Canada: BCE Decided By Supreme Court Of Canada A Debt Really Is Just A Debt

On June 20, 2008, the Supreme Court of Canada (the "Supreme Court") handed down a decision, without written reasons (which will be released at a later date), that removes all currently known legal impediments to the completion of the $35 billion leveraged buy-out of BCE (the "Transaction") by a group lead by Ontario Teachers' Pension Plan ("Teachers"). The Supreme Court's decision affirmed the decision of the Quebec trial judge and set aside the decision of Quebec Court of Appeal (the "Court of Appeal").

Due to the lack of written reasons, at this time it is not known what legal principles or policies led the Supreme Court to its decision. Accordingly, based on educated guesses (and some may suggest wishful thinking – which may change when the Supreme Court's written reasons are issued), Friday's decision could be interpreted as supporting the "Revlon" standard, meaning that the directors of an entity that is the subject matter of a change of control, however structured, have a primary duty to enhance shareholder value while not breaching any existing contractual relations. The "Peoples" decision of the Supreme Court, to which reference has been made in the press and in the various court filings, could be limited to applying primarily in the context of an insolvency situation. On the other hand, the BCE decision of the Supreme Court may be based on the factual situation that was being adjudicated. Until the reasons of the Supreme Court are issued, this area of Canadian law remains unclear.

The BCE litigation has forced Canadian courts to examine the duties of directors and the rights of creditors in the context of a change of control.

Summary Of Facts

Stripped to their essentials, the facts are that BCE was put "in play" in April 2007. On April 14, 2007, the board of directors of BCE (the "Board") appointed a "Strategic Oversight Committee" (the "Committee"). The Committee sought advice from both prominent financial advisers and law firms. In the end, an auction was created and three bids were forthcoming. The Committee and the Board met frequently before the final decision was made to accept the Transaction in the form put forward by a consortium of bidders lead by Teachers. That offer was to acquire the common shares of BCE for $42.75, a 40% premium on the market price. The Definitive Agreement was signed as of June 29, 2007.

The principal asset of BCE was and is its operating subsidiary, Bell Canada. The Transaction contemplated a high degree of leverage, i.e., the Transaction was a leveraged buy-out, with the payment obligations for the debt to be incurred by BCE (the "New Debt") being guaranteed by Bell Canada. Bell Canada had previously issued a number of series of debentures. The debentureholders were creditors of Bell Canada and were not creditors of BCE. The guarantee of the payment obligations of the New Debt to be given by Bell Canada would have the effect of depressing trading value of the Bell Canada debentures.

The Transaction was to be accomplished, not by a simple tender for the common shares of BCE, but by way of a "plan of arrangement" under section 192 of the Canada Business Corporations Act ("CBCA").

The CBCA requires a plan of arrangement to be approved by a court. Under the CBCA, a plan of arrangement does not have to meet any explicit test of fairness to any corporate constituency. The court is authorized to make any order "it sees fit." While the process of obtaining court approval was the principal focus of the BCE litigation, other actions were started by debentureholders under the "oppression remedy" provisions of the CBCA. The oppression remedy provisions are available to virtually any class of corporate stakeholders, including shareholders and creditors, in cases where something has been done to that stakeholder that is oppressive or unfairly prejudicial to or that unfairly disregards its interests.

The Transaction was approved by holders of 97.93% of the shares of BCE voted at the shareholder meeting.

Summary Of Lower Court Decisions

The trial judge approved the plan of arrangement and held that the Board and the Committee had behaved properly and appropriately in coming to the conclusion that the terms of the Transaction were the best that could be obtained. The trial judge found that the debentureholders had not shown any reason that would justify denying approval of the plan of arrangement or any basis to conclude that the debentureholders had been the subject of any unfair treatment.

The debentureholders appealed to the Court of Appeal. In a unanimous decision, the Court of Appeal held that neither the Board nor the Committee had properly considered the position of the debentureholders in light of the fact that the market value of the Bell Canada debentures would be diminished because of the guarantee of the payment obligations of the New Debt to be given by Bell Canada. The Court of Appeal in finding for the debentureholders stated that:

"The interests of the debentureholders, which are wider than their contractual legal rights flowing from the Trust Indentures, should have been considered by the Board. Having regard to the finding of fact that the Plan adversely affected the interests of a class of securityholders (debentureholders), it was incumbent on the Board to look at their interests with a view to examining whether it was possible to alleviate or attenuate all or some of the adverse effects. Could this have been accomplished? The answer is unknown, because the Board did not examine the issue...." (Emphasis added.)

The Court of Appeal also relied upon earlier Supreme Court jurisprudence, including "Peoples," which held that directors owe a duty of care to a constituency of stakeholders, including employees, suppliers, creditors and the environment, and not just shareholders. "Peoples," however was an insolvency matter.

BCE, Bell Canada and Teachers (collectively the "Appellants") appealed to the Supreme Court. The Supreme Court agreed to an expedited appeal and oral arguments were heard on Tuesday, June 17, 2008.

Summary Of Arguments At The Supreme Court Of Canada

The principal argument of the Appellants before the Supreme Court was that the trial judge made the correct decision; the debentureholders received what they were entitled to under their contracts, i.e., the trust indentures, with Bell Canada and were entitled to nothing further. In that circumstance, after having considered the existing contractual relations, it was the duty of the Board to maximize the return to the shareholders.

The principal argument of the debentureholders before the Supreme Court was that the Court of Appeal, having considered (in the context of the oppression remedy but not the plan of arrangement) the fairness of the Transaction, was correct in holding that the fairness of the Transaction from the point of view of the debentureholders should have been considered. The factum of one of the classes of debentureholders submitted that:

"A fairness standard of this sort is simply the price of a judicial blessing. This is not necessarily to say that corporations cannot accomplish the same commercial ends through other deal structures. It is simply to say that if they want a judicial blessing, they must be fair."


Until written reasons for the BCE decision are issued by the Supreme Court, one will not have any greater clarity as to the position of the Canadian law regarding the duties of directors of an entity that is the subject matter of a change of control outside of an insolvency situation. The only conclusion that one may draw at this time is that all currently known legal impediments to the completion of the Transaction have been removed.

It remains to be seen as to: whether the Supreme Court will provide more guidance as to the duties of directors of an entity that is the subject matter of a change of control; whether the Supreme Court will reconcile the "Peoples" decision with its findings in the BCE litigation; whether the "Peoples" decision will be stated by the Supreme Court to be limited to an insolvency context or expanded to apply to a broader range of situations; and whether the "Revlon" standard is the law in Canada. Once the reasons from the BCE litigation are issued by the Supreme Court, we are hopeful that we will have a clearer understanding of these issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.