What is the effect of the business judgment rule on directors of a company?

Alberta, Canada


The following excerpt is from Carlson Family Trust v. MPL Communications Inc., 2009 ABQB 77 (CanLII):

The process taken by the directors in reaching their decision will be subject to a careful review, to determine if the presumption of the business judgment rule is rebutted. “There is no protection for directors who have made an unintelligent or unadvised judgment”: Smith v. Van Gorkom, 488 A.2d 858 at 872 (Del. Sup. Ct. 1985). That case also suggests that after the fact events, such as subsequent board meetings, legal opinions or consideration by an independent committee, are not to be considered by the court in determining whether directors made an informed decision at the relevant time. Such after the fact actions may be used to determine whether the directors were able to remedy any of their previous actions or to determine if the applicants and other shareholders actually suffered any harm.

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