty
A director’s fiduciary duty is owed to the company, not directly to its shareholders, creditors, employees or other stakeholders. In BCE Inc. v. 1976 Debentureholders, 2008 SCC 69 [BCE], the Supreme Court stated that “the directors owe a fiduciary duty to the corporation, and only to the corporation” at para. 66. The British Columbia Court of Appeal has likewise described the duty as owed “to the corporation alone, not its shareholders, creditors, or any other stakeholders”: Sonic Holdings Ltd. v. Savage, 2021 BCCA 441 [Sonic] at para. 30, quoting Roussy v. Savage, 2019 BCSC 1669 at para. 307.
Directors must exercise their powers for the benefit of the company as a whole.
They must not use their position to advance their personal interests, favour a particular shareholder at the company’s expense or pursue an improper purpose.
The fiduciary duty includes the obligation to act honestly and in good faith with a view to the best interests of the company. Good faith is part of that statutory fiduciary obligation, rather than a separate, freestanding duty.
The best interests of the company
The company’s best interests are not limited to immediate profits, short-term share value or the interests of a particular shareholder group. When determining what is best for the company, directors may consider its long-term interests and the effects of a proposed decision on relevant stakeholders.
The Supreme Court has recognized that directors may consider the interests of “shareholders, employees, creditors, consumers, governments and the environment”: BCE at paras. 38–40. Considering stakeholder interests does not create a separate fiduciary duty to advance those interests independently of the company’s interests. Rather, those interests may inform what is in the company’s best interests, including its long-term success, financial position, reputation, legal compliance and sustainability.
There is no fixed rule that the interests of shareholders, employees, creditors, the environment or another stakeholder group must always prevail. The appropriate analysis depends on the circumstances and whether the directors acted honestly and in good faith in what they reasonably considered to be the company’s best interests. As the Supreme Court stated, “there are no absolute rules”: BCE at para. 82.
The duty of care
The statutory duty of care requires directors to exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances. This is an objective test. A director is not excused because they lack relevant skill or experience. Courts consider the circumstances in which the decision was made, which may include the director’s role and what they knew. A director with professional expertise who fails to act on information they recognized as a problem may find it difficult to show they met the standard.
Directors are expected to inform themselves about material issues, review information reasonably available to them, ask appropriate questions, participate meaningfully in board deliberations and obtain professional or expert advice where the circumstances reasonably require it.
The standard does not require perfection.
Directors must assess the circumstances known, or that reasonably ought to have been known, at the time of the decision. A decision is not necessarily negligent merely because it later produces an unfavourable result.
Business judgment and deference to directors
Canadian courts recognize that directors must make business decisions involving uncertainty, risk and competing considerations. Courts will generally give appropriate deference to an informed and honest business decision that falls within a range of reasonable alternatives.
This deference does not replace the statutory standard of care or protect a decision made without the care, diligence and skill required by s. 142(1). Nor does business judgment protect dishonesty, bad faith, undisclosed conflicts, self-dealing or diversion of corporate opportunities. The Supreme Court has described the business judgment rule as according deference where directors have selected one of several reasonable alternatives: Peoples at para. 65; BCE at para. 40.
Conflicts of interest
Directors must identify and appropriately address conflicts between their personal interests and their duties to the company. Under ss. 147–153 of the BCA, a director or senior officer who holds a disclosable interest in a contract or transaction into which the company has entered or proposes to enter must disclose the nature and extent of that interest.
Section 153 adds a separate disclosure obligation. A director or senior officer must promptly disclose any office, property, right or interest that could create a material conflict with their duties or interests as a director or senior officer.
The BCA contains specific rules governing interested contracts and transactions. A transaction is not automatically invalid merely because a director has an interest in it, failed to disclose the interest, or the transaction was not approved by the directors or shareholders. The applicable statutory disclosure, approval, participation and fairness requirements must nevertheless be followed.
The B.C. Court of Appeal has described these provisions as a “complete code” for conflicts involving contracts or transactions in which a director or senior officer has a disclosable interest: Sonic at para. 70. However, they do not replace a director’s broader fiduciary duties, including the duty not to take a corporate opportunity: Sonic at paras. 80–81.
A conflicted director should not participate in a decision where participation would compromise the director’s ability to act in the company’s best interests. The BCA generally restricts a director who holds a disclosable interest from voting on the directors’ resolution to approve the contract or transaction. Whether the director should also abstain from deliberations or leave the meeting depends on the BCA, the company’s articles and the circumstances.
Corporate opportunities
Whether an opportunity belongs to the company depends on the circumstances. The question is whether the opportunity fairly belonged to the company. Although the case law is not entirely consistent, the Court of Appeal has said that, as a general rule, a director must make full disclosure and obtain the company’s consent before taking a corporate opportunity, even if the company could not have pursued it and the director did not act in bad faith: Takhar v. Phoenix Homes Limited, 2025 BCCA 152 at paras. 22, 37.
Risk management, reputation and long-term value
Directors should consider material risks affecting the company, including financial, operational, legal, regulatory, technological, cybersecurity, environmental and reputational risks. The appropriate level of oversight depends on the company’s size, business, industry, operations, regulatory environment and circumstances.
Risk oversight is not a guarantee that the company will avoid loss or adverse events. The board’s role is generally to ensure that material risks are identified, properly considered and addressed through appropriate policies, reporting processes, controls and management oversight.
Reputation may be relevant to the company’s long-term interests because reputational damage can affect customers, employees, financing, regulatory relationships, business opportunities and corporate value. Directors may take reputational considerations into account when determining what is in the company’s best interests.
Environmental, social and governance considerations may also be relevant where they affect the company’s legal obligations, operations, risks, reputation, stakeholder relationships or long-term sustainability. British Columbia law does not impose a universal, freestanding fiduciary obligation requiring every company to pursue ESG objectives or stakeholder welfare independently of the company’s interests.
Practical governance measures
To help directors meet their obligations, a B.C. company’s board should generally:
• maintain clear governance policies and appropriate reporting procedures;
• ensure directors receive timely and material information;
• document significant decisions, the information considered and the reasons for the decision;
• identify and address actual or potential conflicts of interest;
• obtain professional or expert advice where appropriate;
• review material financial, operational, legal, regulatory, cybersecurity, environmental and reputational risks;
• monitor compliance with applicable legislation, contracts, regulatory requirements and company policies;
• ensure the board’s composition and directors’ training are appropriate for the company’s business; and
• revisit important decisions and governance policies as the company’s circumstances change.
These measures are not substitutes for the statutory duties and do not guarantee that a decision is lawful or protected from challenge. They are practical means of supporting informed, honest and prudent decision-making.
Personal liabilities
A director does not become liable for a company obligation solely because they are a director. Personal liability may arise under a specific statute or where the director’s own conduct gives rise to a cause of action.
A director who breaches their fiduciary duty may face personal liability for loss the company suffers as a result of the breach. A director may delegate responsibilities to an officer or expert, but must exercise reasonable care in selecting and supervising the delegate.
Section 157 of the BCA gives directors some protection. A director who relied in good faith on financial statements, professional reports or other information listed in s. 157 may be protected from liability under s. 154 and treated as having met certain duties. A director is also protected from liability under s. 154 if they did not know, and could not reasonably have known, that the act or resolution breached the BCA.
A director may be personally liable on a contract if it is not clear that they signed it on behalf of the company. To reduce this risk, directors should ensure that the company’s full legal name appears on contracts and that they sign as a director or officer of the company. These steps help, but they do not guarantee that a director will avoid personal liability; the result depends on the contract and the circumstances.
Personal tort liability
Acting for the company, or believing they were acting in its best interests, does not protect a director from liability for their own wrongful conduct (a tort). However, a director is not liable simply because they hold office; the claim must be based on something the director personally did.
Creditors and bankruptcy
Directors do not owe creditors a fiduciary duty merely because the company is insolvent or nearing insolvency. Creditors may, however, have remedies against directors in some circumstances, including through the oppression remedy and specific statutory provisions.
The Bankruptcy and Insolvency Act (the “BIA”) deals with two separate issues. Under s. 95, a payment or transaction that prefers one creditor over others may be set aside by the trustee in bankruptcy. Under s. 101, the court may review certain dividends, share redemptions or purchases, and certain payments to directors or officers made before the bankruptcy, and may order the directors to repay those amounts if the conditions in that section are met.
Oppression remedy
Under s. 227 of the BCA, a shareholder may apply to court for relief from oppressive or unfairly prejudicial conduct. For this purpose, “shareholder” includes a beneficial owner and anyone else the court considers appropriate. The court’s permission (leave) is not needed to bring an oppression claim. Leave is needed only for a derivative action, which is a claim brought in the company’s name under ss. 232–233.
A court may make an oppression order against a director personally only if the oppressive conduct is attributable to that director and a personal order is fit in all the circumstances. It may be relevant that the director gained a personal benefit or increased control of the company, but neither is required: Wilson v. Alharayeri, 2017 SCC 39 at paras. 31, 50.
Specific statutory liabilities
Under s. 154 of the BCA, directors who vote for or consent to a resolution authorizing certain prohibited acts may be jointly and severally liable to repay the company any amount paid or distributed that the company has not otherwise recovered. These acts include paying a dividend when the company is insolvent or the payment would make it insolvent (s. 70(2)), purchasing or redeeming shares contrary to s. 78 or 79, and making a payment or giving an indemnity contrary to s. 163.
A director who was absent from the directors’ or committee meeting at which such a resolution was passed may be deemed to have consented to it. To avoid this, the director must deliver or mail a written dissent within seven days after learning that the resolution was passed. The s. 157 defences may also be available.
Securities laws can also make directors personally liable in specific situations. For example, under the B.C. Securities Act, the directors of an issuer at the time a prospectus is filed may be liable to purchasers for a misrepresentation in the prospectus. Different rules and defences apply to other claims, such as claims for misrepresentations in an issuer’s ongoing public disclosure (secondary market liability).
Tax liabilities
The Income Tax Act, Excise Tax Act, Canada Pension Plan and Employment Insurance Act impose director liability for specified failures to deduct, withhold, remit or pay amounts, subject to statutory conditions and defences. This does not extend to every amount the company owes to the Canada Revenue Agency.
The time limits vary by statute. Under s. 227.1(4) of the Income Tax Act, the CRA must start proceedings against a director within two years after the director last ceased to be a director. Under s. 323(5) of the Excise Tax Act, the CRA cannot assess a director more than two years after the director last ceased to be a director. The Canada Pension Plan and Employment Insurance Act contain similar rules that adopt parts of s. 227.1 of the Income Tax Act, with some changes.
A director has a defence if they can show that they exercised reasonable care, diligence and skill to prevent the failure to remit. The focus is on preventing the failure, not on trying to fix it afterwards: Canada v. Buckingham, 2011 FCA 142 at para. 40.
A director should also be aware of a company’s potential obligation to withhold income tax where an employee claims the s. 87 exemption under the Indian Act but the employment income is not, in law, situated on a reserve. A director may face personal liability for amounts the company failed to withhold and that the CRA has been unable to recover from the company. The applicable due-diligence defence should also be considered.
Unpaid wages and workplace safety
Under s. 96(1) of the Employment Standards Act (the “ESA”), a person who was a director or officer when an employee’s wages were earned or should have been paid is personally liable for up to two months’ unpaid wages for each employee. The ESA contains exceptions, including rules relating to compensation for length of service in specified insolvency circumstances, vacation pay that becomes due after the director or officer has ceased to hold office, and money remaining in an employee’s time bank after that person has ceased to hold office.
Under the Workers Compensation Act (the “WCA”), every director and officer must ensure that the corporation complies with the Act’s occupational health and safety provisions, regulations and applicable orders. If the corporation commits an offence, a director or officer who authorized, permitted or acquiesced in it also commits an offence. The WCA provides a due-diligence defence.
Separately, s. 217.1 of the Criminal Code imposes a legal duty on a person who undertakes, or has authority, to direct how another person does work or performs a task to take reasonable steps to prevent bodily harm to that person, or any other person, arising from that work or task. Director status alone does not establish that this duty applies.
Environmental liabilities
Environmental liability depends on the particular statute; there is no single due-diligence rule that applies to all environmental laws. In British Columbia, under the Environmental Management Act (the “EMA”), an employee, officer, director or agent who authorized, permitted or acquiesced in an offence committed by the company also commits that offence.
The EMA also makes current and former owners and operators of a contaminated site, and certain other persons, responsible for cleaning it up, subject to exceptions. A former director is not responsible simply because they held office; they must fall within one of the categories in the EMA, such as a previous owner or operator.
Reducing personal liability risk
A director may reduce the risk of personal liability by:
• properly fulfilling their duties as a director;
• becoming familiar with, and ensuring compliance with, applicable statutes, the company’s articles and other governing documents;
• carefully appointing and properly supervising officers and experts; and
• maintaining appropriate governance policies.
A company may also indemnify its directors and officers and buy directors’ and officers’ liability insurance for them, subject to the BCA. These are separate protections. Under s. 163, a company may not indemnify a director in certain circumstances, including where the director did not act honestly and in good faith with a view to the best interests of the company. Under s. 165, a company may buy insurance for its current and former directors and officers. Any coverage is subject to the terms of the policy.
Summary
For a company governed by the BCA, directors must act honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances.
The fiduciary duty is owed to the company. Directors may consider stakeholder interests, reputational concerns, ESG matters and long-term consequences when determining what is in the company’s best interests, but those considerations do not create independent fiduciary objectives that displace the company’s interests.
Courts generally give appropriate deference to informed, honest and reasonable business decisions. That deference does not protect dishonesty, bad faith, undisclosed conflicts, self-dealing, diversion of corporate opportunities or a failure to meet the statutory standard of care.
A director does not become liable for a company obligation solely because they are a director. Personal liability may nevertheless arise in specified circumstances, including under statutory provisions and for the director’s own actionable conduct. Directors should understand the duties and statutory liabilities that may apply to them and take appropriate governance, insurance and indemnification measures.
This article provides general information only and is not legal advice. The law may have changed since the date of publication.
Directors and officers should obtain legal advice about their particular circumstances.