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 Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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