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Directors and Insolvency | 13 then launched a proxy fight for control of the company and, facing expectations of lawsuits, board members authorized Look to pay $1.5 million to three law firms acting for them. As the last act of the same board meeting, they resigned. When Look sued its former board members, the departed officers and directors applied to the CCAA court for advance funding of defence costs, based on company bylaws and their indemnity agreements. But, on the basis of evidence put forward by the company, the court found a strong prima facie case that former directors acted in bad faith, and that decision was upheld by the Ontario Court of Appeal on July 4, 2013. Both courts rejected arguments that directors relied on expert legal advice in voting their share appreciation payments, with the Court of Appeal noting that the board's lawyer never commented on the validity of the valuations. Since the WorldCom and Enron fiascos of 2002, the scandal over widespread backdating of board members' options in the US, prosecutions of Hollinger, Nortel and Livent executives in Canada and other proven and alleged directorial misdeeds, Conklin says, "there is, no doubt, a greater awareness of the responsibilities officers and directors have and the need to ensure that [their] authority "IT'S IMPORTANT THAT OFFICERS OR DIRECTORS HAVE AN APPRECIATION OF THE AMOUNT OF INSURANCE THAT'S AVAILABLE, THE RETENTION LIMIT UNDER THE POLICY, THE RELATIONSHIP TO INDEMNITIES AND OTHER KEY TERMS UNDER THE POLICY, INCLUDING EXCLUSIONS." is not exercised in self-interest. But, for all that, there are not many examples of civil or criminal cases that have gone to trial. The fact is, the Canadian regulators tend to focus on insider trading, civil cases [tend to] settle and there are very few criminal prosecutions." Brandon Barnes of Davis LLP in Toronto says CCAA is less than perfect, but it's the best solution that experience has fashioned for insolvency situations. "You need a lot of money to go bankrupt — or to avoid it through CCAA," Barnes says. "The process involves an influx of lawyers, accountants and other professionals who negotiate and bicker their way through the company's balance sheet, all while charging by the hour." All of which means that payment priorities may be reordered, legal actions are very likely, insurance and indemnities are doubtful and prospective directors and officers of even the most established corporate institutions should very carefully consider insolvency risks before signing on. Helpfully, Conklin notes that most D&O insurance terms are one year, giving existing board members regular opportunities to re-examine their coverage. – David Conklin, Goodmans LLP Brian Burton is a writer on energy and legal matters based in Calgary. LEXPERT®Ranked Lawyers Curry, Tom D'Silva, Alan L.W. Desrosiers, Martin Dimock, Ronald E. Doris, James W.E. Douglas, James D.G. Lenczner Slaght Royce Smith Griffin LLP Stikeman Elliott LLP Osler, Hoskin & Harcourt LLP Dimock Stratton LLP Davies Ward Phillips & Vineberg LLP Borden Ladner Gervais LLP (416) 367-6919 jdoris@dwpv.com (416) 367-6029 jdouglas@blg.com Mr. Doris specializes in general civil litigation with an emphasis on shareholder and oppression remedy actions, class actions, contested mergers and acquisitions and securities disputes, insolvency and competition matters. Mr. Douglas's securities litigation practice includes shareholder disputes, M&A litigation, class actions, broker liability suits, proceedings before securities commissions and self-regulatory organizations, and the defence of criminal charges. (416) 865-3096 tcurry@litigate.com Recognized nationally as a leading trial and appellate counsel, Mr. Curry has a record of success in commercial litigation, class actions, arbitrations, business disputes, administrative law, judicial review and intellectual property. (416) 869-5204 adsilva@stikeman.com Mr. D'Silva's core practice areas include defence of class actions, corporate/commercial disputes, securities litigation and insurance litigation. He appears before all levels of courts and has also acted as a mediator, arbitrator and expert witness. (514) 904-5649 mdesrosiers@osler.com Mr. Desrosiers focuses on insolvency and financial restructuring law. He represents financial institutions, trustees, receivers, monitors, debtors' and creditors' committees. He has lectured and written extensively, and is an IIC member. (416) 971-7202 rdimock@dimock.com Mr. Dimock's IP practice embraces patents, trade-marks and copyright litigation. He is an engineer, certified specialist in civil litigation and IP law, and a fellow of the American College of Trial Lawyers and the Chartered Institute of Arbitrators.

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