Agent’s right to represent bondholders in a reorganisation plan

In connection with the SAS reorganisation plan the question arose as to whether the agent has a right to represent the bondholders in court proceedings. On 21 October 2020, Intertrust and SAS entered into an agreement regarding hybrid bonds (the ”Agreement”) which provides, inter alia, that Intertrust acts as agent for the hybrid bondholders but also that Intertrust has the right to represent the bondholders in court proceedings. Prior to the planning hearing in the District Court, SAS made submissions regarding Intertrust’s authority to represent the bondholders and argued that Intertrust lacked the authority to litigate on their behalf. Intertrust countered, that the Agreement authorised them to act as the legal representative of the bondholders in the reorganisation matter at hand.

According to Section 4:3 of the Swedish Companies Reorganisation Act (Sw. Lag (2022:964) om företagsrekonstruktion) the parties to a reorganisation plan are (i) the creditors, (ii) the shareholders, and (iii) other parties with an ownership interest in the debtor or the debtor’s business whose claims or rights are directly affected by a reorganisation plan. The District Court determined that Intertrust could not be considered a party to the reorganisation under Section 4:3 of the Swedish Companies Reorganisation Act, since it does not fall into categories (i), (ii), or (iii) above, and therefore, Intertrust would have to evidence their right to be involved in the process.

Based on the legal literature there are certain alternative grounds based on which an agent can represent bondholders in court proceedings. An agent can assert that it is acting in its own name on its own behalf, or an agent could state that it is acting in its own name but on behalf of the bondholders as a process agent (Sw. processkommissionär). The District Court found that Intertrust had not claimed that it was acting in its own name on its own behalf or on behalf of another party as a process agent (Sw. processkommissionär), and thus did not consider Intertrust to have the right (Sw. talerätt) to be involved in the reorganisation plan process. However, the District Court did not clarify whether the assertion of such a claim by Intertrust would have had any impact on the outcome.*

After finding that Intertrust did not have a statutory legal right to participate in the reorganisation process, the District Court next had to consider whether Intertrust had by the operation of the Agreement been duly authorised to represent the bondholders in the reorganisation plan. The District Court found that the formulation of the Agreement authorising Intertrust to act on behalf of the bondholders in all legal proceedings did not constitute a proxy for appearing in court (Sw. rättegångsfullmakt), which is required to be presented by a representative in a court, as the authorisation included in the Agreement, inter alia, had not been explicitly signed by the underlying bondholders. The District Court found that the terms of the Agreement as such did indeed authorise Intertrust to act on behalf of the bondholders in legal proceedings, however, the formalistic requirement of a personally signed power of attorney was not met, and thus, the authorisation granted by the bondholders in the Agreement did not constitute a proxy for appearing in court (Sw. rättegångsfullmakt). Furthermore, the District Court noted that a legal entity cannot be an authorised representative in the front of court (Sw. rättegångsombud).

In other Nordic countries there seems to be a consensus as to the agent’s right to represent bondholders in front of the court. In Denmark and Finland, the issue has been addressed in law by regulating the right of agents to represent bondholders. In 2017 Denmark introduced a new provision in Chapter 4 of the Danish Capital Markets Act making it possible for the agent to represent the bondholders before the court if such representation is regulated in the agreement between the parties. In Finland, this is regulated by the Act on Representatives of Bondholders (574/2017, Laki joukkolainanhaltijoiden edustajasta). The Act provides, inter alia, in Chapter 2, section 7, that a representative is entitled to bring an action on behalf of the bondholder against the issuer or a third party in matters relating to the bond and to bring an action in legal proceedings relating to the bond without special authorisation from the bondholders. In Norway, the issue has been before the Supreme Court twice and has been the subject of a bill.** According to Norwegian practice, the agent is authorised to represent the bondholders before the court by contract and any no-action clauses are also valid between the parties.

Swedish regulation currently lacks explicit provisions to enable an agent to represent bondholders. However, as explained above, the legal literature provides for possibility for an agent to represent the bondholders by acting as a process agent (Sw. processkommissionär). In the absence of specific regulation, an alternative would be to collect a proxy for appearing in court from each bondholder. This would, however, be very time consuming as, unlike loans, bonds are instruments that are actively traded, and thus, the identity of the bondholders may constantly change, making the collection of proxies from each bondholder rather impractical. Therefore, further clarity on an agent’s rights in this context would be welcomed.

* Ä 5580-24

** Norges Høyesterett RT 2010.402