The Introduction of Collective Action Clauses
As from 1st January 2013, in accordance with Paragraph 3 of Article 12 of the ESM Treaty, all euro zone countries shall incorporate Collective Action Clauses (CACs) in all new Euro Area government securities with maturity above one year.
The introduction of CACs in Euro Area Member states emanates from the announcement by euro area finance ministers back on 28 November 2010 which amongst a number of policy measures intended to safeguard the financial stability in the euro area, agreed on the mandatory inclusion of standardised Collective Action Clauses (CACs) in all new euro area government securities.
This commitment was later confirmed by the Heads of Government and States of euro area Member States at their meeting on 11th March 2011 and by the European Council at the summit held on 24th-25th March 2011. In this regard, a standardised and identical model of collective action clauses was developed and agreed by the Economic and Financial Committee (EFC) on 18th November 2011.
The objective of CACs will be to facilitate agreement between the sovereign and its private-sector creditors to the possible modification of euro area government debt securities that contain a standardised CAC, such that they allow a majority of bondholders to re-contract sovereign debt without a minority of stockholders obstructing the process. The standardised European model CACs
can be found on the EFC’s website. These documents have been translated in Maltese language and can be accessed hereunder.
The CACs distinguish between two (2) types of modifications in the conditions of borrowing,
(a) Reserve matter modifications and (b) non-Reserve matter modifications. Such modifications are subject to the approval of the majority of the stockholders in a bondholder meeting convened by the Issuer or by a written resolution. Appropriate quorum requirements will apply. Different thresholds apply to each type of modification (reserve and non-reserve). The most important issues (reserve matter) will be decided with a larger majority than non-reserve matters.
A reserved matter modification involves the modification of the bond’s most important terms and conditions, including the reduction in the principal or interest payable on the Stock, change in the date when the interest or redemption is due or change in the definition of a reserved matter. These modifications require the highest level of Stockholders consent of an affirmative vote of not less than 75% of the aggregate principal outstanding Stock represented at duly convened meeting or not less than 66 2/3% of the aggregate principal amount of the outstanding stock in the case of written resolution.
A non reserved matter modification, involves a modification of less important terms and conditions that does not constitute a reserved matter. These modifications shall require the affirmative vote of stockholders of more than 50% of the aggregate principal amount of the outstanding stock represented at a meeting duly convened, or of more than 50% of the aggregate principal amount of the outstanding stock in the case of written resolution.
Under the CAC, a modification may be proposed in relation to either a single bond, a so-called single-series modification, or more than one Stock at the same time, a so-called cross-series modification.
In all events, a proposed modification shall require the consent of the Issuer and if approved, shall be binding on all stockholders.
The Accountant General shall publish, without undue delay, all notices and other matters required to be published pursuant to Stockholders Meetings and Written Resolutions:
(i) on the Treasury’s website;
(ii) through the Malta Stock Exchange; and
(iii) Malta Government Gazette.
The jurisdiction of the standardised European model CACs lies within the national courts.
CACs Implementation – Malta Government Stocks
the Decision of the European Council of 24-25th March 2011;
in accordance with the Paragraph 3 of Article 12 of the ESM Treaty; and following
the legal opinion delivered by the Attorney General confirming that the CACs will be legal, valid, binding and enforceable in accordance with its terms under the laws of Malta,
The harmonised model CACs will be introduced on all new Malta Government Stocks with maturity of more than one year with effect from 1st January 2013. The CACs will be contractually included in the terms and conditions of the MGS Offering Document/Prospectus. In this regard, a new Paragraph referring to the CACs shall be added in the Prospectus summarising the information taken from the Model CACs together with a warning note informing potential investors that such summary should be read in conjunction with the full detailed text of CACs which can be accessed by clicking here
In order to ensure the necessary liquidity, the European Council agreed that Member States will still be able to tap bonds issued prior to 1st January 2013 without the CAC provisions under certain agreed conditions. Eurozone member states agreed that during 2013 they may issue up to 45% of the total central government borrowing through reopening of bonds which were outstanding as at 31st December 2012. The percentage of allowed taps falls gradually to 5% of total central government borrowing by 2023 and beyond.
28th January 2013