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Article Excerpt
Three recent cases addressing the duties of the board of directors and the treatment of shareholder rights plans may signify a change in the law or its application. On the surface, these cases all point to less interference by Courts and Securities Commissions in the decisions of boards of directors relating to take-overs, and in particular, the use of a shareholder rights plan.
The Supreme Court Of Canada's Decision In BCE Inc. In Re: BCE Inc., debentureholders of BCE Inc. claimed that the board of directors had unfairly disregarded their interests in approving a potential acquisition of the company under the arrangement provisions of the Canada Business Corporations Act (the "CBCA"). The increased debt from the acquisition would have resulted in lowering the rating of the debentures below investment grade and significantly decreased their market value. The Supreme Court of Canada reviewed the obligations of the directors under the CBCA, reviewed the oppression remedy, and the "reasonable expectations" doctrine associated with it, and reviewed the role of the court in the approval of an arrangement. In this discussion, the Supreme Court emphasised the primacy of the directors in considering and balancing the interests of various stakeholders of the corporation, while exercising their fiduciary duty to act in the best interest of the corporation. The Supreme Court specifically endorsed the application of the business judgment rule to a board of directors' decision to take account of ancillary interests of stakeholders in considering the best interests of the Corporation.
The board, the trial judge and the Supreme Court all concluded that the debentureholders' contractual rights did not include protection against the change of control and they could not reasonably expect BCE to reject the transaction on the basis of its...
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