a x i u m

a x i u ma x i u mCORPORATE | FINANCE | LAW


Conflicts of Interest and Corporate Opportunities:

Solving the Problems Created by Being a Director of More Than One Junior Mining Company

Michael VarabioffFounding PartnerAxium Law Group



IntroductionIntroduction

• Multiple directorships are a fact of life in the mining sector

• This creates real or potential conflicts of interest with resulting legal risks

• We can’t “solve” the problems, but we can “manage” them


Purpose of DiscussionPurpose of Discussion

• Identify the principal legal risks resulting from acting as a director of more than one company

• Try and develop a “Code of Conduct” to manage and minimize these risks


Directors’ Fiduciary DutiesDirectors’ Fiduciary Duties

Directors owe a “fiduciary” duty to the company …

• Section 118(1) of the Company Act (British Columbia) states that:

• “Every director of a company, in exercising the director’s power and performing the director’s functions, must … act honestly and in good faith and in the best interests of the company”

• This does not prevent multiple directorships, but such a practice makes it more difficult to satisfy the fiduciary obligations


Duties of Confidentiality and DisclosureDuties of Confidentiality and Disclosure

• What happens if a director learns some information from Company A which is significant to Company B?

• PWA Corp. v. Gemini Automated case – directors breached their duty by withholding important information

• In extreme cases, the director cannot fulfill his duties to both companies, and should resign


Corporate OpportunitiesCorporate Opportunities

• Basic Rule – Business opportunities acquired by a director by virtue of his position as a director, are the property of the company

• Director will be liable to the company for any profit made from the opportunity, even if the Company rejects the opportunity

• Canaero case


Corporate Opportunities continuedCorporate Opportunities continued

• When is it not a corporate opportunity?• When can a director take advantage of a

corporate opportunity?• Peso Silver Mines Case


Conflict of Interest TransactionsConflict of Interest Transactions

• Deals with situations where a director has an interest in a transaction with the company

• Examples: – he/she is the other party to the transaction– he/she is on the board of the other party to the

transaction– he/she is a shareholder of the other party to the

transaction


Conflict of Interest Transactions continuedConflict of Interest Transactions continued

• Basic Rule (ss. 120 and 121 of the Company Act (British Columbia))

• Every director who is in any way interested in a proposed contract or transaction must disclose the nature and extent of his interest at a meeting of directors


Conflict of Interest Transactions continuedConflict of Interest Transactions continued

• The director must account for any profit made from the transaction unless:– The director disclosed his interest, and either– The transaction was approved by the board and the

director abstained from voting, or– The transaction was fair and reasonable to the

company and was approved by a special resolution of shareholders


Code of ConductCode of Conduct

Serving as a Director:

• Generally - don’t serve as a director.Is it really worth it?




• Do as much due diligence as possible. • Also insist on an indemnity agreement and

director and officer liability insurance.




• Don’t serve as a director of more than one company.

• This will simplify your life.




• If you must sit on more than one board, pick companies that don’t compete and won’t likely be competing.


Code of Conduct continuedCode of Conduct continued

Confidentiality:

• Keep all company information confidential.

Disclosure:

• Disclose all significant information to the company .


Corporate Opportunities:

• Promptly and fully disclose to the board in writing your interest in any corporate opportunity.




• Refrain from participating in any proceedings in which the company considers whether to pursue the opportunity and ensure that same is recorded in the minutes of any meetings.




• Confirm in writing that the company wishes for demonstrable business reasons to reject the opportunity, having made the decision equipped with the director’s or officer’s previous disclosure.




• Obtain the written approval of the directors to privately pursue the opportunity, or alternatively, obtain such approval from the shareholders by special resolution in a general meeting.




• Refrain from participating in any meeting where the subject of permitting the director or officer to privately pursue the opportunity is discussed and ensure that the same is recorded in any minutes.




• Refrain from voting on any resolutions concerning the company’s decision to permit the director or officer to pursue the opportunity privately.



Transactions Within the Company:

• Avoid these as much as possible.



Transactions Within the Company:

• If you have an interest in a transaction with the company, disclose this interest in writing and abstain from voting on the transaction.




Thank YouThank You



Suite 3350, Four Bentall Centre1055 Dunsmuir Street, PO Box 49222Vancouver, BC V7X 1L2Tel: (604) 692-4918Fax: (604) 692-4900email: [email protected]

Suite 3350, Four Bentall Centre1055 Dunsmuir Street, PO Box 49222Vancouver, BC V7X 1L2Tel: (604) 692-4918Fax: (604) 692-4900email: [email protected]

Documents

a x i u m