The importance of being bound: bondholders’ vote and workouts in the U.S. and in Italy

When companies face financial distress, it may be advantageous for all parties involved to restructure bond loans and to renegotiate the deal, for example, by converting the bonds into shares. Some legal systems do not allow the majority of bondholders to vote on the proposed agreement and, by doing so, to bind the dissenting minority. Recent controversies and litigation in the U.S. have reignited the debate on the limits of this regime. This paper analyzes the drawbacks of the prohibitive approach, with particular regard to the judicial cases and the business practices of two major legal systems (the U.S. and Italy), argues that a rule that allows bondholders’ vote on out-of-court restructurings represents a much preferable option and suggests the solutions which, in the absence of such a rule, may be currently adopted.