T he English High Court of Justice, Chancery requisite bondholder - PDF document

44฀Canal฀Center฀Plaza,฀Suite฀400฀฀•฀฀Alexandria,฀VA฀22314฀฀•฀฀(703)฀739-0800฀฀•฀฀Fax฀(703)฀739-1060฀฀•฀฀www.abiworld.org Specialty฀Finance฀ Restructuring฀and฀ SNR฀Denton’s฀ an฀associate฀in฀ Oscar฀Pinkas฀is฀ coordinating฀editor฀ in฀New฀York,฀and฀ Private฀Equity฀Group฀ Department’s฀ Department฀and฀ in฀New฀York. &฀Creditors’฀Rights฀ Reorganization฀ Financial฀ PC’s฀Bankruptcy,฀ Lowenstein฀Sandler฀ an฀associate฀in฀ Richard฀Corbi฀is฀ SNR฀Denton;฀New฀York Insolvency฀Group฀ he฀serves฀as฀a฀ The Essential Resource for Today’s Busy Insolvency Professional Feature B Y R ICHARD J. C ORBI AND O SCAR N. P INKAS 1 The (In)validity of Exit Consents Majority Bondholders Cannot Oppress Minority Bondholders T he English High Court of Justice, Chancery requisite bondholder approval, the exchange does Division, recently upheld a challenge by not take place. If the exchange goes forward, the minority bondholders to exit consents under holder’s notes are exchanged, precluding poten- a trust deed governed by English law as oppressive tial harm caused by a subsequent decrease in their and at odds with the purposes for which major- value by virtue of the resolution. However, “a ity bondholders may bind minority bondholders holder who fails to offer his bonds for exchange in Assenagon Asset Management SA v. Irish Bank and either votes against the resolution or abstains Resolution Corp. Ltd. (Formerly Anglo Irish Bank takes the risk, if the resolution is passed, that his Corp. Ltd.) . 2 When sifted to its essence, Irish Bank bonds will be either devalued by the resolution or, is simply an application of settled principles— as in [Irish Bank], destroyed by being redeemed namely that any power granted to a majority to for a nominal consideration.” 4 bind a minority is constrained under English law Oscar N. Pinkas by good faith and exercise for the benefit of the Facts of the Case noteholders as a class—to curb use of a highly The facts of the Irish Bank case arise out of unusual exit consent involving the “expropriation” the 2008 credit crunch and, in particular, the sub- of minority notes. ordinated notes issued by a company then known as Anglo Irish Bank Corp. Ltd. (the bank). The What Is an “Exit Consent”? claimant, Assenagon Asset Management SA, had The court summarized an “exit consent” as when acquired subordinated floating rate notes due in “[t]he issuer wishes to persuade all the holders of a 2017 (the “2017 notes”) issued by the bank under a particular bond issue to accept an exchange of their trust deed (as amended, the “trust deed”) with a face bonds for replacement bonds on different terms. value of €17 million. 5 The 2017 notes were redeem- The holders are all invited to offer their bonds for able at par, whether at maturity or prior thereto. 6 exchange, but on terms that they are required to The trust deed was governed by English law and commit themselves irrevocably to vote at a bond- contained a consent to jurisdiction in English courts holders’ meeting for a resolution amending the regarding the dispute sub judice . 7 By “Extraordinary terms of the existing bonds so as seriously to dam- Resolution,” the noteholders could “assent to any for฀the฀ ABI Journal .฀ age or, as in the present case substantially destroy, modification of the provisions contained in [the the value of the rights arising from those existing trust deed] which shall be proposed by the Issuer bonds.” 3 The purpose of such an exit consent is to or the Trustee.” 8 For an “Extraordinary Resolution” permit a restructuring of bonds on terms not permit- to pass, it had to be accepted by three-fourths of ted in the original issuance. “persons voting” at a noteholders’ meeting in which An exit consent has no adverse effect on a there was a two-thirds quorum. 9 holder who offers bonds for exchange and votes By September 2008, the bank had become the for the resolution. If the resolution fails to muster third-largest bank in Ireland and had gross assets 1 Nothing in this article constitutes an opinion or view of the authors, Lowenstein Sandler 4 Id . at *2. PC, SNR Denton or any of their clients. 5 Id . at *6. 2 Assenagon฀Asset฀Management฀SA฀v.฀Irish฀Bank฀Resolution฀Corp.฀Ltd.฀(Formerly฀Anglo฀Irish฀ 6 Id . Bank฀Corp.฀Ltd.) , 2012 WL 2923062 (Eng. Ch. July 27, 2012). Citation is to the decision 7 Id . at *13. reported on Westlaw and the corresponding numbered paragraphs of the official transcript. 8 Id . at *17. 3 Id . at *1. 9 Id . at *18.