BCE Inc v 1976 Debentureholders, 2008 SCC 69 (CanLII), [2008] 3 SCR 560 is a leading decision of the Supreme Court of Canada on the nature of the duties of corporate directors to act in the best interests of the corporation, "viewed as a good corporate citizen". This case introduced the principle of fair treatment as an organizing principle in Canadian corporate law.
Facts
BCE Inc. was the subject of multiple offers involving a leveraged buyout, for which an auction process was held and offers were submitted by three groups. All three offers contemplated the addition of a substantial amount of new debt for which Bell Canada, a whollyowned subsidiary of BCE, would be liable. One of the offers, which involved a consortium of three investors, was determined by BCE's directors to be in the best interests of BCE and BCE's shareholders. That was to be implemented by a plan of arrangement under s. 192 of the Canada Business Corporations Act, which was approved by 97.93% of BCE's shareholders but opposed by a group of financial and other institutions that held debentures issued by Bell Canada and sought relief under the oppression remedy under s. 241 of the CBCA. They also alleged that the arrangement was not "fair and reasonable" and opposed s. 192 approval by the court. Their main complaint was that, upon the completion of the arrangement, the short‑term trading value of the debentures would decline by an average of 20 percent and could lose investment grade status.
Judgment
Superior Court of Quebec
Silcoff J. of the Superior Court of Quebec approved the arrangement as fair and dismissed the claim for oppression.
On appeal, the Quebec Court of Appeal held:
the arrangement had not been shown to be fair and held that it should not have been approved, the directors had not only the duty to ensure that the debentureholders' contractual rights would be respected, but also to consider their reasonable expectations, and since the requirements of s. 192 of the CBCA were not met, the court found it unnecessary to consider the oppression claim.
BCE and Bell Canada appealed the overturning of the trial judge's approval of the plan of arrangement, and the debentureholders cross‑appealed the dismissal of the claims for oppression.
Supreme Court
In a unanimous decision, the SCC ruled that the appeals should be allowed and the cross‑appeals dismissed. In summary, it held that the s. 241 oppression action and the s. 192 requirement for court approval of a change to the corporate structure are different types of proceedings, engaging different inquiries. The Court of Appeal's decision rested on an approach that erroneously combined the substance of the s. 241 oppression remedy with the onus of the s. 192 arrangement approval process, resulting in a conclusion that could not have been sustained under either provision, read on its own terms.
Remedies under the CBCA
The SCC reviewed the various remedies available to shareholders that have developed under the common law, and that have subsequently been expanded upon in the CBCA:
a derivative action under s. 239
a civil action against the directors for breach of duty of care
an oppression action under s. 241
contesting a plan of arrangement under s. 192
In the present case, only ss. 192 and 241 were being raised.
Nature of the oppression remedy
In assessing a claim of oppression, a court must answer two questions:
Does the evidence support the reasonable expectation asserted by the claimant? and Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest?
Where conflicting interests arise, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty to act in the best interests of the corporation, "viewed as a good corporate citizen".
Approval process for a plan of arrangement
In seeking court approval of an arrangement, the onus is on the corporation to establish that
the statutory procedures have been met; the application has been put forth in good faith; and the arrangement is "fair and reasonable".
To approve a plan of arrangement as fair and reasonable, courts must be satisfied that
(a) the arrangement has a valid business purpose, and
(b) the objections of those whose legal rights are being arranged are being resolved in a fair and balanced way.