Panel explores groundbreaking BCE Case
A panel held at Western Law on February 27 discussed the Supreme Court of Canada’s groundbreaking 2008 decision in the BCE litigation, one of the most important corporate law cases decided by the Supreme Court of Canada in the past 35 years.
"The BCE Case - Lessons Learned" panel featured John Finnigan and John Porter from ThorntonGroutFinnigan LLP and Alex Moore of Davies Ward Phillips & Vineberg and was moderated by Western Law professor Christopher Nicholls.
John Finnigan (a Western Law alum, pictured above) and John Porter were counsel to a committee of bondholders that opposed the planned leveraged buyout of BCE by a group led by the Ontario Teachers Pension Plan Board. Alex Moore played a significant role advising BCE in the litigation brought by these bondholders.
In his opening remarks Professor Nicholls laid out the background of the case. He noted that the proposed leveraged buyout (LBO) of telecommunications giant BCE, and its subsidiary Bell Canada, would have been the largest—or at the very least one of the two largest—LBOs in history.
To make this deal work, BCE would have to take on billions of dollars in new debt. Most of that debt was to be guaranteed by BCE’s subsidiary Bell Canada. Bell Canada had a number of existing debentureholders (or bondholders). Their debentures enjoyed an investment grade credit rating. That rating would be jeopardized by the guarantee of this new debt. The market value of the debentures would fall, and some institutional holders of the debentures would be forced to sell. So the Bell Canada debentureholders were opposed to this deal. But what was their legal recourse?
The lower courts had concluded that the BCE deal did not violate any of the bondholders’ contractual rights. So the bondholders argued before the Supreme Court that the deal entitled them to an “oppression remedy” under BCE’s incorporating statute. What’s more, the BCE deal took the form of a “plan of arrangement”, a special structure provided for under Canadian corporate law.
A plan of arrangement requires court approval, and before granting that approval the court must be satisfied that the arrangement is “fair and reasonable.” The bondholders further argued that BCE’s plan was not fair and reasonable and so should not be approved.
John Finnigan briefly described the main players involved in the deal, then took the audience through the "real time litigation and the real challenges" as the case proceeded through the Court system at unprecedented speed. "It went through trial, Quebec Court of Appeal and Supreme Court of Canada in nine months. It was a remarkable journey," he said. "We argued the case on June 17 and the decision came down on June 20 and the deal was allowed to proceed."
Finnigan said when the economy took a hit and the markets fell, BCE could not get a required solvency certificate from its auditors and the deal could not get done. "We lost the legal battle but won the commercial war, " he said.
Alex Moore addressed the legal importance of the case as he discussed the Plan of Arrangement, the “fair and reasonable” test, the oppression remedy, and the directors’ fiduciary duty. Although Canadian courts have held that the oppression remedy exists to protect the “reasonable expectations” of shareholders and other corporate stakeholders, the Supreme Court confirmed that sophisticated commercial parties should be held to their contractual agreements, barring exceptional circumstances giving rise to other rights.
He also outlined the significance of the Supreme Court’s analysis of the oppression remedy and the “fair and reasonable” test that applies to corporate law plans of arrangement.
John Porter spoke about the duties of corporate directors in the light of the BCE case, and the earlier 2004 judgment in Peoples Department Stores v. Wise, in which the Supreme Court held that directors always owe their duty to act in the best interests of the corporation itself, and not to the corporation’s shareholders or any other stakeholder. In BCE, the Supreme Court added that the directors must act in the interests of the corporation as a good (or a responsible) corporate citizen. This intriguing language, John pointed out, could lead to interesting questions in future cases.
The panelists spoke to an attentive and enthusiastic “standing room only” crowd in the Moot Court Room. All agreed that the session was lively, insightful, and informative. Western Law is grateful to John Finnigan, John Porter, and Alex Moore for taking time to visit the law school and sharing their unique insights on this very important case.
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