Alberta Business Corporations Act (ABCA) amendments: Duty of care, indemnities and insider trading

The latest changes to modernize Alberta’s Business Corporations Act took effect on May 31, 2022. They include three amendments that could affect businesses’ and directors’ disputes risk profile, namely:

• Clarification of directors’ duties of care and loyalty;
• Increasing the availability of corporate indemnification and insurance; and
• Expansion of the insider trading civil liability provisions.

This article considers each of these developments. For the background and a summary of the additional changes, including amendments concerning shareholder meetings and plans of arrangement, see our business law update here.

Duty of care and fiduciary duty

The amendments clarify that directors’ and officers’ duties of care and loyalty are owed to the corporation, as distinct from its shareholders, creditors or other stakeholders.¹

Importantly, directors may now discharge their duties of care if, in the course of exercising their powers, they can demonstrate that they relied in good faith on an opinion or report from an employee of the corporation (in addition to a lawyer, accountant, engineer or appraiser), providing their profession or expertise “lends credibility” to what that person is saying.² A director can also rely on interim financial statements, as well as annual statements.³ These changes bring the Act more in line with Ontario’s statute.

With regard to conflicts of interest, a new provision has been added that states the requirement for directors not to vote on a material contract or transaction in which they are a party does not apply if the director is undertaking an obligation “for the benefit of the corporation.” This new provision is unique to Alberta.

Indemnification and insurance

The availability and scope of indemnity protection for directors and officers has increased. 

A corporation will now be able to indemnify a director or officer against all costs, charges and expenses incurred in respect of investigative actions. This new provision is in addition to the existing ability to indemnify against the costs of civil, criminal and administrative actions, which still remains.⁴ The inclusion of investigation costs is a welcome expansion, given that indemnification for investigative actions is already permitted under the Federal, British Columbia, Ontario and Quebec statutes. 

The test to seek indemnity has also changed. It now requires that the person has not been judged by a court to have committed any fault, or omitted to do anything they ought to have done.⁵ The prior version required that person to have been “substantially successful” on the merits in the defence of an action in order to seek indemnity. The new requirement is consistent with the wording of the federal and Ontario statutes.

In addition to the indemnity expansions, changes have been made to the provision that enables a corporation to maintain D&O liability insurance: specifically, the amendments delete the prior requirement that the liability not relate to a failure to act honestly and in good faith with a view to the best interests of the corporation. The new wording is substantially similar to the federal statute, as well as the British Columbia, Ontario and Quebec statutes.⁶

Insider trading

The ABCA prevents “insiders” from misusing confidential information when dealing with securities of the corporation. These prohibitions are separate from federal insider trading laws. Overall, Alberta’s insider trading civil liability net has widened. 

Under these amendments, the definition of “insider” now includes a person who proposes to make a takeover bid or enter into a business combination with a corporation (with respect to material confidential information obtained from the corporation).⁷  

The scope of civil liability has expanded to include a prohibition against trading in securities of another entity whose value is significantly dependent on the value of the corporation’s securities. This is counterbalanced by the addition of a new defence pursuant to which the insider may rely on a belief that the information was generally disclosed.⁸ This defence is already available under the federal and British Columbia statutes.

Interestingly, the limitation period for civil actions concerning insider trading has been removed. The previous version of the Act required an action to be brought within two years after the “completion date of the transaction” that gave rise to the cause of action. The amendments have deleted this wording.

Under the Alberta Limitations Act,9 the basic two-year limitation period runs from the date a claim is discoverable: that is, when a plaintiff knew, or ought to have known, that a potential defendant did something that caused the plaintiff damage.¹⁰ Identifying when a claim was discoverable may be less straightforward than identifying a transaction completion date.

Takeaways

While Alberta is still playing catch-up with other provinces, these are welcome changes that follow extensive consultation with businesses, bankers, accountants, and the Alberta Securities Commission.

Of course, in the absence of regulations (which are pending publication), there remain areas of uncertainty. It is unclear how wide the definition of “employee” will be when it comes to directors relying on advice – for example, will it include high-skilled consultants, such as IT technicians? Will there be a prescribed minimum experience threshold for an employee to be credible, or will this be left open to directors’ discretion?

The removal of a limitation period that was based on a transaction completion date leaves more room for debate over when a civil claim for insider trading was discoverable. This creates uncertainty for those affected, as well as their insurers.  

It will also be interesting to see how some of these changes interact with the broader initiatives of the federal government to tackle corporate crime in Canada. For example, the federal government established a deferred prosecution agreement regime four years ago, which permits remediation agreements in respect of insider trading. It is unclear whether the new ABCA indemnity provisions would be triggered in circumstances where responsibility for wrongdoing is acknowledged but a court or competent authority has not technically found fault.