The Enduring Legality of Exit Consents: A Realist's Guide

14 Pages Posted:  

Steven Diaz

Duke University School of Law

Stephanie Funk

Duke University School of Law

Gavin Kim

University of North Carolina School of Law

Austin Rogers

Duke University School of Law

Isabelle Sawhney

Duke University School of Law

Date Written: April 10, 2018

Abstract

Almost every proposal for Venezuela’s debt restructuring simply assumes that exit consents are a viable strategy for effectuating an orderly restructuring. Restructurers appear to take this strategy for granted as the “safe option” that has passed the test of time. However, this fundamental assumption is unwarranted. Exit consents have never been put through the crucible of litigation in the sovereign context. Furthermore, the only case law that is available on the issue comes from the corporate setting. But even in that setting, the paramount exit consent case occurred over 30 years ago, and there is a striking dearth of cases to delineate which exit consents are permissible. Moreover, even with the assistance of the available corporate cases to provide sovereigns with guidance as to which exit consents are permissible, the ambiguous litmus test of “wrongful coercion” is an intricately fact-intensive inquiry where courts have tremendous discretion. So, is this seemingly "safe option" more of a gamble than is conventionally assumed? Or are exit consents a risky mechanism that will expose restructuring agreements to costly litigation where billions of dollars are at stake?

This paper addresses this glaring issue. This paper proposes that courts look at how exit consents are used within the overall debt restructuring context. If a court perceives that the issuer is overall seeking to wreak havoc on maverick holdouts, the strategy will be invalidated for bad faith. But if the strategy is used to solve the problems inherent with exchange offers, the strategy is permissible.

Keywords: exit consents, exit amendments, legality, exchange offers, sovereign debt, debt restructuring, Venezuela

Suggested Citation

Diaz, Steven and Funk, Stephanie and Kim, Gavin and Rogers, Austin and Sawhney, Isabelle, The Enduring Legality of Exit Consents: A Realist's Guide (April 10, 2018). Available at SSRN: https://ssrn.com/abstract=

Steven Diaz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Stephanie Funk

Duke University School of Law ( email )

Durham, NC
United States

Gavin Kim

University of North Carolina School of Law ( email )

Van Hecke-Wettach Hall, 160 Ridge Road
CB #3380
Chapel Hill, NC 27599-3380
United States

Austin Rogers

Duke University School of Law ( email )

Durham, NC
United States

Isabelle Sawhney

Duke University School of Law ( email )

Durham, NC
United States

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