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The Supreme Court of Canada shifted the country's corporate law regime further away from U.S. laws in its written reasons yesterday for dismissing an investor lawsuit against the ill-fated BCE Inc. takeover.

In June, the court dismissed a claim by three classes of debenture holders that alleged BCE's board of directors failed to properly consider their interests when they approved a debt-heavy, $35-billion takeover.

The takeover collapsed this month after BCE failed to meet a solvency test stipulated in the purchase agreement.

Although the deal is dead, legal experts said the court's written judgment expands the duties of directors of public company's targeted in a takeover play.

In its reasons, the court said BCE's bondholders were protected by debt contracts and neither these agreements nor the company's executives had given investors a "reasonable expectation" that directors would oppose a debt-heavy takeover.

Despite the bondholders weak legal hand, the court said directors are expected to treat all stakeholders "equitably and fairly" as part of their broader duty to act in the best interests of the corporation.

"In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations, including, but not confined to, the need to treat affected stakeholders in a fair manner, commensurate with the corporation's duties as a responsible corporate citizen," the decision said.

The ruling shifts Canadian law further away from the so-called Revlon rule in the United States which compels directors to maximize only shareholder interests when a company is in play.

Gary Girvan, a mergers and acquisition specialist with McCarthy Tétrault LLP said the decision puts a greater onus on directors to "balance the interests" of a number of stakeholders when a company is faced with a change of control or takeover offer.

"If I were advising directors tomorrow I would tell them to take the interests of all stakeholders into account and that may include debenture holders, unions and even pensioners," he said.

Clay Horner, who is also a mergers and acquisition specialist, said that the language of the court's written judgment is confusing in some sections.

But the thrust of the reasoning implies that in some circumstances boards could accept a lower takeover bid from competing suitors if they concluded the lesser proposal offered more value to a broader group of stakeholders.

"There is some latitude from a legal point of view for directors to look at alternatives that might allocate less to shareholders if that offer is in the best interests of other stakeholders," Mr. Horner said.


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