Business Law II - 2776 – Final Exam Notes (On Cases)

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Management and Organizational Studies
Management and Organizational Studies 2276A/B
Phillip King

Business Law IIFinal Exam NotesCorporate Law and Corporate Governance Cases pg176187 Lifting the Corporate Veil Lockharts Ltd v Excalibur Holdings Ltd et al 176Clear principle from Salomon v SalomonCo Ltd that a company is an independent legal entity Plaintiffs ask judge to life the corporate veil on the grounds of fraud Judge Davison J references Jones v Lipmano Lipman entered agreement to sell parcel of land with Jones but then transferred the land to a company which He and a clerk at the office were the sole shareholders of Judge ordered both of them to preform the agreement with the plaintiffCourts will disregard the corporate entity in certain circumstances including situations involving fraud of improper conduct Dickson CJ in Jodreys Estate v Prov Of NS Generally speaking in the absence of fraud or improper conduct the courts cannot disregard the separate existence of a corporate entity One man corporations should be considered as separate entities from their major shareholder save for certain exceptional caseso Ie Just cause theres one shareholder doesnt mean you can sue the one SH The corporation is still a separate legal entity Defendant failed to prove an exceptionfailed to meet the burden of proof required after the plaintiff established his case on the balance of probabilities Judgment awarded in favor of the plaintiff with costs Duties of a DirectorUPMKymmene Corp v UPMKymmene Miramichi Inc 179Considers the duties of a Board of Directors when it reviews and approves this kind of contract one where the director seeks the benefit of a selfinterested contract with the corp he serves Engages the tension between the democratic structure of a corporation and the rights of a shareholder to obtain the courts intervention if this structure has been comprised Mr Berg was given a very lucrative employment contract with lots of stock option plans benefits bonuses and salary perks The issue is that all these were available to the board within their senior mgmt so how do they justify this contractDuties of Director require directors to act honestly and in good faith with a view to the best interest of the corporation and to exercise the care diligence and skill that a reasonably prudent person would exercise in comparative circumstances Also required a director shall disclose to the corporation the nature and extent of any interest he has in a material contract with the corporation DETAILED Duty of disclosure was put in Gray v New Augarita Porcupine Mines Ltdndo The amount of detail required must depend2 paragraph pg179 second columnJudge said directors were not fully informed of all that was in his contract He doesnt accept the defense that the directors could have read this on their own The duty to disclose is an absolute oneDisclosure is only the first step It does not relieve the director of his duty to act honestly and in good faith with a view to the bests interest of the corporation Director must always place the interests of the company ahead of their owno Berg requested types and amount of compensation that he should have known werent in the companies best interest a company which he thought was on the brink of bankruptcy o Removed from draft of agreement reasonable safeguards for Repap including good faith renegotiation of windfall bonuses performance criteria and shareholder approvalo Conduct fell short of fiduciary responsibility in dealing with the corporation Court considers what a reasonably prudent person would have doneSaid a reasonably prudent person would have done the exact opposite of everything Berg did Duties of Board of Directors attack on their failure to act carefully diligently and skillfully in the best interest in of the corporationo It is settled law that the duty of due care requires that where directors make decisions likely to affect shareholder welfare their decision must be made on an informed and reasoned basis Business Judgment Rule Protects Boards and directors from those that might secondguess their decision Did they make a reasonable not perfect decisiono Court evaluates this principle a bit Says the directors in a 30 minute meeting only asked one question and approved a contract for a guy they just met with very lucrative compensation and no safeguards for the corporationo Their decision was not an informed or reasoned one The business judgment rule cannot be applied in these circumstances to protect their decision from judicial intervention Evaluates fraudulent misrepresentation claim o Exception to fraudulent misrepresentation is belief in what was said is true o Berg even though he was wrong did believe he could do good for Repap and deserved the compensation packageNot guilty of fraudulent misrepresentationSection 120 CBCA
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