A Renewed Need for Collective Action: The Trust Indenture Act of 1939 and Out-of-Court Restructurings
The market for corporate debt has reached $8.2 trillion, a staggering 50% increase since the financial crisis. Yet regulators, and the laws they enforce, have not kept pace. In particular, the Trust Indenture Act of 1939 is particularly anachronistic with respect to out-of-court restructurings (or workouts): If a bond issuer wants to privately restructure its obligations, it must obtain the consent of each individual bondholder. There is no simple mechanism for troubled corporate issuers to negotiate with bondholders as a class: § 316(b) bars collective action. In this Note, Harold Groendyke argues that § 316(b) frustrates workouts and pushes issuers into potentially needless bankruptcies and that Congress should finally amend § 316(b) of the Trust Indenture Act to allow for recapitalizations through collective action.