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COVID-19: Legal considerations for Canadian boards

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Publication March 11, 2020 4 PM ET

COVID-19, a new disease caused by the novel coronavirus, has a confirmed presence in over 100 countries and dominates the global media. It already has been a formidable economic disrupter and poses current and future challenges for Canadian businesses.

What are the legal duties of corporate Boards in responding to this unique challenge? Canadian statutes generally charge Boards with the duty to manage, or supervise the management of, the business and affairs of the corporation. Directors have a fiduciary duty to act in good faith with a view to the best interests of the corporation and a duty to act with the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duties, directors may take into account the impact of their decisions on the interests of various corporate stakeholders. Their decisions are not judged from a standard of perfection, but must represent a reasonable exercise of business judgment.

How can Boards fulfil these duties in addressing COVID-19 challenges? There is no single blueprint that could possibly address the risk for all businesses. Each corporation, depending on the nature of its business, will experience a unique impact caused directly or indirectly by COVID-19. The Board’s responsibility is to oversee and monitor the risk and the corporation’s response to the risk. A prudent Board will ensure that: (i) the appropriate senior management report to the Board on key risks; (ii) the Board understands those key risks; (iii) professional advisers assist, if necessary and appropriate, in identifying, managing and mitigating risk; (iv) a contingency plan is put in place for foreseeable scenarios; and (v) the Board monitors the ongoing implementation of its decisions and guidance and remains sufficiently flexible to respond to the evolving situation. No list could be comprehensive, but relevant considerations could include:

  • Workplace health and safety (e.g., preventative hygiene, response to symptomatic employees or visitors, sick leave, continuity of services, protection of privacy, travel restrictions and/or quarantine requirements);

  • Supply chain interruption and potential alternative sources of supply;

  • Revenue earning impact and measures to address reduced revenue;

  • Impact on liquidity and measures to address and manage liquidity;

  • Insurance coverage;

  • Key contract terms such as force majeure and material adverse change clauses, and possible negotiated changes for new contracts going forward;

  • Potential impact on financial compliance for regulated businesses;

  • Whether, and how, the location or date of a shareholder meeting should be changed;

  • Whether holding a virtual shareholder meeting (such as the AGM) is advisable and legally permissible;

  • Public disclosure and filing obligations under securities laws, including the need to change or withdraw guidance;

  • Stock market volatility, which may encourage a bid for the corporation’s shares or increased shareholder activism or, conversely, create an opportunity for the corporation to pursue an acquisition.
 


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