From time to time, pressure has been exerted on the courts to expand directors’ fiduciary obligations to other corporate stakeholders. In Peoples Department Stores Inc. (Trustee of) v. Wise, in 2004, the SCC was asked to extend the fiduciary duty of directors to creditors. In BCE, the SCC was asked to extend the fiduciary duty of directors to certain debentureholders.

In each case, the SCC was not prepared to extend the fiduciary obligations of directors and held that there is no fiduciary duty of directors to act in the best interests of corporate stakeholders; rather, directors must discharge their fiduciary duty only to the corporation and in so doing may look to the interests of, inter alia, shareholders, employees, creditors, consumers, governments, and the environment.

In BCE, the Supreme Court also affirmed that courts will continue to respect the business judgment rule which grants deference to directors’ reasonable decisions, including decisions involving competing and conflicting stakeholder interests, and that the oppression remedy may be an appropriate mechanism available to stakeholders seeking relief.

A group of Bell Canada debentureholders opposed a leveraged buyout of BCE Inc., a large Canadian telecommunications corporation, by a group headed by the Ontario Teachers Pension Plan Board, financed in part by the assumption by Bell Canada, a wholly owned subsidiary of BCE Inc., of $30 billion of debt. The transaction was to proceed by way of a plan of arrangement pursuant to s. 192 of the Canada Business Corporations Act.

The debentureholders opposed the transaction because the increased debt could reduce the value of their investments by about 20 per cent, while conferring a premium of approximately 40 per cent on the market price of BCE shares. As such, the debentureholders claimed they were entitled to relief under the oppression remedy and opposed the court approval of the plan.

The SCC held that the debentureholders were sophisticated entities and had the requisite information (prospectuses, trust indentures, etc.) to understand the debt instruments they held and the associated risks. If the debentureholders sought to include change of control or credit rating covenants from Bell Canada, they could have bargained for them. Furthermore, evidence adduced at trial showed that BCE’s directors did consider the interests of debentureholders. Consequently their claims failed.

Peoples arose out of the bankruptcy of Wise Stores Inc. and its wholly owned subsidiary Peoples Department Stores Inc. Wise had acquired Peoples Department Stores in 1992 from Marks & Spencer. Post acquisition, Wise and Peoples attempted to realize certain operational synergies and a new inventory procurement policy was instituted. Under this policy, Peoples made all domestic and most overseas purchases for both companies, charging Wise for transferring and shipping the merchandise to its stores.

Wise began experiencing cash flow problems, with the result that its indebtedness to Peoples began to grow. In December 1994, both Wise and Peoples filed for bankruptcy.

Peoples’ trustee in bankruptcy brought a petition to recover funds in reviewable transactions and to recover property that was transferred to Wise as a result of the inventory procurement policy. This petition was framed both as an action under s. 100 of the Bankruptcy and Insolvency Act and as a breach of the statutory duty of directors under s. 122 of the CBCA. The Wise brothers, the three directors of Peoples, were also directors of Wise Stores.