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15 Int'l Insolvency Rev. 1 (2006)

handle is hein.journals/intvcy15 and id is 1 raw text is: 

        Canada's Supreme Court Rules no

 Fiduciary Obligation Towards Creditors on

 Insolvency- Peoples Department Stores

                                 v. Wise

                               Janis Sarra*


In Canada, the law is now clear that directors and officers do not owe a fiduciary duty
to creditors at the point of insolvency pursuant to corporate and insolvency laws. The
Supreme Court of Canada in Peoples Department Stores Inc. v. Wise ruled that the duty
of directors and officers under the Canada Business Corporations Act (CBCA) does not
change when the corporation is in financial distress and that directors and officers
owe their fiduciary duties solely to the corporation at all times.1 The judgment, which
is likely to be the only declaration of Canada's highest court on this issue for some
time, leaves a number of unanswered questions for directors and those advising direc-
tors of the extent of their obligations both in and outside of insolvency. The Court did
find that directors owe a duty of care to creditors, but no fiduciary obligation. The
judgment changed the standard of assessment of the duty of care to a purely objective
test; enshrined the business judgment rule in Canada; may have provided greater
access to the oppression remedy for creditors; and provided direction on the
meaning of 'privy' with respect to reviewable transactions under the Bankruptcy and
Insolvency Act (BIA).2 These issues are canvassed in this briefcase comment. Copyright
G 2006JohnWiley & Sons, Ltd.

                                I. The Facts

Wise Stores Inc. (Wise) purchased Peoples Department Stores (Peoples) in 1992 in a
fully leveraged buyout.3 The acquisition was financed through a $5 million loan

*Associate Dean and Associate Professor, University of  B-3, as amended (BIA).
British Columbia Faculty ofLaw, Canada.  3. Peoples Department Stores Inc. v. Wise, supra, note 1 at
E-mail: sarra@law.ubc.ca                 para. 8. A portion of the purchase price attributable
1. Peoples Department Stores Inc. v. Wise 2004 SCC 68;  to inventory was discounted by 30% in order to inject
Canada Business Curporations Act, R.S.C. 1985, c. C-44, as  equity into Peoples and make use of some tax losses in
amended (CBCA).                          the fiscal year following the sale.
2. Canada Bankruptyandnslveny Act, R.S.C. 1985, c.
Copyright ( 2006 John Wiley & Sons, Ltd.               Int. Insolv. Rev., Vol. 15: 15 (2006)
                                                   Published online in Wiley InterScience
                                           (www.interscience.wiley.com). DOI: 10.1002/iir.134

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