(Commercial Division)
CANADA
PROVINCE OF QUÉBEC
DISTRICT OF MONTRÉAL
No. 500-11-031672-070
DATE :March 7, 2008
JUDGEMENT OF THE HONOURABLE JOEL A. SILCOFF, J.S.C.
[2] By their Motion for Order Based on Oppression Remedy, the Debentureholders, seek:
DECLARE that the Plan of Arrangement is unfair, oppressive, unfairly prejudicial to and/or unfairly disregards the interests of the bondholders; DECLARE that the giving by Bell of the guarantee of $30 billion of BCE debt unfairly prejudicial to, and unfairly disregards the interests of the bondholders.
[3] Defendants, BCE Inc. (“BCE”), Bell Canada as well as Mise en cause, 6796508 Canada Inc. (the “Purchaser”) [numbered company buying BCE] seek the dismissal of the Oppression Remedy.
[40] Relying on the principles described by the Supreme Court of Delaware in, what has often been referred to as the “seminal” case of Revlon, Inc. v. Mac Andrew & Forbes Holdings, Inc, the Board determined they had an overriding duty to maximize shareholder value and obtain the highest value for its shareholders while respecting the contractual obligations of the corporation and its subsidiaries. The Contesting Debentureholders dispute the interpretation and application by BCE of the “Revlon Duty” in the circumstances described in these proceedings.
[65] The BCE Board did not receive a fairness opinion in respect of the Bell Canada Debentureholders. BCE takes the view that, since the rights of the Bell Canada Debentureholders were not being arranged, it would not have been customary or required for such an opinion to be provided. The Contesting Parties suggest otherwise.
[**True or false. Teachers and other buyers not adding 8 billion in new equity to balance sheet, and combined debt more than 38.5 billion.**]
[76] Except for some self-serving characterizations expressed by BCE counsel, (all of which have been deleted from the following extract by the undersigned), the summary reflects accurately the essence of the Plan of Arrangement described in the Circular. The transaction proposed by the Teachers’ Consortium contemplates a […] new capital structure that will facilitate ongoing investment in BCE. The total capital required for the privatization transaction amounts to approximately $50 billion. Pro Forma for the transaction and acquisition financing, BCE will have $38.5 billion of debt which represents [approximately] 6.2x debt/EBITDA. This debt is supported by nearly $8 billion of new equity capital which is being committed to the transaction (one of the largest LBO equity commitments in history).
In very general terms, the various steps in the Plan of Arrangement will result in: (i) the transfer of all common and preferred shares of BCE (collectively, the “Shares”) to the Purchaser in exchange for $42.75 per common share with the consideration paid to the preferred shareholders varying depending upon the particular series of preferred shares; (ii) the Purchaser will then transfer the Shares to one of its Subsidiaries (“Subco”), designated in writing prior to the Effective Time in consideration for the issuance of certain promissory notes and shares of Subco; and (iii) following the completion of the transfer of the Shares by the Purchaser to Subco as described above, Subco and BCE will amalgamate under section 192 of the CBCA to form BCE Amalco.
[78] The obligations of BCE with respect to any Pre-Acquisition Reorganization are expressly conditional on, among other things, the understanding and agreement that any Pre-Acquisition Reorganization shall not require BCE or any subsidiary of BCE to contravene any applicable laws, their respective organizational documents or any contract (including the Bell Canada Trust Indentures). The Pre-Acquisition Reorganization transactions are referred to solely in the Definitive Agreement and do not form part of the steps contemplated to be accomplished by the Plan of Arrangement for which Court approval is sought.
V. POSITIONS OF THE PARTIES
(1) Debentureholders
[79] The Debentureholders contend that even if they are denied standing in Motion for Final Order, they would still qualify as complainants within the meaning of the oppression remedy provisions of the CBCA.
[80] Their allegations of oppression are based on the following assertions:
(a) the guarantee associated with the Plan of Arrangement serves no valid business purpose for Bell Canada;
(b) the Plan of Arrangement and Definitive Agreement breach the reasonable expectations that Bell Canada created in the market place;
(c) the Plan of Arrangement and Definitive Agreement expose debentureholders to a degree of vulnerability which other courts have found to be oppressive; and
(d) BCE’s conduct unfairly disregards the interests of the 1997 Debentureholders because its directors failed to take into account the interests of Bell Canada or its debentureholders when agreeing to cause Bell Canada to grant the guarantee new debt.
(2) BCE and Bell Canada
[82] BCE and Bell Canada contend that involuntarily, by operation of the Teachers’ 13 D filing with the SEC on April 9, 2007, it was “put in play” and that accordingly thereafter, the overriding duty of the directors became one of maximizing shareholder value by achieving the highest value possible for the common shares while respecting the corporations’ contractual obligations to other stakeholders, such as its debentureholders
[83] They contend that the oppression remedy contemplated in the present proceedings is without merit, that only those expectations of the 1997 Debentureholders that are legitimate and objectively reasonable are respected.
[84] BCE and Bell Canada contend that these expectations are governed by contract and accordingly are much better defined than are those of shareholders who have no form of contract with the corporation and whose relationships are governed by statute. The concept of reasonable expectations does not permit debentureholders to impose its “wish list” or unilateral expectations on the corporation or to obtain rights which they have not bargained for in an attempt to find parity with the benefits received by the corporation’s shareholders.
[85] They contend, moreover, that the 1997 Debentureholders had no reasonable expectation that once BCE was “put in play”, the BCE Board would breach its duty to maximize shareholder value in favour of seeking to maintain the investment grade ratings for the Bell Canada debentures. Nor could the 1997 Debentureholders reasonably have expected that the Board would somehow take steps to effect a transfer of value away from the BCE shareholders to the debentureholders by requiring bidders to make payments to them that they had no right or entitlement to receive. [86] They conclude, that the 1997 Debentureholders either knew or ought to have known that the only protection available to them was that provided in the 1997 Trust Indentures, and that the covenants contained in the Indenture did not prevent a change of control of BCE.
(3) Purchaser
[87] For its part, Purchaser contends that the grounds of oppression alleged by the 1997 Debentureholders are unfounded, inaccurate, exaggerated and insufficient to establish any oppression, unfair prejudice to, or unfair disregard of their legitimate interests and reasonable expectations. They assert that the 1997 Debentureholders are not entitled to claim the relief sought under the CBCA because, to the extent that they may be affected by the proposed transaction.
VI. ISSUES
[88] The issues raised for determination on the 1997 Oppression Remedy are the following :
(i) Whether the 1997 Debentureholders have standing to institute the 1997 Oppression Remedy; and
(ii) Whether, by approving the Plan of Arrangement and the Definitive Agreement, BCE and Bell Canada have acted in a manner that is oppressive and unfairly prejudicial to the interests of the 1997 Debentureholders.
[90] To address and dispose of all these issues, creatively and skilfully pleaded by experienced counsel, would require volumes. In the Courts opinion, such exercise is unnecessary to address the paramount issue to be decided in the 1997 Oppression Remedy, that is, whether the court is satisfied that in respect of BCE or any of its affiliates;
[92] The 1997 Trust Indenture contains specific provisions limiting suits by debentureholders. These provisions, known as “no action” clauses, and found in Section 5.07, reads as follows:
Section 5.07 Limitation on Suits
No Holder of any Debt Security shall have any right to institute against the Corporation any proceeding, judicial or otherwise, with respect to this Indenture or any Debt Security, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) an Event of Default shall have occurred and be continuing and such Holder shall have previously given written notice to the Trustee of such continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the Outstanding Debt Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expense and liabilities to be incurred in compliance with such request;
[94] Section 5.07 of the 1997 Trust Indenture specifically prohibits debentureholders from bringing any proceeding, judicial or otherwise, with respect to this Indenture or any Debt Security unless there has been an Event of Default, and only then if the specified conditions are met. The 1997 Debentureholders do not allege, in the 1997 Oppression Remedy, an Event of Default, but rather attack the Plan of Arrangement and Definitive Agreement on the grounds that the consequences thereof are oppressive and unfair.
[95] The operative language in Section 5.07 is substantially similar to the language considered in Amaranth LLC v. Counsel Corporation, which Ground J. held was sufficiently broad to encompass oppression proceedings.
[96] The 1997 Debentureholders, in an attempt to distinguish the facts of this case from those in Amaranth and other judgments which held that broadly worded “no action” clauses, such as the one in the 1997 Trust Indenture, should be strictly enforced, argue that, in the unique circumstances of the present proceedings, the “no action” clause should not preclude their commencement of Oppression Remedy. The Court disagrees.
[97] The Court finds that Section 5.07 does apply in the present circumstances, that it has not been complied with and that accordingly the 1997 Debentureholders should be denied standing.
[99] For the reasons expressed in the judgment rendered on the 1976/1996 Oppression Remedy and adopted herein by reference, the Court finds that by approving the Plan of Arrangement and the Definitive Agreement, BCE and Bell Canada have not acted in a manner that is oppressive and unfairly prejudicial to the interests of the 1997 Debentureholders and, accordingly, it will dismiss the 1997 Oppression Remedy.
[102] DISMISSES the Motion for Order Based on Oppression;
____________________________________
JOËL A. SILCOFF, J.S.C.
extra
~~~~~~~~~
[**Right to contest**]
[70] The Interim Order provides that the only persons entitled to appear and be heard at the hearing on the Motion for Final Order shall be BCE, Purchaser, the Director appointed pursuant to the CBCA and any person that:
(i) files an appearance with this Court's registry and serves same on BCE's Counsel, at least seven (7) days prior to the hearing of the Motion for a Final Order, failing which such Person shall not be entitled to appear; and
(ii) if such appearance is with a view to contesting the Motion for a Final Order, serves on BCE's Counsel, at least seven (7) days prior to the hearing of the Motion for a Final Order, a written contestation supported as to the facts alleged by affidavit(s), and exhibit(s) if any, failing which such Person shall not be permitted to contest the Motion for a Final Order;
[71] The delay to appear and file a written contestation with respect to the Motion for Final Order expired on October 3, 2007. The Contesting Parties were the only persons who filed Appearances and Contestations within the stipulated delay.
[72] By their Contestations filed in these proceedings and by the proceedings introductive of suit filed in each of the Related Proceedings, the Contesting Parties challenged the Plan of Arrangement and seek the relief more fully described in each of their respective proceedings.
[73] Hearing on the Motion for Final Order commenced on October 10, 2007. Seeing the complexity of the issues to be resolved in these and the Related Proceedings, hearings were continued to December 3, 2007.
[**Tiedemann, dissenting BCE shareholder**]
[74] On November 14, 2007, Mrs. Erika S. Tiedemann served Counsel for each of BCE and Purchaser a document entitled, “Notice of Appearance of Erika S. Tiedemann, a Dissenting Shareholder”. Mrs. Tiedemann seeks to contest the Plan of Arrangement due to what she refers to as: …irregularities, irrationalities, contradictions, illogical reasoning, leading to fraudulent practices by newcomers, foreigners… (The remaining text is deleted by the Court in the interest of propriety).
[75] Mrs. Tiedemann was in attendance at the resumption of hearings on December 3, 2007. After hearing her representations, the Court ruled that her Notice of Appearance was filed beyond the delays fixed by the Court and that it was, moreover, defective in form and substance. Accordingly, her purported intervention was dismissed. However, with the consent of the parties, she was invited to remain in the room during public hearings and was permitted to ask relevant questions of witnesses who appeared on behalf of the interested parties. She availed herself of these privileges.
[**Involves tens of thousands of pages**]
VII. LAW AND ANALYSIS
[89] The issues of fact and of law raised in these proceedings are numerous and complex. The volume of testimonial and documentary evidence, both ordinary and expert, produced in the five Related Proceedings is substantial. It involves thousands of exhibits, tens of thousands of pages of affidavits, “will-say statements”, transcripts of examinations of witnesses conducted in and out of Court, in excess of six thousand pages of compendia (containing summaries of the thousands of exhibits and extracts of affidavits and transcripts), in excess of one thousand pages of written arguments (Factums) supported by in excess of twenty-five volumes of authorities as well as several Aide-Mémoire on diverse subjects.
##########################################################
#########################################################
No comments:
Post a Comment