Claudio R Rojas, “An Indeterminate Theory of Canadian Corporate Law”

Working Abstract

The Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders, a case dealing with the fiduciary duty of directors within the context of an oppression remedy claim, articulated that corporations are to act as “good corporate citizens”. The Court’s extensive reasons raise important questions as to whether directors owe a duty to non-shareholders and the extent to which such a duty undermines the traditional shareholder primacy view of the corporation. In a key passage summarizing the trial judge’s reasons, “fundamental differences” between shareholders and debt security holders were recognized as affecting the “content” of the fiduciary duty. This case, indicating a significant evolution in the jurisprudence on the fiduciary duty of directors, challenges the applicability of both shareholder primacy and stakeholder theory to Canadian corporate law.

Regrettably, existing literature on BCE is overwhelmingly comprised of scathing criticism. In response, this article employs a distinct conceptual framework aimed at shedding new light on this vital case, while providing theoretical support to the Court’s decision. The author’s conclusions, particularly that BCE rejects stakeholder theory, have significant and timely implications. For example, securities regulators are currently considering proposals to abandon the shareholder-centric approach to defensive tactics in hostile takeover bids under National Policy 62-202. Such proposals, rooted in stakeholder theory interpretations of BCE and influenced by the law in Delaware, overlook differences in ownership structure between U.S. and Canadian firms. This article suggests these distinctions combined with the Court’s rejection of stakeholder theory render the director-centric approach in Delaware undesirable in Canada.

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