Canada: BCE Inc. Decision: Lessons For Directors And Debentureholders

On December 19, 2008, the Supreme Court of Canada delivered a unanimous judgement on an action commenced by a group of Bell Canada debentureholders seeking to stop the sale of BCE Inc. ("BCE") to a buyout group, led by the Ontario Teachers Pension Plan Board. The June 30, 2007 agreement between BCE and the buyout group contemplated the acquisition of all the shares of BCE pursuant to a plan of arrangement that would see Bell Canada (a wholly-owned subsidiary of BCE) and BCE hold an aggregate of $30 billion in debt, a substantial increase over their combined debt load prior to the acquisition. The crux of the debentureholders' complaint was the divergent effects of the proposed buyout on the economic interests of the BCE shareholders and those of the Bell Canada debentureholders. The proposed price of $42.75 per common share to be paid by the buyout group represented a 40% premium over the trading price of BCE shares prior to entering into the agreement. In contrast, the market price of the debentures immediately upon announcement of the proposed transaction declined by 20% following a rating downgrade as a result of the anticipated post-closing debt load of the BCE group of companies.

The debentureholders sought relief from the courts under both the oppression remedy codified in section 241 of the Canada Business Corporations Act (the "CBCA") and the anticipated failure of the transaction to satisfy the plan of arrangement requirements of section 192 of the CBCA. This analysis only addresses matters from the perspective of the oppression remedy1.

Ultimately, the Supreme Court dismissed the debentureholders' claim and approved the proposed arrangement. The Court's analysis of the debentureholders' claims contain a detailed and clear analysis of Canadian law regarding directors' duties in takeover bid transactions, and it holds important lessons for both corporate directors and the holders of corporate debt securities.

What The Decision Means For Directors

The Supreme Court emphasised that directors have two duties imposed by section 122 of the CBCA2. The first is a fiduciary duty, that is, a duty to act honestly and in good faith with a view to the best interests of the corporation – this duty is owed to the corporation alone, and not to any stakeholder of the corporation, subject to the comments below. The second is a personal standard of care obligation stating that directors must exercise a standard of care, diligence and the skill of a reasonably prudent person in comparable circumstances.

Dealing first with the fiduciary duty to the corporation, such fiduciary duty is "broad and contextual;" it is not confined to "short-term profit or share value" and where the proposed transaction contemplates an ongoing business, the directors must look to the "long-term interests of the corporation." The Court held that in determining what is in the best interests of the corporation, the directors may consider the interests of other persons, including "shareholders, employees, creditors, consumers, governments and the environment," as circumstances dictate, in the context of, and in order to inform, their decision. This fiduciary duty of the directors includes an obligation to treat any stakeholder impacted by the corporation's actions equitably and fairly in the circumstances. No single set of interests, for example those of the shareholders, should prevail to the exclusion of the interests of other stakeholders, including the interests of debt holders of the corporation.

The Court's analysis of the duties of directors holds the following important lessons for directors of corporations:

1. While the Court emphasized that the directors' fiduciary duty is owed to the corporation only, directors "may," depending on the circumstances of the proposed transaction, consider the interests of other stakeholders. In practice, the directors will need to consider the impact of their decisions on all affected stakeholders. Therefore, in order to discharge their obligations in the context of the oppression remedy conferred on stakeholders under section 241(2) of the CBCA, the directors, at a minimum, must demonstrate that they:

  1. considered all alternate courses of action reasonably available to the corporation in the circumstances;
  2. identified each of the stakeholder groups that will be affected by the decision of the board;
  3. determined, based on commercial practice and the arrangements between each stakeholder group and the corporation, what expectations each stakeholder group may have reasonably held regarding the corporation's obligations to them should a transaction such as the proposed transaction arise (this is an objective standard, it is not wholly determined by what the stakeholder actually expected); and
  4. assessed the impact of their decision on each such group of stakeholders with a view to ensuring that none of the said reasonable expectations of stakeholders will be subject to unfair treatment amounting to oppression, unfair prejudice or unfair disregard.

The "reasonable expectations of stakeholders" requirement is "the cornerstone of the oppression remedy." The Court instructs that the first step is to identify the reasonable expectations of each stakeholder group. The second step is to consider whether the director conduct complained of, notwithstanding that it breaches a stakeholder's reasonable expectations, amounts to oppression, unfair prejudice or unfair disregard of such stakeholder expectations within the meaning of section 241(2) of the CBCA.

Oppression is a just and equitable remedy to enforce not just what is legal, but also what is fair in the circumstances. In addition, it is fact specific.

2. No bright-line test exists with respect to how to balance conflicting interests of various stakeholders and the corporation. In particular, the Court noted that no priority rules exist such that the interests of one group of stakeholders (such as the shareholders) are to be afforded priority, irrespective of the circumstances, over the interests of other groups of stakeholders. Balancing competing stakeholder interests is ultimately a contextual decision, driven by the particular set of circumstances facing the board of directors and how such circumstances ultimately influence what is in the best interests of the corporation. Matters to be considered by the directors in making their decisions include:

  1. general commercial practice - whether the directors departed from such practices;
  2. the nature of the corporation – the courts give more latitude to the directors of closely held corporations;
  3. the personal, family and other relationships between the parties;
  4. past practice between the parties;
  5. the steps that the claimant could have taken to protect itself;
  6. representations made by the parties;
  7. the provisions of any relevant shareholder or other agreement; and,
  8. the fairness of the directors' resolution of conflicting interests between corporate stakeholders that is in the best interests of the corporation.

3. The Court emphasized throughout its decision that deference will be afforded to the ultimate decision of the directors – this is commonly referred to as the "business judgement rule." Provided that the decision reached by the directors, and their ultimate treatment of competing stakeholder interests, is found to have been within a range of reasonable choices that could have been made, the courts will not interfere with the decision. This deference counterbalances the imprecise nature of the scope of directors' duties as defined by the Court. However, to take the benefit of the business judgement rule, directors must ensure that they reach decisions:

  1. in good faith;
  2. in an informed manner, including, where appropriate, in reliance upon the advice of legal, financial and other experts; and
  3. that are ultimately within a range of reasonableness.

A court will look at the process by which the directors reach their decision, rather than the substantive aspect of the decision itself. Directors should follow a proper process to ensure that the difficult business decisions which they make are accorded deference by courts should such decisions be challenged.

4. Where a transaction will result in a change in control, the directors must take into account how the change of control transaction would impact other stakeholders besides the shareholders and the reasonable expectations of each class of stakeholders. In change of control transactions shareholders have a great deal at stake. Recognizing the importance of their interests in directors' decision-making, the Supreme Court deferred to the decision of BCE to choose the transaction that ultimately afforded the highest value to its shareholders. However, the Court refused to recognize maximizing shareholder value in the context of a change of control transaction as primary in all circumstances. This may afford directors more room to fend off hostile bids, notwithstanding that such bids may be value-maximizing for shareholders. The directors may be able to rely on the adversely affected interests of other stakeholders (such as employees) to justify continuing deployment of defensive tactics when faced with a hostile change of control bid.

What The Decision Means For Debentureholders

The BCE debentureholders maintained they had a reasonable expectation that BCE would protect their economic interests by preserving the investment grade trading value of the debentures held by them. The Court disagreed with this assertion and found that the repeated warnings from BCE as to the nature of their investment (including in the prospectuses), the nature of the corporation in which they had invested, the situation of BCE as a target in a bidding war, and the fact that the debentureholders could have protected themselves contractually all failed to support a reasonable expectation that the directors would act in these circumstances to preserve the investment grade of the debentures. The Court found that the debentureholders had a reasonable expectation that the directors would consider their economic interests in maintaining the trading value of their debentures. However, the Court also found that the directors discharged their duty to consider these interests when the board concluded that while the contractual terms of the debentures would be honoured, no other commitments or representations had been given to the debentureholders by the corporation or its directors.

The approach and reasoning of the Court holds a few important lessons for debentureholders:

  1. In the context of negotiations between sophisticated parties, the courts will first look to the terms of the trust indenture between the corporation and the debentureholders. If the indenture does not include a basis on which the debentureholders could form a reasonable expectation of certain conduct from the corporation, the courts will not support an oppression remedy claim by debentureholders unless there is some basis outside of the indenture, objectively determined, on which such expectation could be reasonably based.
  2. Debentureholders should not expect a right to vote on change of control transactions where the value of their securities may be adversely affected.
  3. Debentureholders should consider negotiating, among other provisions in their trust indentures pursuant to which the debentures are issued, (a) voting rights in the event of a change of control transaction; (b) acceleration rights in the event of a material fall in the debt rating of the debentures held by them; (c) covenants which limit the amount, or the nature, of debt securities that the corporation may issue without the consent of the debentureholders; and (d) clear solvency covenants which must be met at the time of the closing of the proposed transaction.
  4. In contrast to Delaware law, holders of debentures issued by Canadian corporations can take some comfort from the confirmation by the Supreme Court that a change of control transaction does not, in itself, alter the nature of the duties of the directors in such a way as to require the directors to maximize shareholder value to the exclusion of the interests of other stakeholders such as debentureholders.

Ironically, although the proposed arrangement was approved by the Court, one of the conditions of closing (a clear solvency certificate by the auditors of BCE) was not met and the transaction did not proceed.


1. While the decision of the Supreme Court dealt with the oppression remedy in the context of the CBCA, the Court's analysis applies equally to the Business Corporations Act (Ontario) (the "OBCA") which contains substantially similar provisions.

2. While the decision of the Supreme Court dealt with directors' duties in the context of the CBCA, the Court's analysis applies equally to the OBCA which contains substantially similar provisions.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions