The Voting Prohibition in Bond Workouts

49 Pages Posted: 13 Jun 2014 Last revised: 2 Apr 2016

Date Written: April 1, 1987


The Trust Indenture Act prohibits a binding vote of bondholders to change any core term-principal amount, interest rate, or maturity date-of a bond issue. In this Article, I show how the prohibition on a collective action clause inhibits a troubled company's ability to reorganize outside of bankruptcy. Moreover, the prohibition — a carryover of 1930s thinking — fails to implement satisfactorily the underlying original goals of individualized bondholder choice and bondholder protection. The bar on bond issue majority vote, collective action clauses should be repealed.

Keywords: bankruptcy, restructuring, Trust Indenture Act, collective action clauses, rent-seeking, creditors’ bargain, reorganization, exit consents, creditor coercion

JEL Classification: G18, G30, G34, G38, J52, K11, K12, K22, L21, L62

Suggested Citation

Roe, Mark J., The Voting Prohibition in Bond Workouts (April 1, 1987). Yale Law Journal, Vol. 97, pp. 232-279, 1987, Available at SSRN:

Mark J. Roe (Contact Author)

Harvard Law School ( email )

Griswold 502
Cambridge, MA 02138
United States
617-495-8099 (Phone)
617-495-4299 (Fax)

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