Unilaterally introducing CACs into bond agreements unlawful – AG’s Legal opinion

In the 9-page response, the AG further noted that Executive actions like E.I. and emergency powers may not be lawfully employed to impose CACs on bondholders

Is allowance instantly strangers applauded

In the absence of agreement by the parties, it would be unlawful for the government to unilaterally introduce CACs into bond agreements and may constitute an event of default under clause 12 of the Terms and Conditions of the Bonds issued under the programme.

The Attorney General, Godfred Yeboah Dame has indicated in an opinion by his office dated November 8 in response to a November 3 request by the Ministry of Finance on its intended debt operation.

In the 9-page response, the AG further noted that Executive actions like E.I. and emergency powers may not be lawfully employed to impose CACs on bondholders since they will operate retrospectively and may also constitute an event of default under clause 12 of the Terms and Conditions of the Bonds issued under the programme and a breach of the terms of the bond agreement.

The Ministry of Finance wrote to the AG, seeking among others the legality of a unilateral attempt by the Government to introduce CACs directly into the bond agreements.

Also the plausibility of an indirect approach by an Act of Parliament or an L.I. enacting a collective action mechanism in relation to bonds.

Furthermore, on whether under Ghanaian law, executive action can be employed to impose CACs on bondholders.

Also whether a voluntary engagement, considering the commercial contract nature of this transaction, can impose CACs on bondholders.

A collective action clause (CAC) allows a supermajority of bondholders to agree to a debt restructuring that is legally binding on all holders of the bond, including those who vote against the restructuring. Bondholders generally opposed such clauses in the 1980s and 1990s, fearing that they gave debtors too much power.

Speaking at the launch of the Government's Domestic Debt Exchange Programme on Monday, December 5, 2022, the Minister for Finance, Mr Ken Ofori-Atta indicated that the main objective is “ to invite holders of domestic debt to voluntarily exchange approximately GHS137 billion of the domestic notes and bonds of the Republic, including E.S.L.A. and Daakye bonds, for a package of new bonds to be issued by the Republic.”

The Attorney General per his opinion has additionally stated that the indirect approach of the enactment of an Act of Parliament or L.I. prescribing a collective action Mechanism in relation to bonds is plausible in so far as the proposed inclusion of a voting percentage threshold for effecting changes to the bond agreement does not interfere with any accrued rights of any party or third party beneficiaries of bond agreements.

Moreover, he believes that voluntary engagement with relevant parties to bond agreements would be able to produce the outcome of a voluntary modification and inclusion of CACs on bondholders.