May 29, 2009
The Supreme Court of Canada was asked to halt the C$52 billion sale of BCE Inc., Canada's largest telecom, to a consortium of private equity buyers. The reason? BCE's institutional bond and debenture holders argued that the board failed to consider their interests when striking the deal.
In a unanimous decision, the Supreme Court justices sided with the company against the bondholders, calling them "sophisticated investors" who could have negotiated iron-clad deal terms—including change-of-control and credit-rating change provisions—but didn't.
The Supreme Court held that a board's duty in each instance is to act in "the best interests of the corporation in the particular situation it faces."
Sharon Geraghty calls it a "clear rejection" of the Revlon duty (referring to the American case): "The duty in Canada is to act in the best interests of the corporation, which is a quintessentially Canadian concept. It means you have to consider the interests of all stakeholders, which runs the gamut from the holders of common shares to the holders of preferred shares and the holders of debt, employees, creditors and others. And you have to treat them fairly. The Canadian and U.S. legal systems have often ended up at the same place in the end, even though they may take a different way of getting there. The Canadian courts, when they want to attack a decision that seems unreasonable, will typically attack the process. They will say, 'If you would only taken into account the interests of this particular party, or got advice on that situation, you would have made a better decision.' The U.S. courts have a clear route, which is: 'You should have maximized shareholder value.' But the courts here feel much more comfortable questioning the process than they do questioning business judgment. It is very Canadian."
Read the full article here.