Indenture Trustees Have Standing to Pursue Fraudulent Transfer or Other Claims for the Benefit of Noteholders

In Cortlandt Street Recovery v. Hellas Telecommunications, S.A.R.L., 142 A.D. 3d 833 (1st Dep’t, Sept. 2016), the New York Supreme Court, Appellate Division held that an indenture trustee had standing to pursue non-contractual remedies, such as tort or other common law claims, where the recovery sought is limited to the repayment of the outstanding bonds for the benefit of all holders.

This decision from the Appellate Division reversed a finding that an indenture trustee did not have the relevant standing to pursue fraudulent transfer claims, among other claims. This Appellate Division opinion is an important development to further solidify the role of an indenture trustee as a plaintiff in an action against an issuer (or its affiliates) and third-parties by providing further guidance on the types of claims that can be asserted on behalf of bondholders.

Trial Court Decision

By way of background, Wilmington Trust Company (WTC), in its capacity as indenture trustee, commenced an action in the New York Supreme Court (Trial Court) seeking recovery of principal, interest, and fees owed under the unpaid bonds and for the fraudulent conveyance of proceeds allegedly transferred for no consideration by the issuer and guarantors to Apax Partners LLP and TPG Capital LP (Hellas’ equity owners). The defendants in the action moved for summary judgment, which the Trial Court granted, due to its finding that the fraudulent conveyance claims belonged to the bondholders, and that WTC lacked standing to bring such claims on their behalf.[1] The Trial Court also rejected WTC’s argument that it was authorized by a majority of the bondholders, pursuant to the indenture, to pursue the fraudulent conveyance claims.  

Appellate Division Decision

WTC appealed the Trial Court decision and the Appellate Division reversed the Trial Court’s dismissal of WTC’s claims for breach of contract, fraudulent conveyance, unlawful corporate distribution, and unjust enrichment.[2]

In reaching its holding, the Appellate Division reviewed Section 6.03 of the indenture, which provided that upon an Event of Default, the trustee may “pursue any available remedy to collect the payment, principal, premium, if any, and any interest” on the bonds. The Appellate Court held that this provision provides authority for WTC, as indenture trustee, to pursue the fraudulent conveyance and other claims, “which seek recovery solely on the amounts due under the notes for the benefit of all noteholders on a pro rata basis, as a remedy for an alleged injury suffered ratably by all noteholders by reason of their status as noteholders.” Id. at 507. Consequently, since WTC, as indenture trustee, sought to pursue claims that would, if successful, satisfy the outstanding principal and interest owed on the bonds, it had standing.[3] If WTC had sought additional relief (i.e., punitive damages), under the Appellate Division’s reasoning, it likely would not have had standing to recover such damages.


Over the past several years, there has been uncertainty as to the breadth of standing an indenture trustee has to bring actions on behalf of itself and holders. This decision reaffirms the notion that an indenture trustee has standing to pursue remedies and claims seeking recovery on the amounts due under an indenture on behalf of all bondholders, including fraudulent conveyance and other tort claims against third parties. Importantly, the Appellate Division distinguished the claims asserted by WTC from a scenario where claims for fraudulent misrepresentation or other claims seeking recovery for particular injuries unique to individual bondholders were sought. The bondholders, not the indenture trustee, continue to be the proper party to assert such personal claims.[4] In drafting indentures, parties should take care to precisely set out the standing of the indenture trustee. If not, the analysis set forth in Cortlandt will be applied. If the Cortlandt standard is applied, indenture trustees should only bring actions for the benefit of all holders where the injury or harm is not on behalf of a particular holder or group of holders.

[1] The Trial Court’s decision is discussed more fully in a prior alert available here

[2] The Appellate Division did not reverse the Trial Court’s decision that Cortlandt, as an bond assignee, did not having standing to sue for recovery. 

[3] The Appellate Division also preliminarily found that the indenture trustee could pursue veil-piercing claims against the defendants in control of the issuer (Hellas’ equity owners) for causing Hellas to divest itself of the note proceeds, thereby rendering it insolvent.

[4] The Appellate Division did not provide additional guidance on the related question of whether no-action clauses authorize holders to bring claims that the indenture trustee cannot bring under the terms of the indenture.


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