Indenture "No-Action" Clauses Bar Independent Claims By Securityholders

Two recent cases, from the Eleventh Circuit¹ and New York,² illustrate the limitations that "no-action" clauses in indentures place on the ability of Security holders³ to enforce claims against third parties. Indentures governing debt securities almost universally contain two clauses that address the rights of Security holders to enforce claims. The first is the "no-action" clause and the second is the "non-impairment" clause.

The Clauses

A typical formulation of a "no-action clause" is: Limitation on Suits. A Security holder may pursue a remedy with respect to this Indenture or the Securities only if:

(1) the Holder gives to the Trustee notice of a continuing Event of Default;