Ghana’s Attorney  General Talks About Mandatory Debt Exchange

Mr Godfred Yeboah Dame, has voiced his opinion on the legal ramifications of the government’s proposed mandatory debt exchange programme on bonds.

According to the Attorney General and Minister for Justice, it will be unlawful for the government to unilaterally introduce Collective Agreement Clauses (CAC) into bond agreements without the agreement of domestic bondholders.

Mr. Dame indicated that just like any contractual document, a bond agreement may be modified or varied at any time before or after signing the agreement, but this is subject to the terms of the agreements relating to contract modification.

Finance Minister, Ken Ofori-Atta, announced that the government intended to replace existing domestic debt with four new bonds, which would mature in 2027, 2029, 2032 and 2037, as part of the requirements for the country to qualify for a US$3 billion programme with the International Monetary Fund (IMF).

The IMF wants Ghana to get its debt on a sustainable path to qualify for support, and the minister indicated during the announcement that local bondholders would lose only interest payments, intimating, “There will be no haircut on the principals of bonds,” and added, “External-debt restructuring parameters will be presented in due course.”

But the Attorney General in a legal opinion on the legal framework for the Domestic Debt Operations sought by the Ministry of Finance, indicated that CACs are intended to allow bondholders to agree on debt restructuring even where some bondholders are against the restructuring as long as the majority agree, but added that the bond agreements in this scenario did not originally contain CACs.

“In the absence of an agreement with parties, it would be unlawful for the government to unilaterally introduce CACs into bond agreements and may constitute an event of default under Clause 12 of terms and conditions of the bond issued under the programme,” he said.

Mr. Dame also states that the indirect approach of the enactment of an Act of Parliament or Legislative Instrument prescribing a collective action in relation to the bonds is plausible in so far as the proposed inclusion of voting percentage threshold for affecting changes to bond agreements does not interfere with any accrued rights of any party or third-party beneficiaries of bond agreements.

He adds further on the Act of Parliament that it cannot operate retrospectively to impose limitations that adversely affect the personal rights and liberties of any party to a bond agreement beyond their will.

Again, the Attorney General is of the view that “Executive actions including Executive Instruments and emergency powers may not be lawfully employed to impose CACs on bondholders since they operate retrospectively and may also constitute an event of default under Clause 12 of the Terms and Conditions of the Bond issued under the programme and a breach of the terms of the bond.”

Mr. Dame concludes that the voluntary agreement with relevant parties to bond agreements would be able to produce the outcome of a voluntary modification and inclusion of CACs on bondholders.