Director & Officer Information 

The aim of the following information is to assist directors and officers in recognizing the legal issues they are facing so that they an act proactively to address them.


DUTIES OWED BY ALL DIRECTORS AND OFFICERS


Duty to Exercise Care, Skill and Diligence

Every director and officer is required to perform his/her duties with the care, skill and diligence of a reasonably prudent person.

As a director, the most basic form of diligence is regular attendance at board meetings. It is a useful practice to review the materials circulated by management prior to attending, so that you will be able to criticize any deficiencies in the content. At the meeting, diligence often takes the form of asking questions.

It is also important to find out what happened at board meetings that you did not attend because, unless you dissent, you are deemed to have consented to resolutions passed in your absence.

It is important to be aware that because directors are judged by a single objective standard, an inexperienced director with no special expertise will not be relieved from the obligation to strive to understand the issues facing the company either by engaging in continuing education on matters critical to the corporation’s business over time by learning from officers or directors with special knowledge, experience or expertise or, where independent advise is important, by seeking professional guidance (usually in conjunction with other similarly situated directors).

Duty to Manage the Corporation

The basic legal duty of a board of directors is to manage the corporation. The most important part of this mandate for any board is the effective supervision of the management that performs most of the critical day-to-day functions for any corporation.

Corporate governance laws require the board to make the most important decisions facing an enterprise. The most notable examples are:


  • Approval of financial statements
  • Borrowing authority
  • Amendments of the corporation’s articles or by-laws
  • Issuance of shares.


Duty to Act in the Corporation’s Best Interest

The fundamental obligation of every director or officer of a

Canadian corporation namely, Tanager, is to act:
 

  • Honestly
  • In good faith; and
  • In the best interest of the corporation.


Avoidance of Conflict of Interest

The best practice for the board to follow is to adopt a Code of Ethics (which has been put in place as of March 28, 2013) that all directors and management must live by. Tanager has such a document in place and it is advised that all directors and officers read such document and adhere to it.

Insofar as the law is concerned, every director and officer has the same ultimate duty to act in the best interests of the corporation at all times.

The business corporations statues impose certain minimum requirements for any “material contracts or transactions” in order to ensure that the corporation’s decision to enter into an arrangement is not improperly influenced by a conflict. In such situations the law mandates that:


  • The director or officer must disclose the conflict.
  • The director must refrain from voting on the transaction; and
  • The transaction must be fair and reasonable to the corporation.


Non-disclosure of Confidential Information

One of the accepted obligations of every director and officer is not to divulge confidential information of the corporation to third parties. This obligation does not end with the termination of your role as director or officer even if you have no formal written contract. For example, when an officer or director who had access to sensitive corporate information leaves to join a competitor he/she may not share that information as long as it continues to be otherwise confidential.

No Appropriation of Corporate Opportunities

Directors and officers are not permitted to take corporate property. Similarly, they cannot take for themselves business opportunities that come to their attention by reason of their positions as directors or officers. Directors and officers are expected to subordinate their personal interests and pursue these opportunities solely on behalf of the corporation.

Business Judgment Rule

While honest people may differ as to what is in the best interests

of the corporation, in the context of any specific business strategy, generally speaking Canadian courts will defer to the business judgment of the board of directors where its process for making decisions is designed and implemented in such a way as to minimize the possibility that the personal interests of any officer and director are not preferred over what is best for the corporation.

The business judgment rule provides that a court will defer to the business judgment of the board if the decision was made in a reasonable manner and on an informed basis.

ADDITIONAL OBLIGATIONS OF DIRECTORS AND OFFICERS OF TANAGER.


Role of the Independent Director


The incorporating statute (and securities laws) requires Tanager to have a certain number of “independent” directors. A director that also serves in a senior management role in addition to the director role will not be seen as “independent”.

An independent director is someone who is not an officer/ consultant/employee of the corporation or its affiliated corporations. The legal duties of all directors, independent or not, are generally the same. The director is also independent if he/ she has no direct or indirect material relationship with the company - “material relationship” being defined as a relationship that could, in the view of the company’s board, be reasonably expected to interfere with the exercise of a board member’s independent judgment. In attempting to comply with this recommended “best practice”, a board of directors should assess all relationships between the company and an individual, including significant shareholdings, in order to determine whether any material relationship exists.

Under the new disclosure rule, certain relationships with the issuer or any affiliate are deemed to result in non-independence. Among these are consultants/employees and executives, partners and certain employees of the issuer’s internal and external auditors, and persons who receive compensation of over $75,000.00 in a year. Certain immediate family of these persons are also deemed to be “non-independent”.

Because of the well-publicized recent corporate scandals, government and regulators have proposed or adopted rules and policies aimed at making boards more independent and more effective in their oversight of management.

In 2005, Canada’s provincial and territorial securities regulators implemented a new disclosure rule and “best practices” policy.

The “best practice” policy requires each company to describe the corporate governance practices that it has adopted. Known as NI 58-101, the new disclosure rule will apply to Information Circulars filed with respect to financial years ending on or after June 30, 2005. Together, the rule and policy establish standards similar to the Corporate Governance Listing Standards.

Director independence is one of the main elements of the “best practice” policy. The recommended best practice is to have a majority of “independent” directors on the board.

Audit Committees

Members of the audit committee must meet an enhanced independence test. In addition to the standard that applies to all directors, audit committee members are “non-independent” if they have received any consulting, advisory or other “compensatory fee” form the issuer or its subsidiaries, other than fees directly related to service on the board. Fees to spouses and children living at home are included, as are fees paid to accountancy firms, law firms, investment banks, financial advisors and consultants of which the director is a partner, member, or senior officer.

There are a number of cases in which a director may serve on an audit committee even though he/she does not meet this test of independence. When an issuer is making an initial public officering (IPO), for example, its audit committee need include only one independent member for up to 90 days after the date of its prospectus receipt.

“Financial Literacy” is generally required of audit committee members. For the purposes of the rule on audit committees, this means that the director must be able “to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that can reasonably be expected to be raised by the issuer’s financial statements”.

The Companion Policy to MI 52-110 states that financial literacy does NOT require a “comprehensive knowledge of GAAP and GAAS”. The rule makes exemptions in “limited and exceptional circumstances” and permits an audit committee member to acquire financial literacy subsequent to his/her appointment, provided he/she does so within a “reasonable period”.

Related Party Transactions

Where a Canadian corporation is a reporting issuer for securities law purposes, transactions between a director or officer and the corporation are considered related party transactions and may, if sufficiently substantial, require public disclosure of the conflicting interests and the corporation’s plans for dealing with them, and, in some cases, approval of a majority of the minority shareholders as well as independent valuations. The types of related party contracts include loans to or by directors or officers, assumptions of liability by or from the corporation, and any acquisition or disposal of assets between the directors or officers and the corporation.

Insider Obligations

As a director or senior officer of Tanager, you will have to report your holdings in the corporation and any trades you make in the corporation’s securities or those of its subsidiaries. Tanager. Does all its own Insider Reporting for directors and officers.

Financial Statement Certification

MI 52-109 requires the CEO and CFO of an issuer (or anyone performing similar functions under a different title) to certify its annual and interim filings.

The form of the certification is set out under the above mentioned rule. Essentially, the certifying officer must affirm that he/she has reviewed the filings and certify that, to the best of his/her knowledge, they are true and complete. Further affirmations are required with respect to the issuer’s disclosure controls and procedures, including its internal controls over financial reporting.

While MI 52-109 came into effect on March 30, 2004, its filing requirements are subject to a phase-in period. For any financial year ending on June 29, 2006 or earlier, annual certification under MI 52-109 is required ONLY with respect to disclosure controls (i.e. not with respect to internal controls over financial reporting. Interim certification can also omit reference to internal controls over financial reporting where they concern an interim period offering prior to the issuer’s first financial year ended after June 29, 2006.

OFFICER’S AND DIRECTOR’S INSURANCE


Tanager has in place Officer’s and Director’s Liability Insurance. For further information on Tanager’s Director’s and Officer’s Insurance (D&O), please contact the Corporate Office.

Director’s and officer’s insurance policies are written on a “claims- made” basis. This means that insurance coverage is triggered only when a claim is first made against a director or officer during the policy period (i.e. usually one year).

The above stated information gives Tanager’s directors and officers an overview of the Company’s policies. It should not be relied upon as legal advice or as a definitive statement of the law in Alberta.





The demands associated with being a director or officer of a Canadian corporation have never been higher. The purpose of this information is to provide a useful summary of the most significant legal obligations every director and officer needs to be aware of in order to effectively discharge his or her duties and minimize the growing risks associated with litigation.