Just before the summer break Mr Justice Briggs gave judgment in Assenagon Asset Management SA v Irish Bank Resolution Corporation Ltd (formerly Anglo Irish Bank), on whether or not adjustments to bondholders’ rights were effected lawfully. He decided on two grounds that the procedure known as “exit consent” was unlawful and made a declaration to that effect.
“Exit consent” is a method of adjusting the rights of bondholders by offering bondholders exchange for fresh bonds but on terms that they are required to commit themselves irrevocably to vote for amending the terms of the existing bond so as to seriously damage or destroy their value. Bondholders are placed in a difficult position as to whether they elect to go with the scheme and realise some value through the new bond, or take a risk that the alteration will not gain sufficient support (75%) as required under the bond terms, in which case the rights and investment value attached to the original bond remain.
Mr Justice Briggs determined that this method of downgrading rights (which has been determined lawful in the United States) was unlawful in this jurisdiction on two grounds. The process is inherently oppressive of minority bondholders by the majority and that the method contradicted the provisions of the relevant trust deed. The effect is that certainly those who voted against the resolution are entitled to compensation, and maybe others as a result of the second finding of the court. This will have a substantial effect on the bond market and the various solutions engineered to overcome events surrounding the collapse in the credit and banking industries in Ireland and England in the credit crisis.
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