On March 7, 2008, Justice Joël A. Silcoff, of the Commercial Division of the Superior Court of Québec, approved the Plan of Arrangement pursuant to which BCE Inc. would be privatized.
In the first ever judgment rendered by a Canadian Court dealing with the treatment of bondholders in the context of a leveraged buy-out transaction, Mr. Justice Silcoff approved the Plan of Arrangement, and dismissed the proceedings brought by the contesting bondholders and trustees. The bondholders include some of Canada's largest money managers and life insurance companies.
The contesting bondholders and trustees argued that the Plan of Arrangement was not fair and reasonable because: (i) it compelled Bell Canada, the wholly owned BCE subsidiary in which the bondholders had invested, to guarantee the $34 billion acquisition debt without giving Bell anything in return; (ii) the directors of Bell Canada had never considered the advisability of the guarantee from the perspective of Bell Canada; (iii) the imposition of the acquisition debt on Bell Canada would reduce the credit rating on the bonds from investment grade to junk status, thereby breaching years of statements by Bell that it was totally focused on maintaining investment grade status for its bonds; and (iv) that the privatization of BCE breached a provision contained in two trust indentures, which provide that Bell Canada and the relevant trustees must approve any reorganization or reconstruction of Bell Canada as being in no way prejudicial to bondholders.
In approving the Plan of Arrangement, the Court agreed that the proposed transaction would increase the risk of default on the bonds; however, the Court also concluded that the rights of Bell Canada bondholders were not being altered or arranged.
With respect to the oppression claims, the Court found that the contesting bondholders had not followed the procedures provided under “no action” clauses of the trust indentures and therefore did not have standing.
With respect to the merits of the claim for oppression, the Court concluded that (i) the bondholders' rights were limited to their respective contractual rights in the trust indentures, there was no evidence that the terms of the indentures were being breached and the guarantee of the acquisition debt could have a valid business purpose for Bell; (ii) the directors of Bell were right to consider the issue of the acquisition debt only from the perspective BCE because they had an overriding duty to maximize shareholder value; (iii) bondholders could not rely on the statements made by Bell because they were limited to the terms of their indentures and the statements by Bell were accompanied by safe harbour notices; and (iv) the terms of the trust indenture that required trustee approval of certain transactions were not triggered by the Plan of Arrangement.
The bondholders have appealed and the Québec Court of Appeal has agreed to hear appeals of all five judgments on an expedited basis.
BCE Inc. and Bell Canada were represented by Davies Ward Phillips & Vineberg LLP with a team led by William Brock and Kent Thomson and comprised of James Doris, Louis-Martin O'Neill, George Pollack, Matthew Gottlieb, Sandra Mastrogiuseppe, Nick Rodrigo, Sean Campbell, Nevena Lalic, Karine Péloffy, Jordan Vaeth, Cinthia Duclos, and Jonathan Gottlieb (litigation) and Steven Harris and Alex Moore (securities). Also representing BCE Inc. and Bell Canada was Stikeman Elliott LLP with a team comprised of Jean Marc Huot, Benoit Dubord and Sarah Landry Maltais (securities) and Robert Hogan, Frank Mathieu and Pierre-Louis Le Saunier (tax). The Purchaser 6796508 Canada Inc. was represented by Woods LLP and Goodmans LLP. The Woods LLP team was comprised of James A. Woods, Christopher Richter, François Touchette, Bogdan Catanu and Sarah Woods, and the Goodmans LLP team was comprised of Benjamin Zarnett and Jessica Kimmel (litigation) and Jonathan Lampe, Celia Rhea, Jonathan Feldman and Brian Wise (corporate/M&A). The bondholders under the 1976 and 1996 trust indentures were represented by Fishman Flanz Meland Paquin LLP with a team comprised of Avram Fishman, Mark E. Meland, Fabrice Benoît, Suzanne Villeneuve, Geneviève Cloutier, Jason Dolman and Ponora Ang, as well as Thornton Grout Finnigan LLP with a team comprised of John Finnigan, John Porter, Ray Thapar, Seema Aggarwal and Kim Ferreira. The bondholders under the 1997 trust indenture were represented by McMillan Binch Mendelsohn LLP with a team comprised of Markus Koehnen, Paul Macdonald, Emmanuelle Saucier, Hilary Clarke, Robert Wisner, Patrick Goudreau, Brett Harrison, Nicholas Scheib, Marie-Christine Demers, Lisa Brost, Erin Cowling, Marijo Charland and Julien Brazeau. The trustees CIBC Mellon Trust Company and Computershare Trust Company of Canada were represented by Miller Thomson Pouliot LLP with a team comprised with Robert Tessier and Ronald M. Auclair. The lenders syndicate was represented by Borden Ladner Gervais LLP with a team comprised of Jacques Darche and Tommy Tremblay, as well as Gowling Lafleur Henderson LLP by Michael Watson.