Author: Kevin Mehi. This blog was prepared with the assistance of summer law student Devon Fjellner.
Boards of directors in Alberta may find there is a lack of clarity in Alberta’s Business Corporations Act (the “ABCA”) when it comes to voting on resolutions where a conflict of interest exists.
Section 120(6) of the ABCA provides that a director of a corporation shall not vote on any resolution to approve a material contract or material transaction if the director is a party to the contract or transaction, or where the director has a material interest in a party to the contract or transaction (subject to certain exceptions).
Meanwhile, section 117(1) of the ABCA provides that a directors’ resolution may be passed in writing if it is signed by all of the directors who are entitled to vote on the resolution (subject to the articles, the bylaws and any unanimous shareholder agreement of the corporation).
However, if a director is restricted from voting on a material contract or material transaction pursuant to section 120(6) of the ABCA, then can the remaining directors pass a resolution in writing in respect of that material contract or material transaction? Or does the exclusion of one director mean that the remaining directors need to convene a meeting to vote on the material contract or material transaction?
Unfortunately, the answer to this question is uncertain in Alberta.
There is little case law available to assist in interpreting how these two sections of the ABCA interact with each other. The British Columbia Court of Appeal decided the issue in Western Canadian Coal Corp. v Fawcett (“Western”), holding that a formal meeting must occur if a director has a conflict of interest. However, the Western decision is based on repealed legislation which was worded differently than the ABCA. Accordingly, Western is likely inconclusive in interpreting the state of the law in Alberta.
Meanwhile, secondary sources are conflicted on the issue. The Alberta Corporations Law Guide, published by LexisNexis Canada, suggests that a written resolution is valid if all directors without a conflict of interest sign the written resolution. Conversely, The Directors Manual and the Canadian Corporations Law Reporter: Commentary, both published by LexisNexis Canada, interpret similarly worded provisions of the Canadian Business Corporations Act and Ontario’s Business Corporations Act as requiring a formal meeting to occur if any director cannot vote due to a conflict of interest.
Due to an apparent lack of case law on the issue, and inconsistencies in secondary sources, directors should take a cautious approach in passing any such resolution. To ensure the validity of any such resolution, whenever a director is precluded from voting under section 120(6) of the ABCA, the remaining directors should hold a formal meeting to vote on the resolution.
MLT Aikins has significant experience advising clients on corporate governance and our lawyers would be please to assist your organization in navigating corporate governance needs. Please contact a member of the corporate governance team for more information.
Note: This article is of a general nature only. Laws and government programs may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.