On May 21, 2008, the Quebec Court of Appeal reversed the lower court finding in the BCE Inc. case. BCE proposed an arrangement in which certain bondholders stood to be disadvantaged because the level of BCE's debt would be increased. The higher level of debt would in turn decrease the value of the existing debt as well as occasion a loss of investment grade status. The Court of Appeal held that the bondholders' interests must be considered when the board is discharging fiduciary duties. But the Court has pushed the concept of fiduciary duties into new territory, a move that seems to stretch existing law.
The Court conceives directors' fiduciary duties broadly, criticizing the BCE board for not considering how the plan of arrangement at issue might be unfair to bondholders. The Court relies on the SCC decision in Peoples v Wise (SCC 2004). However, Peoples in my view misconceives fiduciary duties, thus creating a potential domino effect for future decisions like BCE. The problem with Peoples is that it interprets directors’ fiduciary duties as applying to a broad range of corporate stakeholders (creditors, suppliers, consumers, employees, enivronmental groups etc.), thus watering down the duty significantly: a duty owed to everyone is in effect a duty to no one. But the BCE board was seeking to maximize shareholder value in a change of control transaction, something that most lawyers take to be settled law.
