Research On The Responsibilities Of Bond Trustees In Dealing With Default Bonds

The issuance of bonds can directly bridge the gap between investors and financiers and improve the efficiency of financing.In recent years,the capital market has been volatile and bond defaults have been frequent,and the protection of investors’ legitimate rights and interests has become increasingly important in this context.The indenture trustee system is a powerful weapon to protect the rights and interests of bondholders,but the advantages of this system are not evident in the current development of the bond market,mainly due to its overly broad provisions and the existence of conflicts of interest.The duties of the indenture trustee arise from the provisions of laws,administrative regulations and relevant industry self-regulatory codes,but the details are subject to negotiation between the two parties to the contract,which makes it easy for mistakes to be made in practice.Due to the low demand,bond issuers take a chance when hiring a indenture trustee and do not put too much effort into agreeing on a indenture trustee management agreement,and the provisions on the duties of the indenture trustee are often copied from the law and generalised;bondholders,as the clients of the indenture trustee,cannot participate in the process of choosing their own "assistant " The indenture trustee expects to maintain the status quo of "low power,low responsibility" and not to make its job more difficult.For these reasons,the division of the indenture trustee’s functions in the indenture trustee management agreement is prone to ambiguity.This paper explores how indenture trustees should function in bond defaults and the problems,causes and improvement measures that exist in the process of doing so,based on the current situation of defaults in China’s bond market and the indenture trustee system.The paper is divided into five chapters.Chapter 1 is the introductory section,which briefly analyses the current situation of the normalisation of default in China’s bond market and points out the necessity of the existence of a indenture trustee-manager.After a review of the domestic and international literature,the disposition of defaulted bonds by indenture trustee managers is taken as the highlight of this paper.Chapter 2 firstly defines the concepts of bond default and defaulted bond disposal,and on this basis compares the common ways of defaulted bond disposal to pave the way for a smooth disposal process of defaulted bonds in the following section.The second chapter introduces an overview of indenture trustees,clarifying their specific connotations,sorting out their emergence and development process,and dividing the duties of indenture trustees into those of daily management before bond default and those of disposal of defaulted bonds after default.Chapter 3 summarises the problems of unclear processes,inactive performance,significant conflicts of interest and lack of protection in the performance of the duties of indenture trustees in China in disposing of defaulted bonds through case studies,and analyses the causes of these problems.Chapter 4 examines the overseas indenture trustee system,taking the United States and Japan as representatives,focusing on the regulations on conflict of interest and the discretionary power of indenture trustees in the United States and Japan.Chapter 5 addresses the problems of the indenture trustee-manager in the process of default disposal in China: summarising and sorting out some of the duties of the indenture trustee-manager and integrating the process of performing its duties in the process of disposal of defaulted bonds;accommodating conflicts of interest while imposing constraints;clarifying the fiduciary nature of the indenture trustee-manager;balancing the rights and obligations of the indenture trustee-manager;increasing performance guarantee measures and incentives;and improving the indenture trustee-manager system.The responsibilities of indenture trustees have been refined by clarifying the fiduciary nature of indenture trustees,balancing the rights and obligations of indenture trustees,adding safeguards and incentives for performance,and improving the payment of indenture trustee fees.