Exit consents determined as unlawful for bondholders opening compensation claims

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.

If you have any questions please contact Edwin Coe Litigation & Dispute Resolution team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a limited liability partnership registered in England and Wales (No. OC326366) and is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office: 2 Stone Buildings, Lincoln's Inn, London WC2A 3TH. "Partner" denotes a member of the LLP or an employee or consultant with the equivalent standing. Our privacy notice which we are obliged to give you under the GDPR is available here.

Please also see a copy of our terms of use here in respect of our website which apply also to all of our blogs.