According to the research findings, it can, therefore, be said that as the alter ego of the bondholders, the trustee has the duty to protect the interest of the holders in all its dealings. In the exercise of its duties and functions, the trustee needs to look into matters, which may be considered as “ relevant event” which may cause prejudice to the interest of the holders. Peter Smith J. in the High Court considered the concept of “ material prejudice” in the case of Law Debenture Trust Corporation PLC v Acciona SA where an event of default allegedly had occurred. Where the trustee is called to decide whether or not an event is “ materially prejudicial” , the elements of continuing an existing action, as well as proximity, should be considered.
In other words, the trustee must see to it that the event is currently happening and that there is an imminent threat to the interest of the bondholders. Such prejudice must be real and not just merely perceived danger. Material prejudice did not necessarily mean the same thing as a material breach, as such prejudice might exist even without such a breach and even the existence of a material breach might not, on the facts, mean that the interests of the bondholders had been materially prejudiced.
The primary questions that should be asked by the trustee are that will this current event diminish the interest of value of the bonds at hand? Will the present event have negative effects on the interest of bondholders? In other words, before an action should be taken, all relevant information must be gathered and investigated by the trustee.
In any event where there is a clear showing that the answer to these questions is yes and the results of the investigation all points out to the possibility of detriment to the bondholders, then by virtue of the trust agreement which confers power on the trustee to act in behalf of the holders to promote its interest, then, the trustee must act accordingly.
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