BEC case
Torys on Mergers and Acquisitions
M&A 2009-2
January 9, 2009
Directors’ Duties After BCE: Supreme Court of Canada
Decides
By James C. Tory and John Cameron
The Supreme Court of Canada released its reasons for decision in the BCE case in
December 2008. The reasons have been awaited by Canadian M&A practitioners with a mix of eagerness and anxiety. Eagerness, because the case offered a perfect vehicle for the Court to provide much-needed guidance on the difficult question of directors’ duties in the context of change-of-control transactions. Anxiety, because the Court’s most recent foray into the realm of directors’ duties – its decision in the Peoples case – raised as many questions as it answered.
Although the Court’s decision to allow the BCE transaction to proceed (which was announced in June 2008, shortly after the case was argued) was the expected result, the recently released reasons reject the duty to maximize shareholder value in the context of change-of-control transactions (the so-called Revlon duty derived from
Delaware jurisprudence) in favour of a nebulous duty to treat all affected stakeholders fairly, commensurate with “the corporation’s duties as a responsible citizen.” By requiring the directors to consider the interests of all stakeholders, the effect of the
Court’s decision may be that the directors become legally accountable to no one – immunizing directors’ substantive decisions from legal attack provided that they get their process right and can make a plausible business case on the basis of their view of the best interests of the corporation. As a result of the BCE decision, stakeholders seeking to challenge a directors’ decision in the courts will need to focus on the process whereby the decision was made, rather than on the substance of the decision.
Background
In June 2007, BCE announced that it had entered into an agreement with an investor group led by Teachers’ Private Capital, Providence Equity
M&A 2009-2
January 9, 2009
Directors’ Duties After BCE: Supreme Court of Canada
Decides
By James C. Tory and John Cameron
The Supreme Court of Canada released its reasons for decision in the BCE case in
December 2008. The reasons have been awaited by Canadian M&A practitioners with a mix of eagerness and anxiety. Eagerness, because the case offered a perfect vehicle for the Court to provide much-needed guidance on the difficult question of directors’ duties in the context of change-of-control transactions. Anxiety, because the Court’s most recent foray into the realm of directors’ duties – its decision in the Peoples case – raised as many questions as it answered.
Although the Court’s decision to allow the BCE transaction to proceed (which was announced in June 2008, shortly after the case was argued) was the expected result, the recently released reasons reject the duty to maximize shareholder value in the context of change-of-control transactions (the so-called Revlon duty derived from
Delaware jurisprudence) in favour of a nebulous duty to treat all affected stakeholders fairly, commensurate with “the corporation’s duties as a responsible citizen.” By requiring the directors to consider the interests of all stakeholders, the effect of the
Court’s decision may be that the directors become legally accountable to no one – immunizing directors’ substantive decisions from legal attack provided that they get their process right and can make a plausible business case on the basis of their view of the best interests of the corporation. As a result of the BCE decision, stakeholders seeking to challenge a directors’ decision in the courts will need to focus on the process whereby the decision was made, rather than on the substance of the decision.
Background
In June 2007, BCE announced that it had entered into an agreement with an investor group led by Teachers’ Private Capital, Providence Equity