On March 7, 2008, Justice Joël A. Silcoff, of the Commercial Division of the Superior Court of Québec, released five highly anticipated judgments in connection with the proposed privatization of BCE by an investor group led by Teachers' Private Capital, the private investment arm of the Ontario Teachers' Pension Plan, Providence Equity Partners, Madison Dearborn Partners, and Merrill Lynch Global Private Equity. The privatization of BCE, to be effected under a plan of arrangement, is opposed by a group of bondholders of Bell Canada, BCE's wholly-owned subsidiary, and the trustees under certain trust indentures entered into by Bell Canada.

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 ruled in favour of BCE and Bell Canada on every point of contention, approved the plan of arrangement, and dismissed all proceedings brought by the contesting bondholders and trustees.

In their contestations of the plan of arrangement, oppression claims, and motions for declaratory judgments, the contesting bondholders and trustees argued that the plan of arrangement was not fair and reasonable; that the contemplated leveraged buy-out transaction, which provides for the guarantee of the acquisition debt by Bell Canada and its subsidiaries, was oppressive to Bell Canada's bondholders; and that the privatization of BCE breached a provision contained in two trust indentures of Bell Canada, 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 concluded that the rights of Bell Canada bondholders were not being altered or arranged by the contemplated transaction, and that the fact that the economic interests of the bondholders may be adversely affected did not give them a right to vote on the plan of arrangement. The Court concluded that there was no justification to grant the bondholders a veto over a transaction with an aggregate equity value of approximately $35 billion that was approved by over 97% of the voting shareholders. To do so would set a dangerous precedent and could result in uncertainty and instability in the equity and debt markets for years to come.

With respect to the oppression claims, the Court concluded that they were unfounded. Procedurally, the Court found that contesting bondholders had not followed the procedures provided under 'no action' clauses of the trust indentures and therefore the bondholders did not have standing to institute the oppression claims. With respect to the merits of the claim for oppression, the Court concluded that the bondholders were not entitled to any rights over and above their respective contractual rights as negotiated in the trust indentures and the respect of their reasonable expectations resulting therefrom. The Court concluded that there was no evidence that the right of the bondholders had been disregarded by the board of directors of BCE. On the contrary, the board of directors rightly concluded that the applicable trust indentures did not contain any change of control provision, that there was not a change of control of Bell Canada and that accordingly Bell Canada's bondholders could not reasonably expect BCE to reject a transaction that maximized shareholder value on the basis of any negative impact to them. The Court was of the opinion that the best interest of both Bell Canada and BCE, as well as those of their shareholders, are and will be served by the implementation of the plan of arrangement.

The Court affirmed that, in the wake of the Supreme Court of Canada decision in Peoples vs. Wise, a board of directors still has an overriding duty to maximize shareholder value when a company is put in play. Mr. Justice Silcoff reiterated that reasonable expectations of bondholders, especially sophisticated investors, must be assessed on an objective basis and, absent other compelling reasons, must be derived from the applicable trust indentures themselves and the relevant prospectus issued in connection with the debt offerings. The Court also stated that representations made by a company may be of assistance in determining fairness in the context of an oppression remedy, but that it is also necessary to examine the context in which these representations were made and any caveat attaching thereto. More specifically, Mr. Justice Silcoff held that safe harbour notices or other warnings that expressly preclude investors, such as bondholders, from relying on the statements in circumstances in which they then purport to be relied on, cannot create reasonable expectations. In this instance, Bell Canada's and BCE's safe harbor notices precluded bondholders forming reasonable expectations that BCE and Bell Canada would not allow their credit rating to go below investment grade status by reason of a leveraged buy-out.

Finally, the Court found that a provision contained in two trust indentures of Bell Canada, 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, did not apply to the contemplated transaction.

The lenders syndicate was represented by Borden Ladner Gervais LLP with a team comprised of Jacques Darche, Tommy Tremblay and Andréanne Latreille, as well as Gowling Lafleur Henderson LLP by Michael Watson.