Why Elektrim may be welcome news for trustees

Author: | Published: 1 Jun 2005

The opinion of the UK's highest court of appeal in the Elektrim litigation may bring welcome clarification of the responsibility and liability of bond trustees when accelerating debt.

The case came to the UK courts because Law Debenture Trust, acting as trustee on €510 million ($643 million) of Polish telecoms company Elektrim's bonds, declined to accelerate the bonds at the request of the bondholder unless indemnified by the bondholders against potential losses if the acceleration was deemed to be invalid.

The litigation began in the High Court, which determined that an event of default that was materially prejudicial to the bondholders had occurred. Elektrim claimed that acceleration under its bonds would result in a significant loss to the company (which the High Court quantified as perhaps being in excess of €800 million). Law Debenture feared that it could be liable for this amount and, being entitled under the conditions...