Who is the noteholder? Another update …

Introduction

In recent years, courts in several jurisdictions have grappled with the thorny question of who can enforce rights under globally cleared bonds.

In the Eurobond market, these instruments are typically represented by a permanent global certificate held by a common depositary and traded through clearing systems, with ultimate investors holding through chains of intermediaries.

Under English law, the “no look through” principle means that an investor cannot bypass the chain of intermediaries to enforce rights directly against the issuer. Instead, each investor’s legal rights exist only against its immediate intermediary in the holding chain. Unless the bond documents expressly grant direct rights (such as through a deed of covenant or an option to exchange into definitive notes) the investor has no claim against the issuer. Rather, enforcement must proceed through the registered holder or the trustee.

This rule promotes certainty but limits recourse for ultimate investors who bear the economic risk. Clearing system procedures do not ordinarily alter that position unless they are expressly incorporated or mirrored in the primary documents.

Offshore developments

In offshore jurisdictions such as Cayman and Hong Kong, courts have generally applied the no look-through principle strictly.

In Re Shinsun Holdings (Group) Co., Ltd ¹, the Cayman court decided that ultimate investors did not have the right to file a winding-up petition as contingent creditors because they lacked a direct contractual relationship with the issuer and had not converted their interests into definitive notes. The Cayman court also clarified that cases involving voting on schemes were not relevant to this situation, as they dealt with a different legal context. ²

Hong Kong also applies the no look‑through principle strictly:

In Re Leading Holdings Group Ltd ³, the Hong Kong court confirmed that a beneficial owner lacked standing to petition for winding up. Without definitive notes or an express contractual nexus, enforcement rights rested exclusively with the trustee or registered holder. The Hong Kong court emphasised that the global note structure is designed for the class of noteholders to act through the trustee “as an exclusive channel” and rejected arguments that the investor was a contingent creditor absent any “existing contractual relationship” with the issuer. It declined to rely on English scheme cases about voting as they were “a far cry” from standing to present a winding‑up petition. As the Hong Kong court put it, unless and until definitive notes are issued, “P plainly has no existing contractual relationship with the Company, and it has no directly enforceable rights against the same … It follows that P does not have standing to commence the Petition against the Company.” ⁴
Similarly, in Bank of New York Mellon v XJ International Holdings Co Ltd, the Hong Kong Court of Appeal clarified that the term “holder” in the context of a registered global note refers specifically to the registered nominee, and not to the depositary or agent who physically holds the certificate. When interpreting a modified redemption provision in the global certificate, the Hong Kong court found it was at least reasonably arguable that only the registered nominee could issue a valid put notice. Instructions sent through Euroclear, Clearstream, or the principal agent were not sufficient. The relevant clause required “the holder of this Global Certificate” to give notice to the principal agent and present the certificate for endorsement. The Hong Kong court interpreted “holder” according to the definitions in the trust deed and conditions, concluding that it referred specifically to the registered nominee, rather than the depositary or agent who physically possessed the certificate. The judgment highlighted the important distinction between bearer notes (where physical possession determines rights) and registered notes (where legal ownership is established by registration). In this case, the Hong Kong court confirmed that “holder” meant the registered owner as defined in the bond documentation. As there was no evidence that the nominee had given the requisite notice, a bona fide dispute on the debt arose, the upshot being a procedural impasse rather than a decision on the merits of the case.

By contrast, the BVI court in Cithara Global Multi‑Strategy SPC v Haimen Zhongnan Investment Development (International) Co Ltd 5 took a different approach. The BVI court found that Euroclear procedures were incorporated by reference into the New York law indenture, relying on specific language in the documents (including section 2.6 and the offering materials) that directed participants to act through the clearing systems. Combined with the BVI’s contingent‑creditor doctrine (which was influenced by the English case of Re Nortel ⁶), this led the court to accept that the beneficial owners had standing to bring a winding-up petition. Put differently, the BVI court treated the Euroclear rulebook as part of the contractual agreement. The judge characterised the question of standing as involving both New York and BVI law and, drawing on Re Nortel, noted that “contract is not the only basis on which contingent obligations may arise.”

In a different vein, in Hong Kong, the case of China Ping An Insurance Overseas (Holdings) Ltd v Luck Gain Ltd ⁷ offered investors a practical solution. The Hong Kong court granted specific performance of a covenant in the subscription agreement requiring the issuer to exchange the global certificate for definitive notes in the investor’s name. This approach was consistent with the no look‑through principle as it created a direct contractual relationship with the issuer only after the exchange. The court emphasised that this avoided “duplicity of actions” and that the subscription agreement and bond terms operated in parallel rather than in conflict. By taking this approach, the court upheld the integrity of the market’s established processes while ensuring that investors had a straightforward and practical means of enforcing their rights.

New York: a potential avenue for investors

Two recent decisions from the New York Supreme Court (BFAM Asian Opportunities Master Fund, LP v Glory Health Industry Ltd (March 2024) and BFAM Asian Opportunities Master Fund, LP v Zhongrong International Resources Co, Ltd (July 2024)) allowed claims brought by beneficial owners to proceed at an early stage. In both cases, the issuers argued that only the trustee or registered holder could sue under the New York law indenture and asked the court to dismiss the claims. The New York court declined, making clear that the existence of an indenture trustee did not automatically prevent beneficial owners from pursuing their claims.

In Glory Health, the New York court accepted that, on the documents before it, the indenture and the offering materials directed market participants to act through Euroclear and that Euroclear’s operating rules and related authorisation letters could, if proven, allow beneficial owners to “step into the shoes” of a holder for enforcement purposes. The New York court therefore denied the issuer’s motion to dismiss for lack of standing.

In Zhongrong, the New York court reached a similar conclusion. Although the global note was registered in the name of a depository nominee, the New York court held that the beneficial owners’ standing arguments based on Euroclear procedures were sufficient for it to grant summary judgment on the claim.

It is important to note that these decisions are limited in scope. They do not establish a general rule that all beneficial owners can sue in New York. They are early decisions whose outcomes depended on the specific language of the bond documents and whether clearing‑system procedures were incorporated or reflected in the primary documents. The presence of an indenture trustee did not, by itself, bar the claims at this preliminary stage. However, if the bond documents define “Holder” strictly as the registered holder and do not include Euroclear procedures, New York courts may still find that beneficial owners lack standing to sue. On the other hand, if the documentation specifically supports the rights of beneficial owners (for example, by incorporating Euroclear procedures), New York courts may permit those claims to move forward to trial.

England: principle intact, with a narrow exception

Back in England, in Caxton International Ltd v Essity Aktiebolag (Publ) ⁸, the High Court refused to set aside permission for service out in a claim by ultimate beneficial owners seeking declarations on events of default and acceleration. The English court’s reasoning focused on whether the claimants had a sufficient and legitimate interest in the declarations sought and whether those declarations would serve a useful purpose.

Set against the English “no look-through” principle, Caxton is best seen as an exception that illustrates its limits. Under English law, enforcement rights ordinarily vest in the registered holder or, in trust structures, the trustee (unless the documents expressly confer direct rights on investors or require exchange into definitive notes). Caxton does not undermine that rule; it underscores that any ability for beneficial owners to act directly depends on the drafting and structuring of the bond documents. Had the bonds been constituted under a conventional English-law trust deed, the trustee would have been the sole legal creditor, controlling acceleration and enforcement, save for any express carve-outs or post-exchange rights.

Key implications

The practical point is straightforward. Under a standard English‑law trust structure, the trustee is the legal creditor and the hub for enforcement. Ultimate investors act through the clearing systems to instruct the trustee; they have no direct claim against the issuer unless the documents clearly give them one (such as via a deed of covenant, rights arising on exchange into definitive notes, or a “direct action” provision triggered if the trustee fails to act when obliged). Courts will generally apply the documents as drafted.

Courts have shown greater willingness to recognise beneficial-owner standing where clearing-system procedures are expressly embedded in the indenture or trust deed (as seen in Cithara and in certain New York cases at the pleading stage). By contrast, where the documentation does not incorporate those mechanisms, courts have generally adhered to the orthodox position, as illustrated by Shinsun, Leading, and XJ.

Whenever considering who has standing to enforce rights under a bond issue the following checks are always advisable:

Check the documentation.
- Identify who is defined as the “Holder”
- Check whether any Euroclear/Clearstream procedures or deeds of covenant are incorporated.
- Examine the trust deed for provisions on instructions, voting thresholds, indemnities and notice mechanics (who must give notices and how).

Control the enforcement process.
- Ensure any notices, put exercises, accelerations and demands are made by the correct party.
- Do not rely solely on clearing‑system instructions unless the documents expressly provide for this.
- Trustees should always obtain the necessary instructions and satisfactory indemnities before acting.

Watch for alternative routes and forum risk.
- Be alert to side agreements (e.g., subscription agreements) that may allow exchange into definitive notes and create direct rights (as in China Ping An).
- Note that New York courts have, at the pleading stage, allowed some beneficial‑owner claims to proceed where clearing system procedures are incorporated, even if a trustee is appointed under the indenture. However, these outcomes depend on the specific facts and drafting and should not be seen as a general licence to bypass the trustee.

Key takeaways

Trustee remains the enforcement hub. Where bonds are constituted under an English‑law trust deed, the trustee is the legal creditor and controls acceleration and enforcement. Beneficial owners typically instruct the trustee through recognised systems and processes, unless the bond documents grant them direct rights.
The documents determine who can act. Courts will look to the trust deed/indenture, conditions and global certificate to decide who has enforcement rights. If Euroclear or Clearstream procedures or a deed of covenant are clearly incorporated, beneficial owners may have more room to move. Otherwise, enforcement rights usually rest with the registered holder or trustee.
There can be jurisdictional differences in approach:
- Cayman and Hong Kong apply the no look-through principle strictly. Notices must come from the registered holder or trustee.
- BVI may treat Euroclear rules as incorporated into the contract. Where the indenture refers to Euroclear procedures, BVI courts have treated those procedures as part of the bargain and recognised beneficial‑owner standing (as in Cithara).
- New York will sometimes let claims proceed - at least at an early stage. New York courts have, at the pleading stage, sometimes allowed beneficial owners’ claims to continue where clearing‑system procedures appear aligned or incorporated, even if an indenture trustee exists (e.g., Glory Health and Zhongrong). However, this depends on the specific facts and is not a blanket permission to bypass the trustee.
Alternative contractual routes exist. Side agreements (e.g., subscription agreements) can provide a path to the issue of definitive notes and direct rights against the issuer, consistent with the no look‑through principle (as seen in China Ping An).

Conclusion

Despite energetic litigation elsewhere, the English position remains stable. Trustees continue to be the focal point for enforcement where a trust structure is in place. There are important differences between forums: New York courts have been willing, at the early (pre‑trial) stage, to let beneficial owners’ claims proceed (Glory Health; Zhongrong), the BVI has treated Euroclear procedures as incorporated (Cithara), while Cayman and Hong Kong courts apply a strict no look‑through approach (Re Shinsun; Leading; XJ) with Hong Kong also allowing a specific‑performance route to definitive notes (China Ping An).

These differences increase forum and strategy risk. The safest course will therefore always be precise document drafting and strict procedural compliance. Where investors seek to bypass the trustee, outcomes will turn on whether the primary documents clearly confer direct rights or validly incorporate clearing‑system procedures. Absent that, the no‑look‑through principle will likely prevail in jurisdictions where it applies.

¹ (FSD 192 of 2022)
² For further details on this case, see our previous article: Who is the noteholder? A reprise
³ [2023] HKCFI 1770
⁴ Paragraph 16
⁵ [2023] ECSCJ No. 254
⁶ [2013] UKSC 52
⁷ [2023] HKCFI 3315
⁸ [2025] EWHC 1477 (Ch)

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