Consent payment in a restructuring held to be valid

By Brian Cain

Consent payment or solicitation payments have become a relatively common way in which debtors undergoing a restructuring can incentivise bondholders to vote in favour of the restructuring. There has always been a nagging doubt that such payments amount to unlawful bribes or offend a pari passu ranking clause. That doubt has now been resolved.

The issuer of certain notes wanted to implement a restructuring involving amendments to the terms of those notes. In the documents calling the noteholder meeting to consider the resolutions to effect the relevant amendments, it was made clear that, subject to the relevant resolutions being passed, there would be a payment to each noteholder who voted in favour of the resolution of $26 (£17) for each $1,000 of relevant notes held. This consent payment was also explained at the noteholder meeting.

The resolutions were duly passed at the meeting but one noteholder who did not vote and who consequently did not receive the consent payment later claimed that those payments were a breach of contract by the issuer because there was a clause in the notes to the effect that all noteholder claims were to rank equally among themselves and the general pari passu principle of English law that creditors in the same class should be treated equally…

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