UK: Legality Of Payments Offered To Loan Note Holders For Consent To Amendments

Last Updated: 5 June 2013
Article by Victoria Brett

(1) Sergio Azevedo (2) Vera Alvarez v (1) Imcopa Importaco Exportacao e Industria de Oleos LTDA (2) Imcopa International SA (3) Imcopa International Cayman Islands Ltd (2013) EWHC Civ 364 QBD (CA)


"Consent payments" offered to loan note holders to secure their votes in favour of various amendments to the terms of the notes were valid and lawful where made openly to all note holders on the same terms.


This case involved payments offered to the holders of loan notes in exchange for their votes consenting to amendments to the terms of the loan notes required in relation to a restructuring.

Imcopa SA had issued loan notes, subject to the terms of a trust deed governed by English law. The trust deed permitted the terms of the loan notes to be varied, providing 75% of the note holders voted in favour of the amendments. The trust deed also stated that the trustee was to pay all amounts owing under the notes on a pari passu basis.

The claimants had invested $1.2 million in the notes. Imcopa Cayman Islands subsequently replaced Imcopa SA as issuer of the notes. In connection with a proposed restructuring, Imcopa Cayman Islands proposed three amendments to the terms of the loan notes and offered all the note holders a "consent payment" where they agreed to vote in favour of the proposed amendments.

The claimants had consented to the first two amendments and received the related consent payments, but not the third. All the amendments were approved by a majority of note holders and the proposed restructure was approved by the Brazilian courts.

The claimants argued, inter alia, that the consent payments were unlawful because they breached the pari passu principle and/or amounted to a bribe.

At first instance, the court found the payments were lawful and ruled in favour of the Imcopa companies. The claimants appealed.


The Court of Appeal dismissed the appeal. It held:

Impoca Cayman Islands had made an offer to all of the note holders in the terms of an "if" contract e.g if you vote in favour of the resolution, and the resolution is duly passed, then I will pay you the stated amount in proportion to the notes you hold.

If a note holder acted on that offer and the resolution was passed, as a matter of English contract law, he was entitled to receive the payment in accordance with the offer. The only question was whether this was incompatible with the terms of the trust deed and/or English company law.

The pari passu principle was invoked by the terms of the trust deed. However it did not apply to the payment of the consent payments as these were paid by the Impoca Cayman Islands directly and the relevant funds were never in the hands of the trustee, who was subject to the obligation to pay note holders on a pari passu basis.

Bribery was not an issue as the consent payments were openly offered to all note holders and were payable on an equal basis to those note holders who voted in favour of the amendments. Likewise there was no discrimination between those note holders who voted in favour of the amendments and those who did not. As the offer was open to all the note holders and each could elect whether to vote in favour, or against, the proposed amendments, no note holder was excluded from receiving the consent payment, except by their own choice.


Where a company is in financial difficulties, it may have to undertake a debt restructuring which necessitates amending the terms of any outstanding bonds/loan notes and therefore obtaining the consent of the bond/ loan note holders. Consent solicitations are often sought in such circumstances, accompanied by the incentive offer of a consent payment. This case confirms that such payments are lawful under English law, providing they are made openly to all the bond/ loan note holders, they are payable on an equal basis and all bond/ loan note holders are free to vote as they choose at the relevant meeting.

If the terms of any trust documentation constituting the bonds/ loan notes requires payments to be made to the holders on a parri passu basis, ensure the consent payments are paid by the issuer directly rather than the trustee, to ensure the payments are valid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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