Here is a little background information FYI regarding filing a class action suit against the IOC directors:
In general, corporate directors are fiduciaries that are entrusted with the power and responsibility to supervise a corporation’s business affairs and are obligated to act in the best interests of the corporation and its shareholders. In so doing, directors must fulfill fiduciary duties of care and loyalty (and a related duty of disclosure). There is a question whether this duty of care is to the corporation itself or to its shareholders. Different US states have reached different conclusions. I do not know Yukon or Canadian law regarding this issue.
The fiduciary duty of care requires directors to make decisions on an informed and good-faith basis following consideration of reasonably available relevant information, including, where appropriate, the advice of advisors and management. In making decisions, directors must use the amount of care that ordinarily careful and prudent people would use in similar circumstances. It is not common for directors to lose suits based on a failure of the fiduciary duty of care, as they are often able to defend their actions based on their reliance on the advice of experts (in the IOC case, on the issuance of a 'fairness' report, on the various 'expert' valuations that may have been available to them, etc.).
The fiduciary duty of loyalty provides that a director must act in good faith, comply with the law, and deal honestly and fairly with the company’s shareholders. Plaintiff shareholders routinely challenge a transaction based on claims that directors had conflicts of interest or were dominated by others with such conflicts (in this case, the BOD may have been dominated by Hession, for example). Generally, a director's self-interest is more important if it is undisclosed prior to his actions. It is also relevant that a director's self-interest provides a personal benefit not shared equally by all shareholders. In this case, Hession's self-interest is well known and public. He will gain monetarily on any change of control of IOC. It is part of his employment contract. Thus it is not in any way undisclosed. However, it is also clear that he will reap a large personal benefit that is not shared by other IOC shareholders. Thus, there may be a basis for a claim of breach of his fiduciary duty of loyalty to IOC shareholders. Note that this is regarding Hession's actions and not the entire BOD. The BOD would only have breached their own duty if they were dominated by one with a clear self-interest or they had their own clear (and perhaps undisclosed) self-interest.
There may also be a related fiduciary duty of disclosure or candor which is related to both the duty of care and of loyalty. Again, I do not know Yukon or Canadian law in this regard. Whenever they elect to communicate with investors for any purpose, directors must do so honestly. Whenever directors seek shareholder action, such as in connection with a shareholder vote, they must disclose fully and fairly all material information within the board’s control. Information is material if “there is a substantial likelihood that a reasonable shareholder would consider information important in deciding how to vote.” Shareholder plaintiffs commonly base their claims on alleged violations of the duty of disclosure in connection with public disclosures made in connection with a strategic transaction. Violation of this duty must be based on information that is not disclosed and typically unearthed during discovery. In many cases, the litigation of this matter must take place rather quickly, generally between the announcement of the transactions (the IOC/OSH deal) and its closure (sometime this fall). Thus, discovery is typically shortened and speeded up.
My own opinion is that the greatest failing in this situation is a breach of the director's duty of candor or disclosure. We have not been given very much information whatsoever why the BOD and CEO have suddenly taken an about-face on their previous pronouncements and disclosures (such as the mission of IOC to find, drill, monetize and repeat; or the value of TBR; or the potential of Ant South; or the value of the other IOC lease acreage; etc. etc. etc.). It would seem that there is MUCH material information that has been withheld from shareholders that "a reasonable shareholder would find important in deciding how to vote."
Again, this info is just some background and is not intended for any other purpose but information to board members.
