The trustee in bankruptcy of a wholly-owned subsidiary sued the directors of the subsidiary, alleging they breached their fiduciary duty and duty of care under the Canada Business Corporations Act by implementing a joint inventory procurement policy that favoured the parent company to the detriment of the subsidiary's creditors.
The Supreme Court of Canada held that directors owe a fiduciary duty to the corporation, not to its creditors, even when the corporation is in the vicinity of insolvency.
The Court also held that while directors owe a duty of care to creditors, the directors' actions in this case were reasonable business decisions protected by the business judgment rule.
The trustee's claim under the Bankruptcy and Insolvency Act for reviewable transactions was also dismissed.
