Australia: financial services regulation - major changes proposed

The Australian Government has published a green paper titled Financial Services and Credit Reform: Improving, Simplifying and Standardising Financial Services and Credit Regulation. This sets out important and wide-ranging changes to the regulatory structure governing financial services. Changes are also proposed concerning the regulation of debentures and trustee corporations.

Canada: directors' duties during a takeover

The Quebec Court of Appeal has delivered an important and controversial opinion concerning the duties of directors during a takeover. In BCE inc. (Arrangement relatif à), 2008 QCCA 935 (available in PDF here) the court unanimously rejected the position adopted by the board of a target company (in reliance on the famous Revlon case from Delaware: 506 A. 2d 173, Del. Sup. Ct. 1986) that its overriding duty was to maximise shareholder value and obtain the highest value for the shareholders.  The court held:

It is clear from the principles enunciated by the Supreme Court in Peoples [Department Stores Inc. (Trustee of) v. Wisethat 2004 SCC 68] that at no time do the directors have an overriding duty to act only in the best interests of the shareholders and to ignore the adverse effect on the interests of the debentureholders" (para. [99], emphasis in the original).

In Canada, the directors of a corporation have a more extensive duty. This more extensive duty embodied in the statutory duty of care encompasses, depending on the circumstances of the case, giving consideration to the interests of all stakeholders, which, in this case includes the debentureholders. They must have regard, inter alia, to the reasonable expectations of the debentureholders, and those may be more extensive than merely respecting their contractual legal rights" (para. [107]).

BCE, the target company, has begun appeal proceedings: the Canadian Supreme Court will hear the motion to appeal on June 17. For further background information see here.

NB: For further discussion of Revlon, see: Kraakman, R. and Black, B., "Delaware's Takeover Law: The Uncertain Search for Hidden Value", (2002) 95 Northwestern University Law Review, 521-566, available on SSRN here.

England and Wales: "dog leg" claims and company directors

In Gregson v HAE Trustees Ltd & Ors [2008] EWHC 1006 (Ch) a so-called "dog-leg" claim was brought against the directors of a corporate trustee (HAE) by a trust beneficiary. It was argued that the claims of HAE against its directors for breach of duty were held on trust for the beneficiaries and were trust property. The possibility of such a claim was rejected by the trial judge (Robert Miles QC, sitting as a deputy judge of the High Court). The judge observed:

"The dog leg claim, if valid, would, for all practical purposes, circumvent the clear and established principle that no direct duty is owed by the directors to the beneficiaries. The refusal of the law to accept that directors of a trustee company owe a direct duty to safeguard the assets of a trust of which it is trustee is, I consider, a powerful reason to doubt that directors may be liable to the beneficiaries of the trust by the indirect, dog leg, route now proposed" (para. [46]).

"A further problem with the dog leg claim (as Commissioner Page pointed out in Alhamrani v Alhamrani [2007] JRC 026) is that it appears to cut across established principles of company and employment law. For instance, the members of a company may by ordinary resolution ratify or sanction what would otherwise be a breach of the duty of care of the directors. It appears to me that, were the dog leg claim to be recognised, it would no longer be possible for the members of a trustee company to do this. Again, if the dog leg claim were to succeed it would follow that the cause of action and its fruits would not form part of the estate of an insolvent trustee company. On this point, I agree with Phillips J in Young v. Murphy [1996] 1 VR 279 that the claims of an insolvent trustee company against its directors for breach of their duty of care form part of the insolvent estate" (para. [59]).

NB: The case also raised issues concerning the duties of trustees, which are noted here.

UK: Myners Principles - Further review

In March 2000, Paul Myners was commissioned by HM Treasury to conduct a review of institutional investment in the UK. Myners' report "Institutional Investment in the United Kingdom: A Review" was published in 2001 and it contained several principles for institutional investment decision making. These were last reviewed in 2004. HM Treasury has begun a further consultation and its consultation paper states:

"This consultation provides an opportunity to update the Myners principles and develop a comprehensive suite of authoritative best practice tools giving further assistance for pension fund trustees to improve investment decision-making and governance".

Update (16 November 2008): the Government's response to the consultation has been published here.