Without consent of holders: Overview, definition, and example
What does "without consent of holders" mean?
"Without consent of holders" refers to a provision in contracts, particularly in securities or bond agreements, that allows certain actions or modifications to be made without requiring approval from the holders of securities or other affected parties. This clause often applies to administrative or non-material changes that do not adversely impact the rights or obligations of the holders.
For example, a bond agreement might allow the issuer to make technical amendments to the agreement, such as correcting errors, without seeking the bondholders' consent.
Why is "without consent of holders" important?
This provision is important because it streamlines decision-making and allows necessary updates or adjustments to be made efficiently, without the need for time-consuming approval processes. It is particularly useful for administrative changes, clarifications, or minor modifications that do not materially affect the rights or obligations of the holders.
For businesses, this clause reduces delays and simplifies contract administration. For holders, it ensures that their rights are not unnecessarily encumbered by changes that do not significantly impact their interests.
Understanding "without consent of holders" through an example
Imagine a company issues bonds and later discovers a typographical error in the bond agreement. The "without consent of holders" clause allows the company to correct the error without seeking approval from all bondholders, as the correction does not materially change their rights or obligations.
In another example, a trustee managing a securitization trust might make non-material adjustments to operational procedures under the agreement, such as updating contact information or procedural deadlines, without requiring consent from certificateholders. This ensures smooth administration without creating unnecessary disruptions.
An example of a "without consent of holders" clause
Here’s how a "without consent of holders" clause might appear in a contract:
“The Issuer may, without the consent of the Holders, amend or supplement this Agreement to correct typographical errors, conform to applicable law, or make any other changes that do not adversely affect the rights of the Holders in any material respect.”
Conclusion
The "without consent of holders" provision provides flexibility for administrative or minor changes, allowing parties to efficiently manage agreements without extensive approval processes. It ensures that necessary updates can be made while protecting the rights of the holders. For businesses, this clause is a practical tool to maintain efficiency and compliance, while for holders, it ensures their interests remain safeguarded against material changes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.