Abstract
In February 2012, Eurozone Member States signed a modified version of the Treaty Establishing the European Stability Mechanism (ESM). This convention provides, inter alia, for the mandatory inclusion of standardised and identical CACs in all new Eurozone sovereign bonds from 1 January 2013. A sub-committee of the Economic and Financial Committee on EU Sovereign Debt Markets developed and published the terms of mandatory CACs on 26 March 2012 (the “Model CAC”). As a result, from 1 January 2013, Eurozone sovereign bond issuers will be obliged to include the Model CAC in bonds with a maturity greater than one year, irrespective of their governing law. The Model CAC will apply to both international and domestic issue. CACs in future Eurozone sovereigns are beyond the will of the issuing State. Can this excuse countries from obligations arising from instruments such as the Convention of the Specialised Agencies of 1947?
Highlights
1.1 What Are Collective Action Clauses? - Some Basic DataThe idea behind Collective Action Clauses is to facilitate a sovereign’s restructuring process in the context of a sovereign financial crisis and to enable a quick and orderly restructuring.[3]Collective Action Clauses, hereinafter referred to as ‘CACs’ are contractual provisions included in the terms of bonds to i
A recent study of the validity of CACs from the international law perspective, 7 in light of the European Convention on Human Rights (ECHR) and the possibilities of litigation over CACs before the European Court of Human Rights argues that a case could be made by holdout creditors for the engagement of the “peaceful enjoyment of possession”, embedded in Article 1 of Protocol 1.8 The ECHR would probably restrain the use of CACs to cases where a distressed Country needs to restructure its debt in order to avoid default, and would only allow haircuts to a proportional extent
It is interesting to delve into a specific issue which arises in relation to the European Stability Mechanism (ESM)
Summary
The idea behind Collective Action Clauses is to facilitate a sovereign’s restructuring process in the context of a sovereign financial crisis and to enable a quick and orderly restructuring.[3]. Enable a smaller majority of bondholders to agree to modification; and iii. Reserved matter modifications, which are a major concern, i.e. a reduction in amounts payable on bonds, changes in the dates on which these are payable and the obligation to pay, may be approved by only 75% at a. A new feature of the CAC is the provision for cross series modification, which potentially lowers the voting thresholds needed from three-quarters to two-thirds for restructuring. Another extremely important provision we find in CACs is disenfranchisement. This means that issuers that are holders of the bonds, (any of its ministries, departments or agencies) will not be allowed to vote. Fundamentally we need to understand whether the decisions approved are binding or not on an international organisation in waiver of its privileges and immunities
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
