Saturday, May 24, 2008

Activist judges making law in BCE case

Terence Corcoran makes the case for reversing the Quebec Court of Appeal's recent decision in the BCE case. Once again our august judiciary is making the law under the guise of interpreting it.

It would be a spectacular long-term Canadian shareholder disaster, and possibly a corporate governance disaster, if the BCE takeover were to crash over the short-term interests of a relatively small group of bondholders.


The role of the Supreme Court, if it accepts the appeal, would be to uphold shareholder rights and reverse Wednesday's Quebec Court of Appeal decision. That decision against BCE appears to significantly expand the subversive idea -- long a shadow over Canadian corporate law -- that shareholders are just another group of interested parties in a long list of "stakeholders."

As the appeal court put it, the BCE board of directors, and a special independent committee of the board, made a "mistake" in deciding not to make special arrangements with the owners of about $5-billion in Bell Canada long-term debt, the debenture holders. "In Canada, the directors of a corporation have a more extensive duty" than to maximize value to shareholders. This more extensive duty means the board "must have regard, among other things, to the reasonable expectations of the debenture holders, and those may be more extensive than merely respecting their contractual legal rights."

What's the point of a contract if one side is automatically forced to go beyond it?