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Digest of the Week – Heightened Duty of Disclosure

Digest of the Week – Heightened Duty of Disclosure

Company’s deteriorating financial circumstances can impose a heightened duty of disclosure on its directors.

Geocomp Data Management Inc. v. International PBX Ventures Ltd.
2015 CarswellBC 507
British Columbia Supreme Court

Business associations --- Specific matters of corporate organization — Directors and officers — Fiduciary duties — Miscellaneous

Owner of plaintiff corporation (owner) provided management and consulting services to defendant corporation through plaintiff corporation — At all relevant times owner was also director of defendant corporation — After expiry of written management agreement defendant corporation continued to pay plaintiff corporation $15,000 per month, totalling $181,600 but payments ceased before owner ceased to be director — Defendant corporation experienced financial distress and became insolvent while continuing to pay plaintiff corporation — Plaintiff corporation brought action in contract and quantum meruit for value of services rendered to defendant corporation; defendant corporation brought counter-claim against owner for recovery of fees paid to plaintiff corporation — Action dismissed; counter-claim successful — As director and CEO, owner owed fiduciary duties to defendant corporation both at common law and under s. 142 of Business Corporations Act — When owner's interest in continuing to be paid conflicted with his duties as director and officer of defendant corporation he was required to disclose to board that his contract had ended — As defendant corporation's financial position deteriorated, owner had heightened duty of disclosure — In circumstances where other directors reduced their remuneration, owner must have known that board would not have approved his continued remuneration — Owner was dishonest when he represented that he had taken 50 percent salary cut.
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