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Imminent Insolvency - Shifting Fiduciary Duties of Directors.(Quebec Court of Appeal in Peoples Department Stores Inc. (Trustee) v. Wise Stores Inc.)

Article Excerpt
We know that directors owe a duty to their corporation's shareholders. An emerging question is whether, in circumstances where a corporation is heading toward insolvency, the directors owe fiduciary duties to the corporation's creditors?

We are looking forward to an answer to this question from the Supreme Court of Canada, which heard argument in May 2004 on an appeal from the Quebec Court of Appeal in Peoples Department Stores Inc. (Trustee) v. Wise. The Trial Court answered the question in the affirmative. The Quebec Court of Appeal overturned that decision. It now rests with the Supreme Court of Canada to provide us with some direction on the issue.

The facts in Peoples involved a corporate relationship whereby Wise Stores Inc. was a public company under the Canada Business Corporations Act (CBCA). The Wise brothers (3 brothers) were majority directors and 75% shareholders. Wise Stores Inc. owned 100% of the shares of Peoples Department Stores and the three Wise brothers were the sole directors of Peoples. As at January 1994, the fiscal year end, Wise Stores was at or near insolvency whereas Peoples was solvent. Leading...

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